Apple branches out in Chicago: Michigan Avenue store is largest location to date

DSN Retailing Today, July 7, 2003 by Laura Heller

CHICAGO - Apple unveiled its newest and largest retail store to date late last month as the company continues its drive to increase market share and lure new customers. And even on prestigious Michigan Avenue, in the heart of the city's priciest shopping district, Apple didn't fail to make an impression.

With curious consumers craning their necks, unsure of what to look at first, Ron Johnson, senior vp of Apple's retail division, took reporters on a tour of the first Apple store designed and built from the ground up. The three-story, 24,000-square-foot facility is the largest in the chain and the company's 59th unit opened in the past two years. "We tried to make the most significant improvements we could at this store," said Johnson.

Improvements include a first floor divided into four zones, each profiling a particular area of use, such as music, movies, digital imaging and peripherals from third-party manufacturers.

Every product Apple makes is on display and for sale at the store.

Up a glass staircase under a skylight in the center of the building, is the company's software department, a theater for presentations and classes and the first Internet cafe complete with video capabilities. An expanded Genius Bar staffed with Apple experts is now large enough to host classes, while 40-inch LCD displays mounted above allow customers to follow along with visual demonstrations.

Another new addition to Apple's retail strategy lies another story up: the Apple studio, where the store plans to hold monthly classes including a four-week, eight-hour program about digital imaging and a two-week, four-hour course on digital music. Unlike the other services offered, these courses will not be free. Four-week programs will run $99, and the two-week course is $49. According to Johnson, 326 events are scheduled during the store's first 30 days of operation--311 of which are free to customers, including a summer camp program for kids of Apple customers, a weeklong course complete with a graduation ceremony at the end.

But Apple didn't build this store on a how-to basis, but to sell products and expand market share, which has hovered around 5% since the retail endeavor began. "More than half of Apple's retail customers are new to the brand," said Johnson. "And most of our sales are incremental."

While Apple has been gaining share with consumers, it has been losing market share in the professional and educational markets and is looking to the consumer channel to build its business, largely through this retail strategy rather than expanding into existing mass market retail chains. In fact, the company ended a merchandising program with Circuit City approximately six months ago, and though Best Buy carries the popular mp3-playing iPod, no other Apple products are available at the nation's largest specialty retailer.

"The only way we can grow is to put our stores where the people are, and we're the ones who need to make that investment," he said. "These are not brand-building exercises. Our goal is to generate a profit--these stores will make money."

Apple's retail segment reported a loss of $22 million in FY02, ended Sept. 28, 2002, and a $4 million loss for the first half of 2003. But Apple continues to pursue this strategy aggressively and plans to open approximately 18 additional units in the next year. The company already has invested nearly $230 million in the division, and financial statements filed with the Securities and Exchange Commission make reference to the significant expenses that would be accrued should Apple abandon the strategy due to lease agreements and fixed costs.

"We're really new at this retail business," said Johnson, optimistic that the strategy is paying off. "It takes time to win customers."