2011 marks Apple's tenth anniversary of Mac OS X, iPod, Apple Retail
Apple's ability to sell both Mac OS X and the iPod were tied to a third development that turns ten years old this year: Apple Retail. Throughout the 90s, Apple experienced a significant disadvantage in trying to sell its premium computers through retailers who could far more easily push cheap PC systems that relied exclusively upon price to clinch the sale. Many retailers were also able to make more money assembling their own house brand PCs, and could make even more money selling service and support for them.
Early computers had been sold through specialty stores with knowledgeable sales reps, but as computers went mass market in the early and mid 90s, big box retailers and department stores took over much of the volume of computer sales, leaving customers to make complex purchasing decisions largely on their own, looking at little more than a price tag and a confusing list of hardware specifications.
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.
Apple experienced the same set of problems as NeXT in trying to sell buyers a more sophisticated product with advantages that were not always readily apparent in simplistic feature checklists or hardware specification lists. Neither company could rely upon third parties to sell their products for them; they both needed a retail presence to compete against generic PCs.
Apple's retail aspirations
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.
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.
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.
Jobs targets Dell via the web
In place of the cybercafe partnership, Apple devoted its 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."
An ambitious project
Apple was also 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. Alongside its online 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.
Less than two years later, Jobs recruited Millard 'Mickey' Drexler, CEO of the Gap and later J. Crew, to Apple's board, as Apple began work to assemble its own team of retail, development, and real estate experts pursuant to building out its own retail stores. Apple subsequently hired Ron Johnson, a vice president of merchandising at Target, as its senior vice president of retail operations; George Blankenship from the Gap as its vice president of real estate; Kathie Calcidise as its vice president of retail operations; and Sonys Allen Moyer as its vice president of development.
Between 1997 and 2000, Apple slashed the number of third party retail outlets that were selling Macs from 20,000 to 11,000. In 1998, Apple's chief of operations Tim Cook explained that the company needed to cut some channel partners that may not be providing the buying experience [Apple expects]. We're not happy with everybody."
Facing the dotcom crash and the economic downturn that affected most retailers in 2000, Apple decided to pulled its products out of Sears, Best Buy, Circuit City, Computer City and Office Max entirely to focus all of its retail efforts with its CompUSA "stores with a store." Apple later returned to Sears, only to pull out again in 2001. Apple also ended its shaky retail partnership with Circuit City in 2001.
Apple opens stores
In May of 2001, Apple began opening its first retail stores, rejecting the trend toward efficient big box retail and instead working with architects and interior designers to craft smaller boutique stores featuring flourishes including hardwood floors, glass stairways, presentation theaters and a Genius Bar providing technical support. The new stores also featured lots of usable Macs and iPods customers could try out in the store.
Apple's success in retail wasn't universally anticipated. The May 2001 MacWorld article "Apple Stores: Sale of the Century?" quoted consultant David Goldstein of Channel Marketing Corp. as saying of Apple, "it makes absolutely no sense whatsoever for them to open retail stores."
Goldstein complained that Apple's retail strategy wasn't going to work because consumers 'haven't indicated that they're having trouble finding outlets that sell Macs,' stating that "It's another case of Apple being Jobs driven and not consumer driven."
Goldstein also wrote his own article entitled, "Sorry, Steve: Here's Why Apple Stores Won't Work," where he said, "I give them two years before they're turning out the lights on a very painful and expensive mistake."
Apple was entering retail just as Gateway was abandoning its failed efforts to transition from a mail-order company to a retail chain. The most successful PC makers were Dell and HP, both of which relied up on third party retailers and direct sales, rather than trying to sell their products in their own stores. Goldstein's criticism of Apple's retail efforts were not unique.
Apple's stores also generated some controversy by shifting the company's attention from its old dealer network to the new retail operations that Apple maintained full control over and could change at will in reaction to what worked and what didn't.
Key to Apple's survival
The company's retail operations rapidly expanded, with 27 opening in 2001, followed by another 23 in 2002, and 22 more in 2003 when Apple expanded beyond the US to open its first stores in Japan. New international stores in the UK were among the 27 spots to open in 2004. Another 34 stores opened in 2005, including the first in Canada. Another 34 opened in 2006, 33 in 2007 expanded Apple's reach to Italy, while 46 opened in 2008, including the first in Germany, Switzerland, China and Australia. New stores in France were among the the 51 opened in 2009 and 39 more in 2010 expanded Apple's retail presence to Spain.
There are now 332 Apple Retail stores, including flagship location in Boston, New York City, Chicago, San Francisco, Tokyo, Osaka, London, Sydney, Perth, Montreal, Munich, Zurich, Paris, Beijing, Glasgow, Honolulu and Shanghai. Rather than just being an expensive way for Apple to reach consumers, the company's retail stores have earned top profits far higher than competing retail stores of any kind.
Apple's retail operations didn't just help keep the company afloat as a source of revenue either. They also served as a distributed convention center, allowing Apple to host events and launch products. Apple cited its retail store traffic as the reason it pulled out of Macworld Expo, and in 2007 Jobs told a Forbes journalist, "Our stores were conceived and built for this moment in time - to roll out iPhone."
Without highly trafficked retail stores in prime shopping locations, Apple would have found it far harder to ship impressive volumes of iPods every winter, or draw highly publicized launch crowds as it did with the last four generations of iPhone and with the iPad. It would also not have seen the sharp uptick in quarterly Mac sales, which have jumped from 659,000 in the first quarter of 2001 to 3.89 million in the company's last reported quarter.
Along with those new Macs, Apple sold over 9 million iPods, more than 14 million iPhones, and 4.2 million iPads. Even the new Apple TV has launched to sales of more than a million in its first quarter. Ten years ago, none of those other products even existed, but today they account for more than 30 million units per quarter for a company that a decade ago was struggling to sell less than a million per quarter.