Half-way through the financial year, Apple’s retail stores seem set to create new sales records as other high street retailers face falling sales and the credit crunch.

Apple launched its first Apple retail stores in May, 2001, entering the high street market in the same year Gateway began to divest itself of its own-brand retail shops. 

Critics warned Apple would fail in the scheme.

David A. Goldstein, president of researcher Channel Marketing Corp. famously told Business Week: "I give them two years before they’re turning out the lights on a very painful and expensive mistake."

He was wrong.

Apple’s retail segment returned $1.45 billion in its March quarter – up 74 per cent year-on-year and 48 per cent quarter-on-quarter, resisting the downward trend at high street retail.

To put this into perspective, two quarters into the 2008 financial year and Apple has already generated more revenue ($3,152 million) than in any year up until 2005 ($2,350 million) and is just under a billion short of the record it set for itself last year ($4,115 million).

Elsewhere, high street retailers are watching sales shrink – Home Depot and Dick’s Sporting Goods have both seen declining sales. 

With 34 million visitors to an Apple retail store in the March quarter, Apple’s Mac sales climbed 54 per cent – three-and-a-half times the average PC industry growth rate. And 50 per cent of Macs sold went to customers new to the platform, Apple claimed this week.

“If Apple can bring in those types of numbers during this fairly gloomy economic period, that bodes very well for them,” said Jupiter Research analyst, Michael Gartenberg. 

Apple’s execution of its retail concept was remarkable. The first prototype designs were constructed in secrecy in warehouses near its Cupertino headquarters by design firm Eight Inc. 

The company invested in talent, hiring in experienced retail executives from key retailers, Gap, Target, Sony, Disney and others. Gap CEO Michael Drexler was adopted to Apple’s board in 1999, with the retail initiative in mind. And the retail initiative is led by former Target vice president, Ron Johnson.

The cutting-edge aesthetic of the stores was quickly recognised, winning the company a Gold IDSA award. "This store communicates Apple’s design language—the attention to detail reflects the Apple product line. I was especially impressed with the idea of the Genius Bar, with a resident in-house expert for tech support. The emphasis on lighting must make it a great environment. This is delightful. I want to visit it today!" said IDSA’s Carla Blackman.

What’s the secret? "People haven’t been willing to invest this much time and money or engineering in a store before," Apple CEO Steve Jobs observed to CNN last year. "It’s not important if the customer knows that. They just feel it. They feel something’s a little different."

And that’s part of the point, as explained by Johnson in 2001 when the first stores opened up: "Our vision for hiring people for Apple stores is to get people who have Apple and the Mac in their bones," he said. "We want people who have a sincere service orientation.

"You have two choices in a retail store: a service culture or a retail culture. We’ve chosen service so customers will be in charge of their store experience."

The service-focused in-store culture is one thing, that all the stores offer Internet-connected Macs passer’s by can use have transformed the stores into an international chain of free internet cafes, generating store traffic while creating brand loyalty and stimulating sales. And the iPod halo and the company’s continued place at the forefront of innovation and slick product design also play their part.

With new iPhones in the pipeline and the Mac in absolute resurgence, Apple’s high street success reflects its growing market share. 

 

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