Thirteen years after the first one opened, the Apple Store has entered an awkward adolescence.
While Apple’s storefronts remain the envy of the retail world, sales have flattened as the stores undergo a global growth spurt. Using one key measure in the retail industry, the stores generated $4,589 in sales per square foot in fiscal year 2014 — still better than any other brand, but down 23 percent from the $5,971 per square foot logged in 2012, according to research firm Customer Growth Partners.
The Apple Store lost a bit of its glow as it went more than a year without a leader after a controversial chief’s ouster in 2012. The blockbuster launch of the iPhone 6 has given the stores a boost, but Angela Ahrendts, Apple’s newly anointed retail head, will be charged with driving bigger gains, analysts say. And while e-commerce and sales from other vendors bolster its bottom line, too, the stores are critical to Apple’s continued growth and ability to dazzle consumers, said Tom Mainelli, a vice president at technology research firm IDC.
“Apple realizes that the single best experience anyone is going to have with one of their devices is within their store,” he said.
Since its 2001 launch, the Apple Store has become a staple of the company’s brand, serving as a campsite for customers desperate to buy the latest products and a shrine for Apple faithful throughout the year.
Brilliantly illuminated, sparsely decorated and replete with clean lines, the Apple Store is intended to evoke the shimmering gadgets it houses. And like any product in the Cupertino, Calif.-based company’s portfolio, the Apple Store must be updated periodically to keep customers enthralled, Customer Growth Partners President Craig Johnson said. But it remains similar to its original incarnation, creating a key task for Ahrendts.
“The idea of a Genius Bar — that’s kind of old hat,” Johnson said. “We believe the single-biggest reason she was brought on board was to help reinvent the Apple Store experience.”
Apple has steadily expanded its retail footprint in recent years, with plans to open about 25 more stores in fiscal year 2015, roughly three-quarters of which will be overseas, executives said during a recent earnings call. That would give the company roughly 460 stores worldwide.
Though Apple first set up shop in extremely high-traffic areas, it is now casting a wider net, perhaps dragging down its sales averages, Mainelli said. Average revenue per store, which stands at $50.6 million, has also inched up but is still below 2012 levels, according to filings with the Securities and Exchange Commission.
“They’re probably beginning to branch out into still-necessary-but-slightly-less-lucrative addresses,” he said.
Despite the surge in stores, they accounted for 11.7 percent of Apple’s sales in fiscal year 2014, down from nearly 20 percent in 2008, according to SEC filings. Mall traffic in the U.S. is down about 10 percent year over year, a trend that Apple is not immune to, said Britt Beemer, CEO of America’s Research Group, which studies consumer behavior. What’s more, Johnson noted that customers often buy the iPhone, which drives more than half of Apple’s sales, from their carriers.
Traffic in the Apple Store rises and falls with the buzz around the product line, analysts say. Several Apple products released in recent years were incremental improvements over previous models, building on features that users were already familiar with, Mainelli noted.
“People probably didn’t feel the need to go to a store and lay hands on it before they purchased it,” he said.
The iPhone 6 and 6 Plus drove people back to the Apple Store, with sales per square foot edging up in 2014, Johnson said. Retail will likely continue to rebound this quarter, he added, as Apple enjoys a benefit from the year-end shopping season and the latest iPhones drive more strong sales.
Mainelli expects the gains to roll over into next year with the Apple Watch, Apple’s first brand-new product since the iPad, set for an early 2015 release. Offered in two sizes and three collections, the timepiece is a gadget that customers will likely want to try on before taking the plunge.
The arrival of the Watch will create an opportunity for Ahrendts, a retail veteran, to work her magic, redefining the Apple Store at the intersection of fashion and technology, Johnson said.
“If they need to have a new section for the Apple Watch, that’s not a problem, that’s an opportunity,” he said. “They’ll come up with something new and creative and fun and funky and interesting. My bet is people will flock to it.”
Sprucing up the retail experience will also help Apple fare better between hit products, Johnson said. Apple has made its stores more wired over the past year, outfitting them with Bluetooth beacons that notify users about nearby products as well as Apple Pay, its new mobile-payments service. But Johnson thinks more innovation is needed.
“You have to have an experience that gets people in stores,” he said, “even when there isn’t some hot new product that has people lining up outside.”