Apple Stores: The big chill
Is there an Apple Store near you? Count yourself lucky, because the days of Apple's (AAPL) aggressive expansion into the branded retail space are over — at least for now.
After opening more than 250 company-owned stores in eight years — an average of nearly 8 per quarter and a total of 46 in 2008 alone — Apple in the last quarter opened just one.
The building slowdown is one of several moves that Apple has made in response to what COO Tim Cook this week called a "horrendous economy."
Although Apple's revenues grew more than 8% year over year in its second fiscal quarter, the average take per store took a 17% hit, falling to $5.9 million from $7.1 million in 2008.
So Apple has been cutting back. According to its latest SEC 10-Q filing, the company has slashed the ranks of its retail employees — from the equivalent of 15,600 full-time workers at the end of its December quarter to 14,000 in March, a net loss of 1,600 jobs.
It has also been closing stores — temporarily, for renovations — at a stepped up pace. IFOAppleStore, the definitive source for news of Apple Store openings, has been reporting round after round of retrofits. The latest cycle calls for stores to be temporarily closed in Tigard, Ore., Woodland, Mich., and White Plains, N.Y.
As its SEC filing notes, Apple-owned stores requires a "substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. … The Company would incur substantial costs if it were to close multiple retail stores."
That doesn't necessarily mean Apple plans to shutter a lot of stores, but it could signal a major reassessment of its retail strategy.
"I believe Apple is at a dangerous crossroads with retail and must make very careful decisions here," writes a retail management expert who posts on Investor Village's AAPL Sanity board under the handle nontekkie. Although he believes Apple is doing the right thing, he also sounds a warning:
"And as sales drop, expenses must be cut. So Apple faces the conundrum of cutting payroll and risking the service part of their reputation because they have sent the sales portion of their product to Best Buy, Wal Mart, AT&T, etc etc. The product gains wider distribution, the customer gains convenience, but Apple risks running stores in the red or losing their service strength.
"Apple retail stores… are not meant to saturate a market, they need to be a destination." (link)
During Wednesday's conference call, CFO Peter Oppenheimer said the company was still on track to open 25 stores in fiscal 2009. But he added that about half of those stores are overseas. If he's counting the 6 U.S. stores that have opened since Sept. 27, 2008, Apple could be planning to open as few as 6 new domestic branches before the end of fiscal 2009.
To get a feel for what it means to Apple's customers for the company to open a new store in their city — and what a loss it would be for them if Apple's expansion were to slow or stop – check these out:
- Apple’s Munich opening is mobbed — in fullscreen panorama
- ‘Absolutely mental’: Apple launches first Irish store
- Video: High fives and hype at Boston’s new Apple Store
UPDATE: MacWorld's Dan Moran shed some light on the full-time equivalent numbers in an article posted Monday. Among other things, he tracks the number of Apple retail employees going back to Q1 2006. Here's his chart:
Bottom line: Apple may not have laid off 10% of its retail workforce, as Moran initially reported, but it has definitely cut back the hours they work.
Hmm, very interesting points were made. I definitely think that the recession is finally catching up with Apple. It's been thriving so long, it was bound to be affected sooner or later.
I really hope it bounces back, or at least stays at the level it's currently at. I'd hate to see them have to start closing stores, when they were doing so well.
- James, Resveratrol Consultant
I don't believe that there is any "major reassessment" of Apple's retail strategy afoot. However, Apple must deal with the reality of the current economic situation just like everyone else.
To continue the previous pace of expansion would be silly given the current climate, but that does not signal that they've all of a sudden decided that expansion is a bad thing. I would say this constitutes a postponement, not a reversal, of strategy. A net loss of 1600 retail employees does not translate into a "slash." They probably regularly loose close to that many employees between the holiday and 2nd fiscal quarters through attrition alone. So of course, if the pace of openings has slowed, then those employees would not be replaced by new employees at new stores, hence the perception of a slashing of the ranks.
And who is this anonymous “retail management expert” anyway? Is nontekkie a nom de plume for one of the pundits who sounded the death knell for Apple's retail efforts before they even got off the ground several years ago?
Remember, the primary focus of Apple’s retail stores is the presentation of the Macintosh in a favorable environment. Similarly, Best Buy adheres to Apple’s in-store boutique concept for the same reason. Apple has been extremely careful about who they allow to sell what products, so the fact that you can purchase iPods and iPhones at Wal-Mart, AT&T, or Best Buy does not mean that Apple has forfeited its sales responsibilities. It means that certain products (iPods/iPhones) lend themselves more favorably to mass marketing, while others (Macs) do not.
Phillip,
The high of 15,900 was recorded in Nov 2008 and occurred during the ramp-up to Christmas as recorded in their SEC 10-K filed on November 5, 2008.
The reduction in hours occurred post-Christmas, meaning holiday staff, as usual, did not continue past the holidays. Also in the same 10-Q filing, Apple increased R&D headcount in the current year to support expanded R&D activities. (thanks to MDN for the heads-up).
Sounds like this whole retail staff cut-backs story is a bit of a media beat-up if you ask me.
-Mart
Apple has not been sacking anyone en masse. Those 15,600 positions are FTE (full-time-equivalent) positions. Apple just sensibly trimmed the hours of some of their retail staff during this economic downturn.
http://mediamemo.allthingsd.com/20090424/did-apple-just-fire-1600-retail-workers-nope
-Mart
ex ped: On the other hand, IFOAppleStore reported after Christmas that Apple had reduced the number of paid hours for its retail employees in U.S. stores. "Multiple sources say the cut-back will eliminate all hours for part-time employees, leaving only full-time staffers to handle sales and service at the stores some time in January. The part-time staff are not being laid off, sources say, and will remain on the payroll for recall if visitor traffic requires additional staffing."
I'm not sure what comfort it is to a part-time employees that they haven't been laid off if they don't have any work.
Here's the link: http://www.ifoapplestore.com/db/2008/12/28/apple-cuts-back-hours-part-timers-hit/
Okay, so I looked up my own question. Here are the numbers:
March 2008 = ~12,000 FTEs
March 2009 = ~14,000 FTEs
Both figures were preceded by the word "approximately", so they are clearly + or – 500 FTEs. Around 17% more FTEs this year than last, HOWEVER…, you have to factor in the number of stores open.
March 2008 = 205 stores
March 2009 = 251 stores
So, number of stores increased by 22%, and FTEs increased roughly 17%, but given the vagueness, the range would be from, 8% to 26%. In other words, the increase is in the margin of error.
Okay, so we're talking FTEs, FullTimeEquivalents, or in less PC words, Man-Hours.
It looks to me like a cut of 10% in total hours. Did Apple extend Xmas shopping hours? I think they did. One extra hour a day, is almost 10%, isn't it?
I think it probably makes sense to look at the Fall quarter to see how much FTEs grew into Xmas, and then compare the Fall quarter FTEs to the post-Xmas quarter FTEs to get a better measure of the change. Or, better yet, look at FTEs from a year ago, and then extrapolate for the additional stores.
The "expert" wrote: "because they have sent the sales portion of their product to Best Buy, Wal Mart, AT&T, etc etc."
Best Buy sells a limited lineup of Mac computers. Wal Mart and AT&T sell only iPhones. There's much more Apple-branded product, and software and accessories, available in an Apple store and through the Apple online store.
Apple augments sales through Best Buy, etc. That's far different from the so-called expert's portrayal.
"Sales in our 208 retail stores, most of which are in the U.S., were extremely strong, growing 74% year over year, driven in part by traffic of 33.7 million visitors, up 57% from the year-ago quarter."http://seekingalpha.com/article/73697-apple-f2q08-qtr-end-3-29-08-earnings-call-transcript?page=-1
162,000 PER STORE
"With an average of 251 stores open during the quarter, average revenue per store was $5.9 million compared to $7.1 million in the year-ago quarter.
Retail segment margin was $308 million compared to $334 million in the year-ago quarter. We believe that the year-over-year decline in average store sales and segment margin is a reflection of the continued weakness in the spending environment, coupled with third party channel expansions relative to the year-ago quarter.
We hosted 39.1 million visitors in our stores during the quarter compared to 33.7 million visitors in the year-ago quarter, an increase of 16%."http://seekingalpha.com/article/132506-apple-inc-f2q09-qtr-end-03-28-09-earnings-call-transcript?page=-1
155,000,000 PER STORE THIS YEAR.
SO, it makes sense, Apple is now opening stores too close to ones already opened.
apple did not cut 1.600 full time employees. they cut full time "equivalents", meaning they are cuting hours for their part time workers and reducing part time staff and now drumroll please: as they ALWAYS do in the quarter after the holidays.
i suggest actually reading the sec filling and not just write
the same stuff all the others do. and by the way apple actually added full time staff in the quarter. (read the sec filling)
ex ped: May I suggest you read what I wrote. "According to its latest SEC 10-Q filing, the company has slashed the ranks of its retail employees — from the equivalent of 15,600 full-time workers at the end of its December quarter to 14,000 in March, a net loss of 1,600 jobs." (Emphasis added.)
ex ped said: "Apple opened 46 stores in calendar 2008, so to open only one store in the last quarter does feel like a deceleration — prudent, no doubt — of their retail expansion efforts."
Or – it could just be a coincidence. Why should store openings be spaced evenly throughout the year?
I had cause to go by our local Apple store this last weekend. Appointments need to be booked a week in advance. A small crowd gathered out in front at opening (15-20 people). When I left a half an hour later the store was packed.
And this is in a city that's been hit pretty hard by the recession, I might add.
If, however, you are correct and Apple is slowing its addition of stores, then that is a very penny-wise, pound-foolish approach. As the latest earnings clearly show, Apple is weathering this recession amazingly well, and now that it appears to be ending, it is highly likely that sales will increase, perhaps dramatically. They need to be getting ready for the huge demand that is just over the horizon. IMHO.
"As its SEC filing notes, Apple-owned stores requires a “substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. … The Company would incur substantial costs if it were to close multiple retail stores.”"
I would just point out that that is standard boilerplate language that has been included in every 10Q and 10K since Apple opened its first retail store in Tysons Corner, MD.
How do you divide 250 stores by 32 quarters (8 years at 4 quarters per year) and get 15. I get 7.8 which is 31 per year. Given they are planning 25 in the current year where is the story?
ex ped: Arrgh. You are right. I was wrong. Corrected. Thanks. But as I note, Apple opened 46 stores in calendar 2008, so to open only one store in the last quarter does feel like a deceleration — prudent, no doubt — of their retail expansion efforts.
@ ped,
"ex ped: What Oppenheimer said was that the company was on track to open
25 stores in fiscal 2009, about half outside the U.S."
So what is the point of posting this article in the first place?
When reading, I really thought they would freeze all store opening in '09.
My understanding is that Apple stores have the highest $/square foot ratio of any retailer in the US. Why don't you mention that?
It is starting to feel like Fortune has an editorial bias against APPL .. Is that true? Are you effected by the fact that you have substantial investment by the investors in Palm?
What ever would we do without self proclaimed, experts, analyst, and general know everything retards? I guess people would have to start thinking for themselves, now there's a novel concept.
The afore mentioned Apple Store in Tigard, Oregon is constantly busy, no matter the day or time. A little remodel work is not surprising. The question is, how long will the store be closed?
Wal Mart is for a different clientele than a store in a facny Mall. Not sure I agree completely with your analysis.
If you had listened to the latesest Apple quarterly financial call on Wednesday, they plan to open at least 25 new Apple Retail Stores this year.
With the Apple Retail Stores nearby, people go right to the Apple Store, and tell me how excited they are about their Apple products, or service, rather then coming to me first for advice. I feel left out of the loop now. And the Apple Retail Stores are always busy in my area.
ex ped: What Oppenheimer said was that the company was on track to open 25 stores in fiscal 2009, about half outside the U.S. If they're counting the stores that opened at the end of September 2008, Apple has already opened 7 U.S. stores this fiscal year. That leaves 5 or 6 more for fiscal 2009. The rest are overseas.
I think, having a store in each major city of the world would be great… and even tiny stores.
There are lots of them in the US already, but what about, Paris, Johannesburg, etc.?
The article said "the fewer the stores the better.", and I got to agree with this.
But I think one store in each developped country will just add 50+ of them to the total… not huge.
Is it just me or do I detect a negative tone here where none should be. Yes, cutting jobs I would say is a negative for Apple, but closing a few stores temporarily for renovation seems to me to be something positive for any company. The sentence, "It has also been closing stores — temporarily, for renovations — at a stepped up pace." sounds like the author thinks this is another sign of hard times. It doesn't to me.
You're kidding, right? Giving one-third of this article's length to the post of an anonymous "expert" from a message board? No wonder newspapers are dying and web sites like this are free — unchecked authors are now "experts" without names. Why pay for a real reporter to find real experts to collect real comments. Just search the web and take the word of a self-proclaimed "expert"!
Apple's growth in Mac sales depends on people switching from PCs. If potential switchers enter a generic computer store, they more likely than not will be coaxed back to a PC purchase by a salesman incentivized through higher commissions on whatever PC model is currently being promoted. Get the same potential switcher into an Apple store and this won't happen. Apple's retail network lets it demand that other retailers who wish to carry Macs create a switcher-safe shopping environment. So the Apple stores are essential to Mac growth. Slowing their expansion in a weak economy is just prudent and cutting retail staff 11% after the Christmas season is totally unremarkable.
You don't need an Apple store on each corner, particularly in this economy. I will say, though, that they are very pleasant to shop in. If they don't let themselves get undercut on price significantly by other Apple retailers (independents, box stores, etc.), they'll survive. The recession will end eventually, and Apple actually managed to make money as a company last quarter– no small feat.
They're actively working on one in Reston (VA) Town Center, but as is typical for Apple, no opening date has been announced. It will be interesting to see if that opening gets delayed.
It sounds to me like they are already dealing with these concerns by scaling back at least until the economy improves.
This story is much to do about nothing. It's a recession for crying out loud, the prudent thing is to slow expansion and use the time to address renovation needs of particular stores. Does anyone believe the expansion won't continue when the economy picks back up? "Dangerous crossroads" my ass, get real. Apple is an exceptionally well managed company.
Nice update. Bottom line – there are many ways to manage your workforce, if you are willing to be creative. Better to figure out ways to reduce hours while retaining the knowledge base you've created such that you can hit the ground running when the ecomomy gets back on it's feet. "Innovating through the downturn" applies to more than just technology, it also applies to human resources.