Sorry, Steve: Here’s Why Apple Stores Won’t Work

BW Online | May 21, 2001 | Commentary: Sorry, Steve: Here's Why Apple Stores Won't Work:

A classic bit of punditry from BusinessWeek.
:)

Rather than unveil a Velveeta Mac, Jobs thinks he can do a better job than experienced retailers at moving the beluga. Problem is, the numbers don't add up. Given the decision to set up shop in high-rent districts in Manhattan, Boston, Chicago, and Jobs's hometown of Palo Alto, Calif., the leases for Apple's stores could cost $1.2 million a year each, says David A. Goldstein, president of researcher Channel Marketing Corp. Since PC retailing gross margins are normally 10% or less, Apple would have to sell $12 million a year per store to pay for the space. Gateway does about $8 million annually at each of its Country Stores. Then there's the cost of construction, hiring experienced staff. "I give them two years before they're turning out the lights on a very painful and expensive mistake," says Goldstein.

Harsh words. Still, Job's instinct that Apple has to take some dramatic steps is on target. In recent years, Apple has succeeded mainly by getting its 25 million-strong customer base to upgrade to pricier machines with higher margins. But only 12 million of them are due for upgrades in the next couple of years, analysts estimate. Meantime, Dell Computer Corp. and Compaq Computer Corp. have been stealing share from Apple in the key education market.

What's more, Apple's retail thrust could be one step forward, two steps back in terms of getting Macs in front of customers. Since most Mac fans already know where to buy, much of the sales from Apple's stores could come out of the hides of existing Mac dealers. That would bring its already damaged relations with partners to new lows. In early 1999, Best Buy Co. (BBY ) dropped the iMac line after refusing a Jobs edict that it stock all eight colors. Sears, Roebuck & Co. (S ) late last year dumped Apple, sources say, after concluding that sales were too hit or miss. And in recent weeks, Mac-only chains such as The Computer Store and ComputerWare have closed down, citing weak margins. Now, faced with competition from Apple, others may cut back. "When you choose to compete with your retailers, clearly that's not a comfortable situation," says CompUSA Chief Operating Officer Lawrence N. Mondry.

Indeed, rather than taking on the retailers who ought to be its partners, Apple would do better improving how it works with them. A good step would be to end the "think secret" approach that shrouds every new-product announcement. Covert operations worked beautifully when Jobs first arrived on the scene; his charismatic stage presence and Apple's eye-popping designs created priceless buzz. Now, retailers complain that the secrecy prevents them from doing advance advertising to hype sales and clear out inventory. "They are the most secretive company I've ever done business with," says one top retailer. "They should let the news leak out, to convince the world how exciting their stuff is. That's how everyone else does it." Maybe it's time Steve Jobs stopped thinking quite so differently.

Hahahaha. Gotta love it.

Technorati Tags: , ,

Post Data

Related Posts

blog comments powered by Disqus