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[19 comments]

Are Apple's Stores Overly Ripe for Expansion?

December 12, 2011

Is there such a thing as too much of a good thing for Apple? A study by Asymco details some impressive performance metrics for Apple Stores but also indicates it is struggling to fully capitalize on its traffic flow.

Asymco founder Horace Dediu said he based his findings on the data Apple publishes on its "retail segment," which ifoAppleStore.com catalogs. Among the findings:

  • The stores generate over $100,000 per employee per quarter.
  • Each visitor spends an average of $45. At that rate, an Apple store employee creates sales at the rate of about $278 per hour.
  • Assuming an employee works for 360 hours per quarter, the average employee sees six visitors per hour or one every 10 minutes.

Speaking to The Register, Mr. Dediu said these figures reflect the high value of Apple's product line. Another plus for the business model is that the popularity of its products helps employees work at a higher level and at a decent wage while not requiring commissions that often lead to hard-sell tactics.

"Apple's approach makes sure the customer is treated in friendly manner; it's a very detailed protocol," Mr. Dediu.

Still, he said that while Apple has some of the most valuable retail real estate in the world and continues to support its burgeoning traffic with ever-higher staffing, the hires are unable to catch up with the crowds.

"Apple is adding employees at a very rapid rate, and now averages over 100 employees per store, which is rising to meet traffic," Mr. Dediu said. "Apple is throwing bodies at the problems, adding more people to handle the rush, but it's getting too crowded and it can't keep this up forever."

Given the productivity across its stores, expansion would seem like the most obvious solution to solve any employee-to-customer efficiency issues, Mr. Dediu said.

Still, Apple seems to continually face saturation questions with each palatial store it opens.

The Asymco study came out last week as Apple opened its largest-store ever in Grand Central Terminal in Manhattan, its fifth store in the borough. Stretching across more than 23,000 square feet of space between two balconies and staffing more than 315 employees, the Grand Central store includes two Genius Bars, 15-minute Express Workshops and a product pickup area.

Apple officials said 2,500 people were waiting in line before the opening, and the store had nearly 4,000 visitors before noon.

Overall, Apple has 361 locations worldwide. Management still hasn't named a new head of retail following the departure of former head, Ron Johnson, who officially took over J.C. Penney on Nov. 1.

FINANCIALS:     [NASDAQ:AAPL]

Discussion Questions:

Discussion Questions: Should Apple Stores be concerned at all about saturation issues? In general, how do retailers measure the potential for expansion versus cannibalization? Are there ways Apple can more effectively utilize its staff at its packed stores?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How would you rate Apple's associate-to-customer ratios?

Comments:

The graveyard is littered with retailers that opened so many stores they were unable to staff and manage them effectively. Hopefully Apple won't make the same mistake. When a company gets "hot" shopping centers and others with retail real estate are always aggressive in trying to attract these stores to their property. Retail growth should always be done in a logical, thoughtful way so as to build a sustainable business.

George Whalin, President & CEO, Retail Management Consultants

My concern is whether or not there are diminishing numbers of truly qualified "geniuses" to service customers. That's a bigger problem than servicing customers who just want to buy something given there are lots of places to buy MAC products. My last two visits have produced absolutely wrong advice from their "geniuses." This last time a possessed touch pad was diagnosed as a faulty hard drive. Even to this technology dummy that didn't make sense, and I went to an independent source where in 15 seconds the guy pointed out that the battery had swollen and was causing the problem. I hope they don't make the same mistake most others have made -- sacrificing quality and service for size.

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Ian Percy, President, The Ian Percy Corporation

I'm an Apple fan. However, their remarkable products do the heavy lifting of selling. Employees are in the enviable role of teacher. Do they juice sales? No.

I've never heard an upsell to a customer -- ever. That means the customer may leave without the full package. Throwing more people at it won't change that. In short, I'm sure they are leaving money on the table, even while enjoying unprecedented traffic.

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Bob Phibbs, President/CEO, The Retail Doctor

Seriously? Apple stores have a problem? Mr. Dediu needs to spend some time in the actual store vs. crunching numbers which upon first blush appear to be invalid. Who among us as observers of retail shopping behavior are not at the same time amazed and envious at the sheer buzz and conversion that goes on at the store every day? Associate productivity at $278 per hour is an under achieving metric? Bah Humbug! Every visit doesn't need to yield conversion. The store is set up to touch/feel the technology and the associates I've encountered are well informed, have perfect sales "pitch," friendly attitude and willingness to spend as much time with you as possible. Not ready to buy something, no problem.

Apple will be smart in analyzing the demographics of their current store buyers, traffic patterns and online sales/location of customers. The have zero risk of over saturation. Overload? Most malls would kill to have an Apple store based on the traffic it generates -- it's a destination, and I guarantee you the young adult apparel stores (AEO, A&F, Hollister, Hot Topic, Forever21, rue21 as well as pretzel shops, popcorn stores, coffee shops and yogurt stores would, as well. How to more effectively manage their associates to get even greater productivity -- it's a non-issue, they are doing just fine.

David Slavick, Director, Loyalty & Retention, FTD.com

Apple has the highest class problem that any retailer has, in my experience at least, ever faced. They simply can't keep up with demand. The closest analog is Starbucks, albeit a much simpler product/service model. In Starbucks' case, they begin to add locations based on the wait time in existing locations, in some cases opening directly across the street from each other. Great on the way up, not so much when sales contract.

The biggest challenge is the one Ian points out -- finding and training qualified associates. Apple really needs to get this right or they run the risk of killing a very golden goose.

Bill Emerson, President, Emerson Advisors

The Apple Stores in this market (Milwaukee) are hardly the monumental size of flagship locations such as Grand Central Station, the Back Bay (Boston) or others. Yet they have the same issues with overcrowding at almost any time you walk into the stores. Apple needs to look hard at added locations (or larger prototypes) in several markets as long as the real estate fits the brand profile. Otherwise the push for productivity is going to backfire, and the "easy experience" part of the Apple mantra is going to be lost in the crowds.

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Dick Seesel, Principal, Retailing In Focus LLC

Apple does need to be concerned about the saturation issue. At a certain point consumers leave the store because there are too many people, the noise is too high, or the wait for assistance is too long. The good news is that the demand is there. The challenge is managing the people, the variety of activity, and training for employees. These are not just operational problems for Apple because Apple has established these stores with a different retail objective. There is a need for a strong retail vision for the future. Right now that does not exist. The vision appears to be open more stores with breathtaking designs and hire more people using the same model. This vision does not address the challenges of today.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

The challenge for Apple is balance. Adding retail stores to address technical support and 'genius bar' support versus actually selling stuff is not outlined in the Asymco study. Growing too fast and not being able to maintain and provide quality customer service would adversely affect the Apple brand. Additionally, the current 'supply and demand' balance may continue to support the Apple brand 'club' mystique. Too much accessibility may erode that personal bond between Apple fans and the brand.

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

The stats given in the article are in the "WOW" category. However, I question how much of it is accurate when it states the average employee will see six customers per hour or one every ten minutes. Now come on folks, when was the last time you visited a technology store and were out in ten minutes?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Over crowding is not a problem it is benefit. Crowds draw bigger crowds. As has been said over and over here it is all about quality of staffing. If the quality of staffing/help I get goes down, so will the crowds.

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Mel Kleiman, President, Humetrics

This one is too much fun. Come on, you don't need to close every person that walks into the store. Believe it that Apple doesn't want or expect every customer who is "touched" to convert. The easy access to technology at the tabletops is a testimony to having your product be approachable. Learn through use, experiment, see what you like/don't like. Not ready to make a purchase, no problem -- come back again. Too "busy," too noisy (give me a break -- I'd rather be in that buzz environment than listen to insipid elevator music at most department stores), not enough associates to immediately answer your questions and decide on a purchase, no problem -- browse, determine on your own how much time and yes patience you have and then either stay after "sampling" or go/come back later after lunch. I'm obviously a big fan and a stockholder -- most retailers would love to have the "problems" they must manage to.

In today's world of fully actualized techno-geek current or recent college graduates, there will be little problem for Apple to have the cream of the crop to hire for their storefront.

David Slavick, Director, Loyalty & Retention, FTD.com

Most stores would kill to have Apple's "problems." I agree that their staff could sell more, but at this point it doesn't seem to be a focus on theirs. Another nice problem to have.

I think the worst thing Apple could do is to over expand. I, for one, know that I just need to make sure I schedule an appointment before going to the store, and I've had nothing but great help at the Burlington, MA store.

I am not going to criticize success. I just want more retailers to have these problems!

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Doug Fleener, President and Managing Partner, Dynamic Experiences Group

Yes, absolutely, just like any other successful retailer they should be worried about saturation.

But beyond expansion benefits and woes, I wonder if every employee is clear on the function of the stores.

Apple stores are the best promotional vehicles for the company's products, although sometimes when walking into the store, one gets the impression they are having an identity problem; they are definitively Apple but not quite sure what their function is. Are they ambassadors to the brand regardless of where you ultimately buy the product? Are they a retail store focused on speed and traffic? Are they a phone company?

Once the company settles on a function, then it will be easier to become more efficient and (even) more successful.

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Carlos Arámbula, Managing Partner, MarcasUSA LLC

Apple has created an extraordinary retail operation built around outstanding products but also an element of exclusivity. Part of their success is the store concept, but another important part has been its careful expansion pattern. The phenomenal customer metrics are a result of this.

If it ain't broke, it's OK to tweak it, but don't fix it.

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Ted Hurlbut, Principal, Hurlbut & Associates

Apple's integration of its iPhone app, which allows consumers to shop and pay online and then quickly pick up at the location, will speed up transactions and create a huge efficiency. The app also allows consumers to scan and pay for low-end items and then walk out of the store, eliminating the need for employee-customer interaction for those who know what they want.

These tactics improve efficiency and increase customer satisfaction. The last thing a seasoned Apple user wants is to wait while a new customer asks questions. That new person should be able to take as much time as they need to get comfortable with their new device (and Apple encourages this), but allowing savvy customers to bypass lines creates a win-win.

This is more important as Apple weighs cannibalization and saturation questions. The Apple Store experience would get diluted if they were as ubiquitous as the Gap. Boutique retailers that insist on being in every mall end up being over-extended and quickly watch their same store sales take a dive. Apple's brand is far more important to its success than individual products, so keeping the store experience special and leveraging technology to assist in throughput will pay off more in the long run.

Matt Hahn, Planning Manager, Walt Disney Parks & Resorts

If I were an Apple store employee, I'd ask for a raise. Apple's retail location development is a classic "push or pull" mercantile situation. Do you "push" more stores or more products at consumers, or do you let consumers "pull" them from you? In most circumstances, "pull" works best (don't tell that to Starbucks). Scarcity breeds desire, and the idea of "leaving money on the table" can be a siren song for disaster. Perfect the existing stores based on the comments of other contributors here today. Then, use those perfected stores to develop and train excellent employees used to "seed" new stores.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Every time I walk into an Apple store, I know exactly what I want to get. I don't "hang out" in their stores -- too noisy; too crowded for my tastes. I try to locate a salesperson as fast as I can, tell him/her exactly what I want, do my transaction and leave with the product. Don't get me wrong, I am generally big on "service" (something that human beings are generally more apt to deliver) but honestly, what I really want in Apple's case is a kiosk. Put in my credit card number, punch "iPad, 32Gigs, black" and leave with my product. I don't think I am the only one.

Fabien Tiburce, CEO, Compliantia, Retail Audit & Task Management Software

Yes ... and no.

Is there a consumer appetite for more Apple Stores and more associates? Absolutely.

Are the stores as productive as they can be and will more square footage (and more employees) cost justify the expense? Perhaps not.

I'd take a different swing at the ball. Not every shopper needs the same level of customer care. My vision would include a "traffic director" who puts the right associate with the correct customer need (I once called this role a retail concierge. I believe this will drive results and eliminate much of the chaos/confusion found at some locations.

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Dave Wendland, Vice President, Hamacher Resource Group

This seems to be a study looking for a problem. I'm not sure we need to worry about Apple and cannibalization. They continue to open strong stores, and the crowds continue to come. The brand still has huge opportunity for growth, and is far from saturation. Apple is in fine form at the present time, and no current problem really exists.

Joel Warady, Chief Marketing Officer, Enjoy Life Foods

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