Apple Computer's plan to open 25 U.S. retail stores this year is drawing guarded optimism from Apple VARs, who applaud the Cupertino, Calif., vendor's move to hoist market share but remain uncertain about its long-term strategy.
Resellers say Apple owned and operated stores don't pose a direct competitive challenge and should boost the overall visibility of the Macintosh platform. But a business conflict with the channel could arise if later on Apple were to position its retail operation as a destination for service and support, they say.
"As long as Apple doesn't do things to take away our core profit centers of service, I don't see the retail stores as being a big threat," says John Eaton, president of Eaton & Associates, a San Francisco-based Apple specialist. "And the stores could actually help us, to the extent that they increase Apple's market share and that Apple may partner with [VARs] to do service."
Sonny Tohan, vice president-owner of Mac Business Solutions (MBS), Gaithersburg, Md., says the Apple stores could act as showrooms for resellers, giving customers another outlet for sampling Mac hardware and software before they proceed with a purchase.
"If all [Apple is] doing is opening these company stores to showcase their products and have knowledgeable staff to talk about them, then they're doing something they should have done a while ago," Tohan says. "The big picture for Apple isn't what short-term gain they can get from these stores. It's how they can increase their user base--that is, how many people they can bring over from the PC side and how many people who haven't bought a Mac in seven years they can get to buy a new one.
"The people that are buying Macs from [retailers like] CompUSA and Micro Center are going to go to the Apple store," he adds. "The people that are buying Macs from Apple specialists may go to the Apple stores to see the machines and maybe even ask a question, but I think they'll still buy from us."
VARs note that the Apple stores are targeted at consumers, and they agree that it would be a tall order for the computer maker to sell business solutions through storefronts.
"A lot of resellers are nervous about the stores, but we basically deal with corporate customers in a one-on-one personal relationship. So it's not in direct competition with us," says Peter Mormoris, owner of Alliance Computer Systems, Wantagh, N.Y. "Selling solutions requires more than just Apple. They'd have to get involved in a whole other end of the business."
"I think we do a better job than Apple at service and support, and Apple is not going to be able to provide network integration, ongoing troubleshooting of third-party software and other services," Eaton says.
The first two Apple stores are scheduled to open May 19 at upscale malls: Tyson's Corner Center in McLean, Va., and the Glendale Galleria in Glendale, Calif. By year-end, stores also are slated to open at high-end shopping destinations in Bloomington, Minn.; Chicago and Schaumburg, Ill.; New York City; San Jose, Palo Alto, Newport Beach and Costa Mesa, Calif.; and Littleton, Colo., among other locations.
"The reason behind it is very simple: growth," Apple CEO Steve Jobs said last week in a press conference. "Apple has about a 5 percent market share today, if you count our education, consumer and pro sales. You might say, 'Well, that's not a lot.' Well, it turns out, that's not too bad. It's actually larger than both BMW's and Mercedes-Benz's share of the auto market today.
"But the challenging news is the following: Based on our market research, most of the other 95 percent [of non-Mac computer users] don't even consider us before they go out and buy a PC," Jobs said. "We want to capture some of that other 95 percent for growth."
The Apple stores will carry inventory for Mac hardware and software plus third-party products, including more than 300 third-party software titles, six digital cameras, six digital camcorders, six MP3 players and six personal organizers. With a sleek design geared toward interactive displays and customer service, the stores are organized into sections, including product areas for "home" and "pro" users; a software area featuring small-business, entertainment, productivity, education, graphics and Web design applications; a section called Etc., offering peripherals such as printers and scanners plus accessories; a theater for demonstrations of Apple technology; and a "solutions" area designed to help customers pick products for making desktop movies, downloading audio to create music CDs and libraries, posting digital images onto Web sites and other tasks.
"We believe the PC is evolving into the center of our digital lifestyle," Jobs said. "So rather than just being stand-alone computers, [PCs] are being used as the center for a variety of portable digital devices. So it's not just the hardware anymore. It's also the operating system, the applications and portable digital devices--all combining to create solutions."
Apple's stores also will feature a "genius bar," where Mac specialists will be available to answer customers' questions and make product recommendations. The specialists also can refer customers to Apple VARs if they need additional support and services.
"Our 25 stores will represent less than 1 percent additional locations--[i.e.] less than 1 percent of the locations we sell through today," Jobs said. "Our strategy is not to put our resellers out of business. Our strategy is to work side by side with our resellers. And we think our stores will actually help some of our resellers a lot."
Still, Apple resellers say they can't be sure about the vendor's long-term objectives. MBS' Tohan, for instance, says that if the Apple stores become very successful, the company "would be crazy not to open more."
"If it grows into a large chain, Apple could look to become a direct-only seller. Why give up some margin to resellers if they have a thriving chain of stores?" Tohan says. "They're in business for themselves, not for resellers. Right now, they need the resellers to help keep them running. But if the market shifts toward the Apple stores and [Apple's] Web store, there might not be a reason for them to have resellers."
More likely, Apple will face a challenge running retail stores, industry observers say. Apple expects its retail operation to break even by year-end and generate a "slight" profit in fiscal 2002. However, analysts say the historically thin margins on hardware and shaky PC sales climate will make it tough for Apple to operate glitzy stores in high-rent locations. Some cited the example of direct PC seller Gateway, which had to close a chunk of its Gateway Country Stores when PC sales flatlined starting late last year.
"The example of Gateway is sitting right in front of [Apple's] nose," says Roger Kay, PC hardware analyst at research firm IDC. "[Retail stores are] fine as long as there's an up market and a lot of customer traffic. But when your traffic falls--for whatever reason--your fixed costs are still there. It's a meat grinder because you have to be on all the time. Retail is a tough business."