TMO Reports - Apple Moves Up Electronic Retailer Top 100; 23rd Overall

by , 8:00 AM EDT, May 14th, 2004

Thanks to the addition of 22 retail stores in 2003, Apple Computer moved from 34th to 23rd in the annual Top 100 list of North American consumer electronics retailers.

Compiled by the retail publication This Week in Consumer Electronics (TWICE), the just-released list shows Apple moving up 11 rankings in large part because of its estimated sales jump from US$383 million in 2002 to $747 million in 2003, or an increase of 94.8%.

The numbers include estimated sales by Apple through its retail stores and online store only, and do not include sales through other retailers.

The jump to 23rd place puts it in a dead heat with online leader and Apple retailer Amazon.com, which came in at number 22 with $747 million in estimated consumer electronics sales.

The jump in Apple's retail position is no great surprise based on its earnings results. In the fiscal second-quarter, Apple's retail stores showed a 97% increase - the biggest year-over-year growth ever - up to $266 million from $135 million a year ago. Apple also recognized a 35 percent year-over-year increase in average revenue per store, evidence that customers are walking out of the stores having bought products.

The Apple retail stores have been profitable for the past three quarters, and the forecast for fiscal 2004 is revenues of $1.2 billion, and contribute $30 million to Apple's profit. Senior vice president of retail operations Ron Johnson recently said the stores were the fastest retail operation in history to reach the $1 billion sales mark, passing the previous leader, The Gap, which reached the mark in four years. Apple's stores took just three years to beat that record.

iPod a big factor in Apple retail growth

For the editors of TWICE, there is little doubt that the iPod was, and still is, a big factor in the sales growth of Apple's retail stores.

"That's quite a leap for Apple to 23rd spot," Alan Wolf, a senior editor at TWICE, told The Mac Observer. "The iPod is a driving force behind this jump we believe, as well as the popularity of the iTunes Music Store. They have such a unique niche, sort of like Sony, where you find the brand everywhere and it transcends everything. Apple is in that same category."

"Apple's computer sales are not performing that well right now, and the iPod and iPod mini is making them the big money right now," said Doug Olenick, PC retail specialist for TWICE. "I think opening these retail stores is the only direction Apple can go right now because it's so tough for them to compete in the PC side of things. Much like the Gateway model of opening stores, Apple has seen that they can influence their core customers and possibly eat away at those looking to switch from a Windows-based PC by having a retail presence."

'Too big, too fast' is future concern for Apple

Moving forward, Mssrs. Wolf and Olenick said the future for Apple in retail will be the level and timing of growth.

"Growing too big and too fast is definitely a concern," said Mr. Wolf. "That's been the death blow for many other retail chains that open more stores than they had the management, talent and systems to operate nationwide on such a large scale. Too many retailers put the cart before the horse, grew too fast and lost sight of the basic blocking and tackling that goes into retail. It's not easy and you have to really be sharp to control that growth, keep your shelves stocked or not overstocked."

"Gateway did really well back in 1997 when they opened their first retail store," commented Mr. Olenick. "But when they grew to over 300, it collapsed of its own weight." While Olenick openly admits Apple doesn't plan on ever getting that big, he believes their growth will be on par with Gateway's in terms of dollars spent. "Apple is a little bit better situated than Gateway simply because they don't have that much external competition, but they have other problems to overcome, such as lack of strong market share and limited marketing dollars."

Mr. Olenick believes that more so for Apple, Ron Johnson will have to balance store growth with consistent improvements in getting sales consultants to sell more.

"This is no different than any other retailer," he said. "Johnson has to get his sales people to sell better. But for Apple, it's a little harder sell, except for the iPod. They have to have real solutions and know how to sell them. They have a harder task under most circumstances. Johnson has got to concentrate on that."

TWICE Magazine