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Tim Cook’s comments on Apple Stores, illustrated

Feb 13, ’13 1:52 PM
Author Categories Financial

Yesterday Tim Cook spoke at the the 2013 Goldman Sachs conference:

There’s no better place to discover, explore and learn about our products than in retail. It’s the retail experience where you walk in and you instantly realize this store is not here for the purpose of selling. It’s here for the purpose of serving. I’m not even sure “store” is the right word anymore. They’ve taken on a role much broader than that. They are the face of Apple for almost all of our customers

Last quarter, we welcomed 120 million people in our stores.

Screen Shot 2013-02-13 at 2-13-1.46.24 PM

We only have a little over 400 [stores]. Last year, we welcomed 370 million into the stores.

Screen Shot 2013-02-13 at 2-13-12.51.57 PM

We’re closing 20 of our stores and moving them and making them larger this year. And in addition to that 20, we’re adding 30 more. Those 30 will be disproportionally outside the U.S. That gets us in 13 countries.

Screen Shot 2013-02-13 at 2-13-4.11.22 PM

And so I’m incredibly bullish on the stores. We’re going to continue to invest like crazy in them.

Screen Shot 2013-02-13 at 2-13-1.48.27 PM

Our team members are the best in the world. And the financial results are great.Screen Shot 2013-02-13 at 2-13-1.32.23 PM

Average store last year was over $50 million in revenue.Screen Shot 2013-02-13 at 2-13-1.39.15 PM

Who would’ve thought a store could do that?

Screen Shot 2013-02-13 at 2-13-4.07.44 PM

  • http://fortune.com/apple20 Philip Elmer-DeWitt

    Horace, what’s your source for that last chart?

    • sternesiech

      To me the units in the last graph do not make sense: As I read, Apple in 2012 had sales of 6000 million $ per square foot!?!

      • http://twitter.com/lbutlr ɹןʇnqן

        where are you seeing ‘millions” The chart is $ per square foot. $6,000 for APple, $3,000 for Tiffany (for the #2 position). There is no millions.

    • nuttmedia

      Pretty sure it’s a report from a firm called RetailSails.

    • http://www.asymco.com Horace Dediu

      RetailSails, though it’s from August, I believe.

      • boristhefrog

        Meh… you should be acknowledging your external sources when you use one… people acknowledge linking to your data – please do the same….

  • Sockatume

    “UK, Scotland, N. Ireland”?

    • Rusty

      Haha yeah. Great with numbers, shit with geography.

  • http://www.facebook.com/profile.php?id=100000728233984 Kristian Iskanius

    How does this compare with other retailers? Apple should be now one of the biggest in the world in revenue. (http://www.stores.org/2012/Top-100-Retailers#.URuHzqXDnfU)

    • http://www.facebook.com/profile.php?id=100000728233984 Kristian Iskanius

      Amazon sales are somewhere $47B per year so if we calculate Apple retail, iTunes and Appstore together.. How far away is Apple? When is Apple going to pass Amazon?

      • http://twitter.com/lbutlr ɹןʇnqן

        Apple passed Amazon in sales a long while back. Apple sells more in a quarter than Amazon sells in a year, and made, in one quarter, triple the profits Amazon has ever made in their entire combined history.

  • http://twitter.com/agentbillo Bill O’Donnell

    I think the units on the last chart are wrong. Should be $/sq ft not millions$/sq ftt?

    • Guest

      6 billion dollars per sq. ft. does sound a little on the high side…

    • Financial Mastery Wealth

      I don’t see the millions… just around $6k / sq ft

  • http://profile.johnabell.com/ John C Abell

    On the last chart: Where is there a key which says it’s in ’000′s’? As i read it, Apple is making $6k per square foot — not 6,000,000.

  • Armandvdb

    When you see the relevance, the positive effect on customers, the competitive advantage of Apple stores, the question is : why is the development so incredibly slow. In most part of the world, Apple stores are not available. The number of Apple Store, at least internationally, should DOUBLE every year. Not double in five years.
    Armandvdb

    • http://www.asymco.com Horace Dediu
      • Sacto_Joe

        Nice link, Horace!

    • boristhefrog

      I think you’ll find that Apple’s international roll out is about in line with other retail businesses – roll out in another country take a lot of planning and time to secure sites, hire staff and ensure the supply chain behind the store is working…

      Apple is pretty deliberate about where it goes and makes careful decision – if it can’t get what it wants it will wait… Also note that Apple opens a far greater number of its stores in the 4th calendar quarter each year, but the rate depends on availability of locations and a myriad of other factors…

      Ya just can’t snap your figures and make it so….

    • JohnDoey

      That is basically the same argument that we have with devices always being out-of-stock. The demand for Apple products grows faster than Apple is physically able to grow. However, that is a great problem to have.

    • normm

      I agree with you! Consider China, where Apple currently has eight stores to serve 1.4 billion people. I don’t think it’s important that the stores all be unique architectural marvels. Pick a good design and make 100 of them!

  • ronin48

    I think there is one graph missing: average visitors per store by year or quarter (although it can be derived from the store visitors vs. stores open graph).

    What you’ll see is that growth in visitors per store per year leveled off at about 1million per store in 2011 with no growth since then.

    Frequent store visitors can attest to how crowded they have become – not so much a Prozac experience as TC described but too often more of a crystal meth one. Could this partly explain the drop in revenues vs stores open in 2012?

    This goes on the list with Apple’s other high quality problems but it needs to be addressed with larger and/or more stores if growth in visitors and revenue per store is to continue. Luckily from what was said yesterday regarding the expansion plans for 20 existing stores the issue is getting addressed.

    • Walt French

      @ronin48 wrote, “What you’ll see is that growth in visitors per store per year leveled off at about 1million per store in 2011 with no growth since then.”

      I don’t know how much of an impact crowdedness has — I’d say, “bustling” for the 4 I occasionally visit — but I’m not sure the visitors/store is a measure you can use as a simple metric.

      If Apple is halfway sensible in store choices, the first store it opens will be more popular than the one it opens five years from now. After all, stores are expensive in executive planning, licenses & construction; why not open them first where they’ll get the most business, and pick up the less important locations later? Further, law-of-large-number considerations should make it obvious that it’s harder to maintain the proper staffing for a site with 20 employees than 200.

      Imagine that you’re in charge of stores for Xian, China. Will you open one mega-store, or five merely super-sized ones? The mega solution will have a fabulous visitors/store ratio; the latter might serve many more visitors and increase total profits after the extra costs. I’d go for the five.

      Apple stores have simply picked the lower-hanging fruit so far. Doesn’t mean there’s not plenty of fruit on the tree after you’ve picked the easiest locations. You’ll have to look more to know the answer to the saturation question. I’d guess “nowhere close.”

      • Jaydon

        The problem is finding high quality suitable locations in China, especially Xian. They will probably go for one mega store, like they originally did in tier one cities, as modern malls that would suit a premium store are few and far between.

      • ronin48

        You missed the point. Visitors per store and 1million visitors per store per year are, of course, averages. These had been rising but have plateaued.

        Mean revenue per store is actually dropping slightly yoy.

        Apple retail needs more square feet. As long as the stores stay as cool as always and the proper demographic and market research is done in advance (yes, Apple does do market research) it doesn’t matter if it’s 3 big stores or one huge store or 6 medium sized stores.

        They just need more square feet of retail. There’s a limit to how much one Apple store can sell in a day and some stores are likely bumping up against that limit. The numbers show it and Tim’s comments reflect they are finally reacting to it.

        Think about it.

      • Hosni

        @ronin – “it doesn’t matter if it’s 3 big stores or one huge store or 6 medium sized stores …”

        It matters for customers, because six smaller stores (rather than three) means Apple stores are closer to the homes of customers; that lowers their travel time and therefore encourages more trips to the store. Also, six stores would be seen on a daily basis by more customers and potential customers than three stores, and that is a plus for marketing.

        Three bigger stores would probably have lower inventory needs (per dollar of sales), utility costs and management expenses.

    • boristhefrog

      The problem with a store becoming overcrowded is that it usually takes a couple of years to get bigger premises – leases have to be run out or cancelled, new space found and fit out done etc – Apple is cycling into larger stores, but its takes time… And then there is the issue of whether they have the right size… too small and it gets overcrowded…. too big and it looks empty (and who wants to walk into an empty store?)

      Not sure that visitors/store actually tells you much because the key metric is spend per transaction and transactions per hour/day… I’ve walked into a number of Apple stores and bought nothing but they area always busy…

      The Apple store in the IFC in HK gets me… the IFC mall can be empty (more or less) but the Apple store is always buzzing…

      • http://twitter.com/lbutlr ɹןʇnqן

        One of the things I really like about the Apple Store is that I can go to it, hang out, look at stuff, leech on their WiFi, charge my iPhone, and get in conversations with people (other customers or employees) and despite it being busy I never feel pressured. I spent an hour in the store last fall logged in to one of my servers making an emergency fix to some code, and everyone was perfectly cool with that.

        I’ve seen High School and college kids making final edits to their papers before turning them in via email.

        And when I do want to buy something, I pull out my phone, scan the bar code, grab a bag from under the table I know has the bags, and walk out of the store. By the time I get to the door the email receipt has arrived on my phone.

    • JohnDoey

      Apple is closing 20 stores this year in order to replace them with larger buildings more than twice the size. And newer Apple Stores are much larger than they were in the past.

      Also, their products are getting smaller, and software CD/DVD removed. And in some cases (like San Francisco downtown) they removed the theater and replaced with 1-to-1 training that frees up floor space.

      So they are taking steps.

      San Francisco needs another store, though. The Castro would be perfect, where Diesel is now, at Castro/Market.

      • ronin48

        As I said in the OP, Tim seemed to be acknowledging the floor space issue in his Goldman talk – Prozac comments notwithstanding.

        Product volumes might be shrinking a bit but product footprints aren’t. Either way I don’t see how this frees up floor space. Removing the cinema was a good move though.

    • http://twitter.com/asymco Horace Dediu

      Visitors per store cannot grow beyond a limit. They are a function of store size. I believe Yogi Berra put it best on why he no longer went to Ruggeri’s, a St. Louis restaurant: “Nobody goes there anymore. It’s too crowded.”

      • ronin48

        Exactly my point.

        P.S. Who knew the wisdom of Yogi would apply to Apple retail?

      • http://twitter.com/pk22901 Peter Kropf

        Exactly. Yogi was not from this world. Do you know he retired from BB as a banker?

  • http://twitter.com/pk22901 Peter Kropf

    Horace,

    When I look at your quarterly charts, with each hitting strong highs in the Q1 2011 and 2012 quarters, I imagine the 14 week 2011 quarter shortened by -1/14th to match 13 weeks stats to 13 week stats.

    I think my eye would ‘read’ a significantly different and more accurate growth story.

    Have you considered this adjustment?

    • http://www.facebook.com/frankichel Frank Ichel

      Horace, you’ve probably commented on this already… if so please link me. My point is: Be careful converting Q1 results to per week data for yoy comparison. I expect the lion’s share of revenue for the quarter occurs during certain times due to holiday shopping, and the extra week does not significantly cut into these periods. So I wouldn’t inflate 2012 Q1 data by 7% just to consider the extra 1/14 weeks.

      • http://twitter.com/asymco Horace Dediu

        Oppenheimer explained it this way in October 2012:

        ” As a reminder, year-over-year comparison will be impacted by the fact that our December quarter this year will span 13 weeks, whereas the December quarter last year included a 14th week.

        As we indicated previously, revenue in that 14th week last year was approximately one 14th of the quarter’s total revenue.”

        http://seekingalpha.com/article/952971-apple-s-ceo-discusses-f4q12-results-earnings-call-transcript?part=single

      • Sacto_Joe

        Great link, Horace! Thanks!

  • So You Know

    The biggest challenge for Apple Retail is finding, training and retaining qualified talent to staff their stores.

    • JohnDoey

      I don’t know about that. They had 120 million visitors and only 30,000 retail staff. The visitors buy and use products and some will come back as staff.

      If they could find qualified staff in 2001–2003, they surely can find them now. During those years the iPod was Mac-only and the Mac was split between the retiring OS 9 and oncoming OS X. So traditional Mac skills were not even in demand. And nobody knew what the Apple Store really was yet.

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  • Dada

    What program is used to make these charts? Are they Excel?

    • http://twitter.com/asymco Horace Dediu

      I use Numbers. It’s available on the Mac App store for $19.99.

    • Financial Mastery Wealth

      “Numbers” check it out. Mostest bestest whole lotta better than Excel

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  • Sacto_Joe

    I’m admittedly late to comment on this story. But – am I the only one to notice that huge spike in Q1 for 2012 and 2013, followed by the reversion to form for the three following quarters? THAT’S the wisdom of “moving” their releases closer to the big holiday shopping season! It’s also why analysts who keep trying to compare the “old” Apple quarters to the “new” Apple quarters keep predicting that “Apple is doomed!”, when nothing could be further from the truth. Apple now has a “super quarter” (Q1) followed by a “really good quarter” (Q2) followed by two weaker quarters. Q4, which used to be Apple’s powerhouse quarter, is now its “weakest”.

    As time goes on, this pattern will become obvious to everyone. And Apple stock will regain its luster.

    Sacto Joe predicts.