October 2011
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Day October 14, 2011

How much does an Apple store cost?

Apple loves to talk about its stores. They do it in every conference call, keynote event and SEC filing. There is a monotony with the repetition of how many they have and how many they are building and how pretty they are. They start to seem like commodities.

But if they were commodities why aren’t there any other networks of successful “vendor stores”?

The answer is partly in the odd integrated business model Apple maintains asymmetric to every other modular technology provider. Apple seems to want to control the relationship with the buyer. It’s also partly in the uniqueness of design, an obsession with the brand. But still, that does not explain why can’t it be copied.

The answer is in the economics.

To understand the cost of developing an Apple store, we turn again to the balance sheet. Fortunately for us, Apple reports details of a particular asset called “Leasehold Improvements.” It’s a substantial asset worth over $2.3 billion in the last statement. It represents “alterations made to rental premises in order to customize it for the specific needs of a tenant.”

The following chart shows the change in that figure quarter-over-quarter.

Can we tie these expenditures directly to stores?

The down payment on iCloud

Balance Sheets are not typical targets of focus in software or services or “high tech” companies. Except for Cash, there are usually not much in terms of assets for analysts to contemplate. With outsourced manufacturing, even hardware companies don’t maintain depreciable assets on their books.

Apple, as usual, is different. It turns out there is a lot there and there’s a lot to learn from what’s there. I’ve looked at the Cash and Long Term Securities in the past but in the next few posts I’ll dive into fixed (non-current) assets. Specifically Apple’s Property, Plant and Equipment.

Apple Inc. has selected North Carolina as the location for a new data center and will invest more than $1 billion in the project over nine years, Gov. Bev Perdue announced

via It’s Official: Apple iDataCenter to North Carolina » Data Center Knowledge.

When Apple committed to the North Carolina data center in mid-2009 the iPhone was two years old. Only 26 million iPhones had been sold to date (about as many as Apple now sells every quarter.) Clearly if the commitment was on such a scale there must have been a plan. A big plan.

We don’t know for sure if NC was used last week or whether it was handling only part of the load, but let’s assume it was. What I want to think about is how much iCloud would thus cost and hence what would be the cost for alternative providers of such a service. That analysis might let us determine if “cloud” forms a substantial barrier to entry for competitors.

Beside the public statement above (which may have been designed for political benefit) can we find any evidence of what Apple spent on data centers? That’s where the PP&E line comes in.

The following chart shows the Property, Plant and Equipment asset in Apple’s Balance Sheet.


Each line represents a particular type of asset and its value at a particular point in time. I will now pay attention to the blue line,