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Fate of Apple mini stores hangs in the balance

Apple's retail plans are becoming clearer now that 2005 has slipped into March, including the future of the company's mini-store concept introduced just last October.

Apple doesn't comment on future stores, but at least 47 locations have been identified so far from Apple's Web site, news reports, tipsters and other sources. They include stores in brand new regions, as well as additional stores in existing regions and one new country—Canada.

Apple CFO Peter Oppenheimer has said Apple will have 125 stores open by the end of September, but based on job openings on Apple's Web site, that appears to be a conservative number. At least 25 locations have appeared on Apple's job listings page, signaling that those stores will open within the next six to seven months. That would give Apple at least 127 stores by the end of September, with three additional months of 2005 to open even more stores before the holiday shopping season. Based on Apple's average grand opening rate, the year could end with over 132 stores.

Apple's international plans also appear to be aggressive—Oppenheimer said 10 stores will be open in other countries by Sept. 30th, but only mentioned Japan, the United Kingdom and Canada as locations. Apple has acknowledged two future stores in the UK (Birmingham and Kent), and one each in Japan and Canada, leaving two additional locations among the three countries to be confirmed. It's believed that Kyoto and Umeda (Osaka) will be the next Japan stores, and that Manchester (UK) will also sprout a retail store. Beyond that, Paris is a firm future location, and Sydney (Australia) seem close behind.

As for the mini-stores that Apple introduced in Oct. 2004, no future stores are in the pipeline, apparently due to dissatisfaction among Apple executives with the design and materials. The stores' stainless steel siding is expensive to manufacture and import from Japan. The epoxy flooring, which replaced the original carpeting just before the stores debuted, has suffered through two rounds of structural problems, expensive repairs and replacements. The custom-built point-of-sale terminals, intended to allow customers to process their own credit card purchases, have never operated as designed.

Even the lighting at the mini-stores is an issue: the one-piece, back-lit ceiling is tough on the eyes, especially for employees who spend eight hours beneath the glow. And no matter where customers stroll in the store, they find themselves zapped in the eyes by the wall-mounted, point-of-sale laser barcode scanners.

At the same time, the stores are only marginally less expensive to operate than a 3,000 s.f. retail store. At least two of the five existing mini-stores occupy full-size mall spaces, but use the excess space for storage and not sales floor space. The stores are not located in bargain basement locations either, but rather in Apple's typical high-end malls. Both factors mean that the savings from operating a mini-store is only marginal.

So when mini-stores begin opening once again, expect to see some design changes, and perhaps even retro-fits for the existing stores.

Apple's retail plans are no doubt affected by the current computer retail scene: Gateway has closed down all of its 297 retail stores, and Dell is limited to kiosks in the courtyards of malls. Big guns IBM and H-P have no retail presence of their own, but rely on authorized resellers.

That lack of retail competition seems to give Apple a wide-open field. And supported by six straight quarters of profits, Apple's Retail segment seems to be on track for continued, if patient, expansion of its retail stores.

Gary Allen is the creator and author of ifo Apple Store, which provides close watch of Apple's retail initiative. When Gary isn't busy publishing news and information on Apple's latest retail stores, he finds himself hanging out at one.