Apple has big plans in store

Company to open 25 retail outlets to build market share

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Apple has a distinctive line of computers, a brand-new next-generation operating system, and a loyal user base. What more could a computer maker ask for?

Try more customers.

Apple’s desire to expand its customer base is the driving force behind its latest effort— a nationwide chain of Apple retail stores. The company plans to open 25 stores by year’s end, with the first two opening their doors this Saturday in McLean, Virginia, and Glendale, California.

“We’ll be opening more next year, but we’ll refine our plans based on how the first stores do,” said Apple CEO Steve Jobs during a Tuesday preview at the Virginia store.

Apple thinks its retail plans will increase its share of the overall computer market from its current level of 5 percent. “We want to convince the other 95 percent that Apple offers good products,” Jobs said. “If only 5 of 95 people in this group become Mac users, we’ll double our market share.”

Apple’s market research indicates that non-Mac users don’t even consider Apple products when they set out to buy a computer. “We’re not even in the running,” Jobs said. “We want to change that.”

To that end, Jobs want to “ambush” the 95 percent of the computing market that doesn’t own a Mac by taking his brand to them—“by locating in high-traffic gathering places, such as malls, hip streets, and the new lifestyle centers, such as coffee shops,” he added. “We’re going to put our Apple stores in top-tier locations.”

Old customers, new tricks

Of course, the stores aren’t just about attracting new customers to the Mac platform. Apple hopes to attract current Mac users as well when it’s time to purchase software or upgrade hardware. The company says 11 million of its 25 million users own G3 or G4 systems; that leaves a lot of room to sell newer models to the existing customer base.

Apple has other reasons for diving into the retail market. The company is looking to continue its promotion of the Mac as a digital hub. Jobs said the Apple stores would give people a chance to make iMovies, burn CDs, and get hands-on experience with the entire range of Mac products.

Apple also wants its stores to set a “gold standard” for how to sell products. Jobs said the Apple stores would offer ideas that other resellers could run with. And if the resellers have better ideas, Apple may incorporate those into its stores, he added.

“Our strategy isn’t to put our resellers out of business, but to work side by side with them,” Jobs said. “We think our stores will help resellers a lot by increasing exposure to the Mac platform.”

Apple sells products through 3,000 locations. The company’s projected 25 stores would represent less than 1 percent of additional locations. The company has no plans to offer “Apple store only” products.

A look inside

What will Apple stores look like ? When drawing up its retail plans, Apple put together a list of nine “success factors” required for a retail operation to flourish, Jobs said. The company used those factors in designing the stores, which will be divided into several sections to make shopping easier.

  • Products, Home and Pro: These sections will let customers explore the full selection of Macs, displays, and devices such as the AirPort base station.

  • Solutions: This area will show users how to get the most from the Mac—making desktop movies, using a digital camera to create photo albums, putting an entire music library on a Mac, and burning custom music CDs. It will also carry an assortment of third-party camcorders, cameras, MP3 players, and PDAs.

  • Genius Bar: The most knowledgeable Mac people from the local community will staff this area at all times and field questions. If they don’t know the answer, they’ll contact Apple headquarters for immediate help.

  • Theater: Customers will watch demonstrations of the Mac’s latest developments on a 10-foot-diagonal screen.

  • Software: This section will feature more than 300 Mac software titles, including an assortment of small-business, entertainment, productivity, education, graphics, and Web-design applications.

  • Etcetera: This area will include a targeted selection of key products customers need to round out their solutions—printers, scanners, tablets, cables, paper, ink, and other accessories.

A colorful past

The company’s retail history has been as colorful as the computers it makes.

Apple planned to open cybercafes in 1996 in New York, Los Angeles, and other cities across the world. But the company dropped those plans by 1997 as its fiscal fortunes took a downward turn.

Sears carried Macs at its retail outlets around the country for several years in the mid-1990s before it abandoned the platform during Apple’s 1997-98 financial difficulties. Apple CEO Steve Jobs announced at the 1999 Worldwide Developers Conference that Sears would resume selling Macs. But earlier this year, Apple and Sears announced a mutual parting of the ways.

Best Buy sold iMacs through its nationwide network of stores when Apple introduced the popular consumer computer. But when Apple expanded the iMac line to five colors, Best Buy bristled at Apple’s practice of including all five in iMac shipments. The retailer only wanted to stock up on the most popular models and feared Apple’s requirements would create inventory problems. Best Buy dropped out of the Mac business in 1999.

CompUSA launched its Apple “store-within-a-store” concept three years ago, giving Macs higher visibility at CompUSA stores. However, the company has come under frequent fire from some Mac users for its lack of service and limited inventory. Likewise, the Mac community has criticized Circuit City—another national retailer that carries Macs—for not keeping popular models in stock.

Apple has faced retail challenges outside the consumer market as well. Last year, the company moved education sales in-house, away from longtime distribution partners. But the switch occurred in the middle of the back-to-school buying period—a move many say cost Apple its spot as the leading PC retailer in the education market.

Experience counts

Nevertheless, Apple feels it has a formidable lineup in place to tackle the challenge of launching a retail operation. Executives from the Gap, Target, Sony, and other corporations are part of Apple’s team.

Gap CEO Millard Drexler joined Apple’s board of directors two years ago at the urging of Jobs. Drexler has been “very helpful” in planning Apple’s retail strategy, Jobs said. Ron Johnson, formerly vice president of merchandising at Target, is now Apple’s senior vice president of retailing. Allen Moyer, Apple’s vice president of development, came from Sony, where he was involved in retail development projects such as the Metreon Center, a high-tech entertainment and retail complex in San Francisco. Former Gap vice president of real estate George Blankenship now holds a similar position with Apple.

“We’ve seen a lot of smart people try their hand at retail and get their head handed to them,” Jobs said. “We don’t want to be one of them, so we’ve surrounded ourselves with experienced people.”

Another challenge facing Apple is hiring talented people to work in its stores. Johnson said the company wants employees “who have Apple and the Mac in their bones.” For example, the least experienced employee in the first two Apple stores has been using Macs since before the iMac’s 1998 debut.

“We want people who have a sincere service orientation,” Johnson added. “We want them to be ‘people people’ first, more so than ‘tech people.’ And we want them to be people with interesting hobbies, such as photography or music buffs.”

Johnson said Apple also wanted to have teachers and educators working in the store, at least on a part-time basis. The retail stores will play a key role in Apple’s renewed focus on education. The company is looking at ways to let schools use the stores and their giant presentation screens.

Breaking even?

Apple’s stores will be an expensive undertaking, even for a company with $4 billion in cash on its balance sheet. Still, Apple expects the stores to break even by the end of the holiday shopping season and show a slight profit next year, Chief Financial Officer Fred Anderson said. Apple has already included the capital investment of the stores in the guidance it gives Wall Street analysts, so there’s little chance the store openings will hurt earnings projections.

The company declined to project sales figures for its stores.

To promote the stores, Apple has taken out an ad in several national newspapers, outlining its retail plans. The ad’s slogan—“5 down, 95 to go”—alludes to the company’s plans to expand its market share.

Jim Dalrymple  and Philip Michaels contributed to this report.

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