Apple: Some strategic considerations

5.1 Some strategic considerations

The erosion of its market share from competitors (especially in the key educational
channel) and the fact they’re niche products required a strong respons. Is the retail
the good one? With its top-notch brand and world renowned marketing abilities,
Apple should have good chances of improving on the terrible experience of Gateway
Country Store model. If they succeed they’ll gain fresh outlets to sell its own
products and would also likely to gain additional revenues as a reseller of other
electronic goodies and have more control over marketing and servicing of its
products. Moreover, Apple could boost margins by cutting out middlemen and
convince buyers to choose higher-priced models pushing on the “emotional
shopping” stimulated by these types of stores.

However this is a dangerous field. To have shops in high traffic locations means
huge fixed expenditures for rents and it is hard to say if Apple will be able to keep
alive the big hype they’ve created. Moreover other retailer were not happy with this
decision (some also sued the company, but the court ruled in favor of Apple).

There’s no way to know if the costs deriving from a more bitter relationship with
resellers will be enough to set off the additional expenses. Any increase in sales
could be due to cannibalization, which is probably the biggest threat.

Apple claim that their stores are less than 3% than the total number of resellers in the
USA, thus not constituting a credible competitor in terms of volumes. They thought
that if they’d be able to double their market share to 10% thanks to the store, the
resellers would be the ones to enjoy the biggest share of the additional sales.

5-1 SWOT analysis

Apple thought that since it had a huge brand equity, an excellent supply chain
management and already billion in annual sales (plus $4 billion in cash to invest) to
jump in retail would have been a bet worth to be taken. If we look at the financial
results we can see that were proved right.
The retail activities were profitable in just 3 years. Since the lunch they experienced
a steady growth in turnover close to 50%. Profitability is a record level: with a net
margin well above 10% the Apple Stores are among the most profitable retail
activities in the US. It is interesting to note that the margin of the retail division,
which should be a low margin activity, is not very far from the margin from
computer and devices, which are high margin operations. This means that there a
great level of service embedded in their operations.