Apple embraces retail concept in effort to build market share - Apple Computer - Brief Article - Statistical Data Included

DSN Retailing Today, June 4, 2001 by Molly Prior

MCLEAN, VA. -- For years Apple has been asking its customers to think different, now the company is asking both Apple and Windows PC customers to shop different. Since the company's inception, 25 million customers have embraced the Apple mantra: the rough equivalent to a 5% market share in personal computers. But that's not enough, said Steven Jobs, co-founder and chairman of Apple Computer.

At an Apple press conference May 15 in McLean, Va., Jobs said Apple will aggressively go after the other 95% by opening retail stores right in their neighborhoods. The following day, Apple took out one-page ads in newspapers across the country declaring its new manifesto publicly, "5 down. 95 to go."

To bolster market share growth, Apple will open 25 retail stores along trendy streets and in heavily trafficked malls across the United States in 2001. The first two stores, located at the Tysons Corner mall in McLean, Va., and the Glendale Galleria in Glendale, Calif., opened their doors on May 19.

The Shop Different campaign may be a clear message to Jobs' nemesis Michael Dell of Dell Computer, who is credited with shaping how people buy.

Andrew Heller, a former IBM computer deigner told The New York Times Jobs' success has been in determining what people want to buy. The retail stores will require both talents.

The minimalistic-looking stores, with glass storefronts, blond pine floors and white walls, showcase the entire Apple product line, as well as third-party offerings such as digital cameras, camcorders, handhelds, MP3s and a slew of software titles. Of the stores' 500 skus, software titles account for 60% of the mix.

The stores seek to position Apple as the center of a customer's digital world, or as Jobs nicknamed it "the digital hub." The stores, organized by four solution zones--music, movie, photo and kids', do a good job of showing customers how to use their digital toys with Apple applications. For example, a customer can stroll over to the music zone featuring Apple's iTines software and learn how to burn a CD of party tunes or download music to their MP3-player. Consumer research shows more than half of Apple PowerBook owners also own digital devices such as digital cameras and handhelds. Jobs said Apple is way ahead of the PC market in catering to early adopters.

Given the current retail en0vironment, Apple's new store-based strategy begs the question, what does Apple know that most retailers don't know? The slowdown in the PC market has forced Gateway to scale back on its existing Gateway Country Stores. The company had planned to open 90 new locations this year, but is now expected to close underperforming stores.

Apple has been thinking about this for the last two years and has decided the strategy makes sense regardless of the retail climate or troubled economy, said Andrew Scott, research associate, Needham & Company Inc. He added the buying experience at big-box retail outlets leaves a lot to be desired. Scott believes the stores will solve two problems for Apple, namely poor customer service at its 3,000 resellers and a lack of understanding about Apple products and applications. He added Apple is smart to focus on solution areas, "They give consumers an opportunity to learn how simple these applications really are."

Senior vp of retail, Ron Johnson, recruited from Target Corp., said Apple will convert browsers to sellers by "inspiring them to do something they didn't know how to do before." Therefore, retail strategy binges on knowledgeable sales associates. Johnson said Apple seeks to recruit associates who have "Mac in their bones" as well as an interesting hobby like photography or Web design.

"There are 25 million Mac customers out there; we need one out of 1000 to come work for us," said Johnson. Both Jobs and Johnson said they also want teachers working in the stores. When asked how Apple will attract and retain qualified associates Johnson said, "We will pay them well, but at a level where we can generate a profit."

While Apple would not disclose whether the associates are commissioned, Johnson stressed the company has chosen a service culture over a sales culture. Scott is confident Apple's brand and cult-like following will be enough to help the stores attract overqualified associates at a reasonable retail salary. "In the metropolises it's targeting, I think Apple will be able to get associates excited to spread the gospel."

Despite the hoopla surrounding the new apple stores, Jobs allowed, "Retailing is really hard." He said Apple has approached retailing in a humble way by bringing in retailing experts. The most noticeable of is Micky Drexler, ceo of Gap Inc. Drexler, who now sits on Apple's board, suggested Apple build a prototype store in a warehouse to ensure the store design fit Apple customers, so it did.

In an attempt to delight customers, Apple has added extras to its stores such as theater in the back of the store complete with a 10-ft. diagonal-rear projector screen driven by a nearby Mac.

To ensure exceptional customer service, each Apple store features a Genius Bar staffed at all times by a Mac Genius ready to service computers right there on the spot, or to answer any questions associates cannot. Should a question elude the genius he can reach behind him, pick up the red phone, and put in a call to Apple headquarters.