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Breaking Monday, July 23, 2007, 07:00 am PT (10:00 am ET)

Apple flagships pull their weight, crown new king on Fifth Ave

Apple's enormous investment in high-profile retail stores continues to pay off, with its five U.S.-based flagship locations combining for 13 percent of the total revenues generated by its U.S. retail sector latest quarter.

According to people familiar with the matter, the spacious multi-floor outlets logged over $105 million of the approximate $810 million in sales generated by Apple retail stores in the United States during the company's third fiscal quarter of 2007.

Topping the list of highest-grossing locations during the quarter was Apple's subterranean outlet on Fifth Avenue in New York City, which sold over 5 Macs every hour and 1 iPod every two minutes on its way to generating a whopping $45 million in revenues. Following in a distant second was Fifth Ave's neighboring store in downtown SoHo with approximately $23 million.

On the West Coast, Apple's high-profile shops in San Francisco and Los Angeles saw more modest sales of approximately $14 million and $12 million, respectively. Both were edged slightly in the rankings by the company's Chicago flagship outfit, which ranked third amongst U.S.-based high-profile stores with sales in excess of $14 million.

Most telling is that the five high-profile stores contributed as much revenue as the next 13 best-performing stores in Apple's chain, including those that have been open from the beginning and some open less than two years.

In total, Apple operates eight high-profile stores in three countries that are intended to provide a sales point for both locals and travelers. Just as important, they are expected to project and publicize the Apple brand with their architecture and interior design. Each year, the company spends an undisclosed sum on marketing costs for the these locations, ranging up to $10 million.

According to the Apple's last annual report, leases on the high-profile stores are longer than other stores, ranging from 10 to 14 years. Lease costs are consequently higher, the company says, ranging from $4 million to $33 million per location, per year as of Sept. 2006. Construction costs for the bigger stores are also higher, ranging up to $12 million for the Fifth Avenue store. Once the stores open, their size results in higher operating costs because of increased staffing, and in the case of Fifth Avenue, its 24-hour operation.

Comparing the high-profile store revenues with the same quarter of 2006, the Fifth Avenue store had the largest percent increase, tied with the North Michigan Avenue (Chicago) store at 15 percent. At the bottom, the SoHo store's revenues declined from 2006 by about 17 percent, no doubt because the May 2006 opening of the Fifth Avenue stores siphoned off some of its business.

Apple Store Fifth Ave

Shoppers flood Apple's flagship retail store on Fifth Avenue in Manhattan this past October


The high-profile stores also contribute heavily to sales of Macs and iPods, although not in equal numbers. The five stores last quarter accounted for about 30,000 desktop and notebook computers, along with over 127,000 iPods. But each store seems to have a "personality" for sales of the two categories: Fifth Avenue sells more iPods than computers by 5:1, while The Grove (S. Calif.) sells in the ratio of about 2:1. The other three stores are somewhere in the middle of these figures.

Ranking after the high-profile stores in revenues is the oldest store in Apple's chain, Tysons Corner (Virg.), with over $9 million in sales for the third fiscal quarter of 2007. It's followed by long-open stores at Third Street Promenade (S. Calif.), The Westchester (NY) and South Coast Plaza (S. Calif.).

Despite their high revenues, the flagship stores don't excel in another category: attach rates for AppleCare, .Mac, ProCare and One to One services. The chain of U.S. stores sells AppleCare service to an average 64 percent of those who purchase a computer. But the high-profiles stores successfully push the high-margin service on just 57 percent of computer buyers, people familiar with the matter have said.

Other attach rates are similarly lower for high-profile stores: .Mac averages 27 percent at all U.S. stores, but comes in at about 20 percent at high-profile stores, while ProCare sells at 11 percent (13 percent for all stores) and One to One at 11 percent (16 percent for all stores).

Looking ahead, Apple remains committed to the extra cost of its high-profile stores, with plans for at least four more massive outlets around the world: Sydney (Australia), Glasgow (Scotland), Boston (Mass.), and one more in Manhattan (New York).

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.