Apple Not Averse To Closing Some Apple Stores, Exec Admits

by , 3:30 PM EDT, May 2nd, 2003

The head of Apple's retail stores has admitted to a Wall Street analyst that the company would consider closing some of its locations if they don't become profitable in the foreseeable future. The admission is the first indication from Apple that two years since launching its first two stores, the company is already questioning the profitability of some of its 53 locations.

The comments were made to Merrill Lynch analyst Michael Hillmeyer, who met with a number of top Apple executives as part of an analyst tour on Thursday at the company's headquarters in Cupertino, Calif. In a one-on-one meeting with Hillmeyer, Ron Johnson, Apple's Senior Vice President of Retail, explained that the company "would not be averse to closing some stores if those stores were not going to be able to cover their variable costs," Hillmeyer wrote in a company update report obtained by The Mac Observer.

Johnson was not quoted directly in the report.

In addition, Johnson said the company is unlikely to open new stores overseas until its US stores are profitable. "Apple hopes to have a profitable quarter for its retail stores by the end of (calendar) 2003," Hillmeyer wrote.

Johnson's comments are the first such public statement acknowledging that Apple is contemplating the closing of some of its 53 existing locations. While Apple has painted a positive picture on the success of the stores in terms of profit margins and increased store traffic, it has yet to pay off in profits or in helping to increase Apple's market share.

First-quarter PC market share numbers released by research firm IDC last week show Apple's market position is slipping further away from its elusive goal of 10% the company set for itself exactly two years ago when it open its first two stores in California and Virginia. In the first quarter, Apple worldwide market share slipped to 2.1% from 2.4% in the same period a year ago. In the US, Apple share came in at 2.9%, compared to 2.4% in the same period of 2002.

At the time, Apple CEO Steve Jobs remarked that one major goal of the stores was to increase market share from what was then 5% to at least 10%. More than 30 of Apple's retail stores opened within the first 16 months since May, 2001.

Other highlights of the Hillmeyer report include:

Even after meeting with Apple executives, Hillmeyer did not change his mind about the future value of the company's stock. "We maintain our Sell rating on Apple shares and believe that the stock remains expensive on both P/E (price-to-earnings) and P/S (price-to-share) metrics," he wrote. "We think that further reports of weakness in Apple's primary markets over the next few months could negatively impact the stock."