At What Point Does Apple Stop Building Retail Stores in the U.S.?

| Analysis

Ever since the first Apple retail stores opened in May of 2001 in Tysons Corner, VA and the Glendale Galleria, CA, new stores have been opening on a regular basis with the total in the U.S. now exceeding 250. At what point does adding new stores in the U.S. no longer make sense?

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The success of the Apple retail stores has been unquestioned. To be sure, there have been a few upheavals, mainly with personnel issues. However, the number of people visiting the stores, the average revenue per store [ARPS] and the total revenue from all the stores has grown steadily throughout the years.

Other companies that are having trouble attracting customers and making good money with their own brick and mortar stores would be happy to have Apple's minor problems and terrific revenues.

Now that growth in Apple's stores appears to be tapering off a bit, the question in my mind is: when does Apple think about a steady state?

Image Credit: Asymco

Analyzing Growth

This is primarily a mathematical question. After all, Apple could continue to build stores in the U.S. until there is one for every person in the population. That's clearly ridiculous and implies that there is a sensible point where, by and large, Apple has all the stores it needs.

That logic does not mean that Apple won't need to increase the size of some stores that are bursting at the seams. For example, these in California and Oregon. Some new stores may be needed as the demographics of the U.S. changes. For example, in some states people are aching to leave and flock to other more desirable states resulting in population shifts and new opportunities.

It's notable that Apple still does not have stores in some states, including Wyoming and Montana to name a few. The size of the population and the wealth demographics still don't justify building stores there, and the ARPS wouldn't be expected to bring the desired return on investment. And so, there may never be an Apple store in those states even as the number of new stores drops to a trickle.

To gain some perspective on how Apple has added stores in the U.S., see this interesting animation by retale.com. [My thanks to @jonnyevans_cw for pointing that out.] I haven't done a mathematical overlay, but this looks a lot like the population density of the U.S. And so, at some logical point, an inordinate increase in the number of stores would get out of sync with the population density and result in diminishing returns.

What's most important is that this leveling out in store growth does not mean that Apple's future growth is in trouble. It's like saying that when a young athlete is full at dinner and stops eating, they will never win any new medals. The two effects are not directly related.

It's also likely that Apple will reach a saturation point in the U.S. long before it does so in other countries. Recently, Apple opened a store in Brazil and one Turkey, and when people are first exposed to Apple's brand of service, momentum is created that leads to more stores. Remember, small numbers lead to high rates of growth.

Finally, don't forget that Apple need not always have its own flagship store in modest population areas. Best Buy's store-within-a-store and other authorized retail outlets can take up the slack and grow (or close) depending on how well they do or the need arises.

Open Doors

As Apple approaches a realistic market saturation in the U.S., however, there will be some that will see this as yet another Apple failing, their glass-half-empty approach. I maintain, however, that if a slowdown in growth of U.S. stores continues, it cannot be a valid technical metric to assess Apple's future.

There is an optimum number of Apple stores given the population of the U.S., its demographics, and Apple's current and prospective product line. It goes without saying that Apple's SVP Angela Ahrendts will become very aware of that point.

One thing that could change that calculation is that if some new, unforeseen Apple product or service comes along that enables Apple to maintain its return on investment with nevertheless many more store locations.

In summary, Apple's long term success and growth in revenues, is not a direct consequence of the number of Apple stores because there is a realistic limit to how many stores can be supported in a country's population. Apple can continue to grow and create new products and services with a sensible equilibrium in its retail store count, especially in the U.S.

Finally, for a final punctuation on the role of these stores, for those have blinders on and believe that these stores are built solely for sales, recall what Tim Cook said at the 2013 Goldman Sachs Conference.

There’s no better place to discover, explore and learn about our products than in retail. It’s the retail experience where you walk in and you instantly realize this store is not here for the purpose of selling. It’s here for the purpose of serving. I’m not even sure “store” is the right word anymore. They’ve taken on a role much broader than that. They are the face of Apple for almost all of our customers.

That's a great explanation for why a slowing of growth in stores in the U.S. is not a direct reflection of Apple's success with customers.

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Comments

d'monder

“At What Point Does Apple Stop Building Retail Stores in the U.S.?”

I don’t remember the exact formula, but isn’t it something like when 90% of the population is within 30 minutes of a store, it’s time to stop building?

Apple does need to expand their current stores though.  The ones here are insanely crowded.  Great for Apple, but you wonder how many more customers turn away because of it.

Jim Tanous

They can stop when they open one in Erie, PA.

MacHack

When I walk out of an Apple store and see another across the street next to Starbucks.

vpndev

And I guess that Microsoft has already stopped ?

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