In every recession, there are opportunities. Apple has a larger cash
mountain than any of its competitors in retail, and with the right kind
of investments will come out of the recession stronger than ever.
Black Friday
The first overall US sales figures from the "Black Friday" weekend
look okay, although generally the number of customers seems to be down.
The question yet to be answered is how much the combination of heavily
discounted stock and a souring economy will cause people to hold back
buying until the last possible moment. When people know that bargains
will hang around for some time - and possibly be even better after
Christmas - why buy now?
From
analyst reports Black Friday sales were good at Apple Stores. As Apple, as
usual, limited any advertised discounts, customers will still expect to
buy from its retail stores at full price.
Focus on Value
Where Apple needs to do more is showing the value of the purchase.
For Macs, not only emphasize the free software that comes with it, but
also what you can do with that software.
Another simple campaign:
What is your old PC worth? What is a same age Mac
worth?
Find out for yourself here - look on
eBay (with simple instructions).
It is very easy to forget that the majority of people use their PCs
in a very limited way and need pointing in the right direction.
3 Major Costs
Apart from inventory, the three major costs in retail are employees,
the lease commitment, and the cost of rebuilding and fitting out the
store. Since Apple produces most of the stock and is one of the leaders
in supply chain management, that side is as under control as it ever
will be.
Apple Retail has always been able to recruit from a pool of
motivated, experienced users. This has kept down recruitment costs,
training costs, and staff turnover. The successful steady expansion and
busy stores too have helped motivate the staff, and Apple is now
recognized as one of the top retailers. Everyone wants to be part of a
success story.
What Apple should avoid, if at all possible, is widespread layoffs.
While Wall Street will undoubtedly make noises about Apple needing to
be lean and mean, given how well they have managed their own companies,
that advice can be ignored. If Apple comes through the recession
without layoffs, it will be very attractive to people wanting to make a
career in retail. This will not only cut future hiring costs but, as
these people move out into retail management elsewhere, also open wide
the retail sector for Mac sales.
The Poor Economy
The bad news and bankruptcy filings have started, even though the
Christmas quarter is typically the strongest in retail and the
recession has only just started.
Circuit City has filed for Chapter 11 and Best Buy issued a warning
of reduced profits and revenue - and that's only the electronics
sector. Mall anchor tenant Nordstrom has cut profit forecasts three
times this year. Other retailers will suffer. Some will end up going
out of business. This will both free up prime locations and reduce
their cost.
Most of Apple's leases are for 10 years. During this kind of lease,
typically there will be two rent reviews, and Apple has much more
leverage in negotiations now than when the Retail Stores started. So
wherever Apple has not locked in agreed rents long-term, it can
negotiate more favorable terms.
Shopping Mall Considerations
Apple is a destination store. Last quarter the stores had 42.7 million
visits.
If the 11 "high profile" stores attracted 20 million visits between
them, the other stores still averaged over 8,000 visits per week.
Without destination stores, malls do not function, which is why stores
like Nordstrom are at the corners - to encourage shoppers to walk
between them and impulse buy elsewhere.
"We feel Apple will bring in a customer who may not have visited us
before," said Susan Holland, University Park Village's property manager
(Fort
Worth Star-Telegram).
Most malls are financed with borrowed money. The credit crunch,
combined with failing small retailers, means fewer small retailers will
want to pay expensive mall rents. With less demand for space, the
operators will have to reduce rents. Because smaller retailers often
pay a percentage of sales to the mall owner while anchor tenants and
destination stores pay lower rents, reduced demand for small spaces can
affect mall revenue a lot.
Similarly, much of the high-end property market is funded with
borrowed money. Since most high-end retailers need aspirational middle
class customers to keep profits up, few of these retailers will want to
take on an expensive new property when a long downturn is forecast.
Apple will have much less competition for top sites, and the owners of
these properties will be much more willing to cut a deal with Apple, as
they know it can pay its bills.
So over the next 12-18 months - or until mall and property owners
accept how bad the retail market is - it will make sense to reduce
store openings to those sites where substantial commitments have
already been made and new countries where Apple wants market
intelligence.
Apple Stores Overseas
In countries, like France, with lease restrictions on what
businesses can be in the location and zoning restrictions, rules and
preferences will inevitably be relaxed. Paris, for instance, will
prefer to have Apple on the Champs Elysées drawing a crowd
instead of a store selling discount goods or an empty shuttered
one.
In the same way that the two original Apple Stores were opened in
California months before the nationwide rollout started, opening a
store or two to find out how well the standard retail model works with
local laws seems to be the pattern in Europe.
Only one Apple Store in Italy 16 months after its opening. This
after
Ron Johnson said two more would open in Milan, in March at the
annual stockholders meeting.
The first German Apple Store will open this weekend in Munich. It is
in a wealthy state, Bavaria, but one that hasn't as yet liberalized
shopping
hours. So stores like Apple must close by 8 p.m. and are closed
Sunday and for all national and state public holidays (13 in 2008).
However two are already open in Switzerland, with another under
construction in Zurich, as Apple has it's largest local market share
there.
Only in Britain, Apple's largest European market, has the expansion
been rapid, but now it is suffering from similar problems to the US,
with a cooling housing market and problems in the large financial
services industry.
In Japan, according to Apple's 10K, revenue was up year-over-year,
and there are encouraging signs of selling more Macs even though the PC
market is down and the figures don't include the seven Japanese
stores.
A Good Time to Grow
With much less available rebuilding and store fitting work, costs
will naturally be lower. The problem in this area will be giving any
specialist companies enough work at a reasonable price to keep their
teams intact. If Apple is able to do this, it will earn the loyalty of
owner managed companies.
So the costs in key areas can be reduced, but much of Apple Retail's
success in this downturn will depend on keeping visitor numbers up.
Busy stores keep up revenue. Fortunately there are low cost initiatives
which will make visitors want to come back and position Apple for
strong growth in better times. 
