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Thursday, January 05, 2012, 09:41 am PT (12:41 pm ET)

The next ten years of Apple Retail

Apple celebrated three ten year anniversaries in 2011, making this year its first full year in its second decade of Mac OS X development, iPod devices and iTunes, and its retail operations, even as the company takes on new business categories ranging from iAd to iCloud to Siri. Here's a look at where the company is headed for its next decade of retail operations.

Apple before retail

While the idea of Apple not having its own retail stores is now difficult to imagine, prior to Apple's first decade of running its own retail operations the company found itself in an increasingly dire situation. Computers had originally been sold through speciality stores like ComputerLand and independent resellers in a support relationship with Apple.

After leaving Apple to found NeXT in 1985, Steve Jobs had hoped to create a series of boutique retail stores to sell users on the advantages of higher quality, better designed computers. However, NeXT lacked the retail savvy and resources to build out a significant retail presence, and instead ended up abandoning its hardware sales in 1993 in hopes of selling its software to enterprise customers who better appreciated its value compared to Windows.

Through the 1990s computer sales in general moved to department stores and big box retailers, which offered a larger selection at lower prices but provided little assistance for customers, leaving buyers to make complex purchasing decisions largely on their own, looking at little more than a price tag and a confusing list of hardware specifications. Apple's ability to highlight the difference between its Macs and generic PCs grew tremendously narrower, particularly as retailers found they could slap together their own store brand PCs and make more money.

In 1996, Apple announced plans to reach consumers by building a chain of "cybercafes" that would feature the company's products, allowing users to surf the web and play games while drinking coffee and eating food.

Apple Cybercafe


The company partnered with Landmark Entertainment, which had been building minor theme park-like attractions including the Star Trek Experience in Las Vegas and a Jurassic Park attraction at Universal Studios. The first stores were supposed to be built by late 1997, starting with a 15,000 square foot store located in Los Angeles and expanding to London, Paris, New York, Tokyo, and Sydney, Australia.

Apple Cybercafe


A year later, Apple confirmed that it had shelved its cybercafe plans, apparently blaming Landmark for the lack of progress. Apple had registered the AppleCafe.com domain and promoted the new cybercafes as "coming soon" on its website.

While also suffering from a crisis of confidence in its operating system development efforts and its future platform strategies in general (in a world that had been taken over by Microsoft), Apple was running into the equally serious problem of not being able to bring its products to market, so that even if it could deliver something buyers wanted, it would be difficult to present its offerings and make a sale.

Apple opens an online store

After Jobs returned to Apple, the company devoted attention to its own internal retail efforts on the web itself, launching an online Apple Store in late 1997 in conjunction with a simplified new line of Macs using G3 processors. The store was built using the WebObjects server technology that Apple had acquired along with NeXT less than a year earlier. It enabled customers to build custom PowerMac configurations online for the first time.

Jobs' NeXT had previously worked with Dell to build its online retail operation, but after being acquired by Apple, Dell quickly scrambled to rid itself of WebObjects. Its chief executive Michael Dell had told a Gartner Symposium audience that summer that, were he in charge of Apple, he'd “shut it down and give the money back to the shareholders.”



In launching Apple's new online store that fall, Jobs announced Apple would instead be targeting Dell, saying, "with our new products and our new store and our new build-to-order, we're coming after you, buddy."

Apple ventures into retail

The problem with selling differentiated PCs was also affecting other PC makers, including Gateway. After first starting out with a direct sales model patterned after Dell, the company launched its own Gateway Country retail stores in the late 90s, with poor results. While Gateway rolled out lots of stores relatively quickly, in hindsight it was apparent that it had chosen poor locations that didn't have the traffic to sustain them, in addition the to fact that Gateway didn't have strong products to pull people into its stores in the first place.

Apple wanted to do retail right; it was painfully aware of its dysfunctional relationships with brick and mortar retailers, including Sears, Best Buy, Circuit City, Computer City and Office Max. Apple's Macs sat, frequently off and collecting dust, while retailers continued to promote cheap generic PC and their own assembled machines, something poorly captured in the staging of a vaguely flattering Macworld portrayal (below) of a 1992 Macintosh Performa placed next to washing machines at Sears.



Alongside its online Apple Store efforts, Apple announced a new retail program with CompUSA in late 1997 that created a "store within a store" area devoted to Apple products in each of the chain's 140 US outlets, each staffed with Mac-savvy employees who were paid by Apple. In the same press release advertising the success of its new online store, Apple took great pains to mention the importance of its retail relationship with CompUSA.

After outfitting San Francisco’s downtown CompUSA store, Apple reported that Macs sales had jumped from 15% of overall store sales to 35%. Apple also put its own employees to work in various chain retail outlets, acting to help inform customers and making sure that Macs were being displayed in working order. The company’s investment in store within a store retail with CompUSA was estimated to cost Apple between $25-75,000 each month, but it was delivering results that partnerships with other retail stores weren’t.
 
On page 2 of 3: Building a retail strategy, opening retail stores