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Apple's International Retail Strategy

In 2012 Apple opened 41 stores. The total is the second highest yearly opening rate since the stores first began operating. The highest total was in 2008 when 47 stores opened.

Although it is a healthy total, the surprising story about retail is that stores are not being opened as quickly as Apple’s sales and reach are growing. The following graph shows the yearly opening rate.

Screen Shot 2013-02-25 at 2-25-6.28.22 PM

The line in the graph above shows the change net sales since 2006 (right scale).

The store opening rate has been around 40/yr. during the last five years, up from 30/yr. during first seven but a 33% growth rate it’s still a frustratingly slow rate of growth. Consider that during 2007 when Apple opened 34 stores, Apple’s net sales were growing at the rate of $7 billion/yr and that in 2012 when it opened 41 stores sales grew about $37 billion or more than 5 times faster.

Although performance for the stores has improved (i.e. the sales per store went up), sales outside of their own retail channel are now a far higher portion of total. 2007 retail revenues were $4.7 billion or 17% while 2012 were $19.1 billion or 12%. You can see the mix by region in the following graph:

Screen Shot 2013-02-25 at 2-25-4.32.22 PM

Note that these are quarterly figures.  Now consider the split of stores currently open in each region:

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

We can then conclude that for sales outside of the retail channel, the split of sales and stores is as follows:

  • Americas: 37% of sales 69% of stores (63% in US, 6% in Canada)
  • Europe: 23% of sales 22% of stores
  • Japan: 8% of sales,  2% of stores
  • China: 13% of sales, 3% of stores
  • Rest of Asia: 7% of sales, 4.5% of stores (all in Australia)

This explains the current mix of store openings, shown below:

Screen Shot 2013-02-25 at 2-25-4.38.09 PM

In 2012 only about 15% of store openings were in the US. It would seem reasonable therefore to expect that the priority for most, if not all, future openings should be outside the US to address the current sales/retail presence imbalance and to accommodate the bulk of future growth.

  • benbajarin

    With the US getting closer to smart phone saturation, I wonder how much sense it makes to keep as many US stores open as they do? I’m curious how key this is to driving sales the same way it was in the past.

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

      The problem they have is that traffic per store is increasing to a level which makes the experience uncomfortable. I analyzed the traffic and employee density per store and it seems that they are hitting the buffers. The problem in the US is not that there are too many stores but that they are too small. The amount of traffic is enormous. Visitors in 2012 were 383 million. Population of the US is 314 million.

      • Noah Berlove

        I have been to a number of malls where the Apple store has been remodeled or moved to a new location. Are there any stats on changes in total square footage or other metric to show growth other than new store openings?

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

        The store size data is not available on a per store per time basis, only in the aggregate.

      • JohnDoey

        And don’t forget, Americans are giant people. (I kid.)

      • http://www.richardsnotes.org Richard

        This is an interesting point and might be worth analyzing compared with Microsoft’s stores or any other similar retail spaces. Early on it was easy to hang out at almost any Apple store (maybe not Soho in New York before remodel) and use their wifi, browse, talk. These days almost every store is so packed that there are few computers available, few places to sit, and the din is tough to take for long periods.

        Independent of Apple’s popularity because of its products, people like to go to places that are popular and packed with other people (to a point I would guess, or maybe not). So, as more people show up, even more people show up.

        It might be that Microsoft is having exactly the opposite experience, as their stores look like ghost towns, they become even less popular as few want to go into an unpopular place. I’ve seen employees at the Microsoft store in the mall near us going nuts to attempt to make their store look alive and it really looked sad (well, I was glad in a way).

        Again, independent of products, popularity breeds more popularity, and the reverse is no doubt also true. Add excellent products to the mix and it’s a serious win for Apple.

    • JohnDoey

      The US is nowhere near iPhone saturation. There is not even a low-end iPhone yet. All the Samsungs need to be replaced with iPhone minis.

      The US is also nowhere near iPad saturation. The Mac is saturated (well over 90% of high-end PC sales) but the Mac is also transitioning to multi-touch and Retina Display. I stopped by an Apple Store recently just to see the MacBook Pro with Retina Display because that is what will replace my existing MacBook Pro when its AppleCare runs out later this year.

      The big thing I think you missed is that when Apple acquires a new customer, that puts MORE of a burden on the store than before, not less. If Joe Smith walks into an Apple Store for the very first time today and buys an iPhone, that means he will be back 5 or 6 times this year to buy a case, a hardware accessory, an extra charger, to get training or support or service, or to buy an iPod shuffle for the gym, or a Mac/iPad to replace his crufty old Windows XP PC. And 2 years after his iPhone purchase, he wants another iPhone.

      Think of Apple Store as a clubhouse, not a store. The more people in the club, the bigger the clubhouse has to get.

    • abugida

      So far I haven’t seen people suggesting that smartphone sales will shrink in the US anytime soon. Growth will be flat, but that’s no reason to fold the tents. Especially as Apple hopes to win future customers directly from Android, not just from feature phones and older smartphones, thus keeping growth.

      And as others have said, Apple Stores are about communication. Tim Cook mentioned several times that the Store is the best place to educate the public about new product categories coming out, like iPhone and iPad in the past.

  • http://twitter.com/WalterMilliken Walter Milliken

    Maybe I’m just having a bad morning, but I found a couple of the graphs confusing:

    The first graph appears to graph incremental store openings against total yearly sales. Those two things don’t seem comparable to me, I’d expect either the sales to be normalized against the number of stores opened or the store number to be the total stores open. I.e., the sales should roughly correspond to the total stores, not incremental openings — the graph doesn’t seem to be saying anything meaningful, as is.

    The fourth graph (store openings by country vs sales) doesn’t seem to have the sales line comparable to the first chart. Or are the bar chart stacks total sales, and the openings just the numbers in the bars? It wasn’t obvious to me what’s going on here, anyway….

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

      You’re right regarding the comparison in the first graph. The line was an afterthought and it does not compare well.

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

      I’ve modified the graph to show growth in sales vs. growth in stores.

      • Hosni

        I believe it would be useful to present a chart showing sales revenue in each of the main regions identified in Apple’s earnings report (USA, Greater China, Europe, etc) and the total number of stores in each of those regions. Then a second chart showing revenue increases ($$ not %) and new Stores in each region (the same format as Graph #1).

        The country-by-country data is interesting, but Apple does not provide sales data by individual country so analysis of the Store numbers is imprecise or impossible to conduct.

  • Roger

    Do they need to have more stores? It would seem to be rather pointless opening a store if all it does is divert sales that would otherwise have been online. I view them mainly as a marketing exercise – they reassure potential buyers that if you ever want to interact face to face with someone representing the product (employee) then you can. Try that with Microsoft, RIM, Dell, Android and similar “faceless” alternatives! As a consequence it doesn’t really matter if you had to travel some distance to get there as the reassurance is the important part.

    Perhaps an interesting metric is percentage of population that can reasonably afford Apple products that are not within 100km of a store in each country.

    • http://www.isophist.com/ Emilio Orione

      Apple stores are not only for sales, they are for interaction with customers and sales.
      Second about the distance, if you are right increasing the stores’ number should decrease traffic per store, instead traffic is increasing.

      • Roger

        > they are for interaction with customers

        That’s what I said/meant, although customers don’t have to do so, just know that the option is available and isn’t available with competitors.

        Some traffic could be people deciding to buy in the store instead of online. (The prices are identical.) That isn’t of much value to Apple. I wonder if they will ever do something like have the prices differ by $5 to encourage people to go online.

      • handleym

        But what IS of value to Apple is that I can try something I am on the fence about from the Apple store, secure in the 14 days no questions return policy.

        In theory that same policy may apply to online sales, but it’s obviously more of a hassle. How does the 14 days of timing work (does it include shipping time)? I have to package and mail the item back. Do I have to go through some RMA paperwork process? etc etc etc

        Speaking for myself, I use online for Mac purchases (where I generally buy a custom config) but I bought my first iPad at the store precisely so I could try it out, see if actually matched my needs, and easily return it if it did not.

        (Of course this is only a guarantee you can provide if you’re pretty confident that the return rate will actually be pretty low…)

      • JohnDoey

        The return rate for iOS devices is a tiny fraction of the return rate for generic consumer electronics devices. We’re talking 1% for iOS devices versus 25% for Android and Windows Phone devices.

      • JohnDoey

        People deciding to buy a product in the store is of HUGE value to Apple, even if they actually buy the product from the online store, because people deciding to buy a product is what Apple Store is all about. Apple doesn’t care if you complete the sale through an in-store employee or self-serve at the online store. They even have self-serve sales in the stores now for some products.

        A friend of mine was considering her first Mac, so I took her to Apple Store and she walked up to a MacBook Air and touched it and was 75% sold right there. Then she tried to use it and found it easy because her Windows skills transferred over, and that covered the other 25% of being sold. She ordered online to get the build-to-order options. The online part was basically just paperwork. The sale happened in the store even though it is not recorded that way.

        This is a heads-Apple-wins, tails-Apple-wins situation.

      • JohnDoey

        I think there is a network effect. The more ubiquitous the stores become, the more users commit themselves to only shopping for consumer electronics at Apple Store. Their technology plan becomes buy everything from Apple and if there is any problem with a device or any accessory is needed, go right back to Apple Store.

    • abugida

      Really the two approaches you contrast amount to the same right now. Only 3 or 4 countries are saturated with Apple Stores, as per your 100 km rule, all of them English speaking countries.

  • stevesup

    All this in light of the huge sales/sq.ft. overall, twice Tiffany’s sales. So it’s all working.

  • http://twitter.com/alex4d Alex Gollner

    Small typo:

    Not

    Americas: 37% of sales 69% of stores

    but

    Americas: 73% of sales 69% of stores

    Cheers from London!

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

      I believe Americas are 37% of sales.

      • http://twitter.com/alex4d Alex Gollner

        Sorry, I should have spent more time comparing the column graph with the pie chart!

  • sfmitch

    It seems that Apple has been overly cautious in opening stores.

    Starting slow to refine the concept followed by a slow rollout to refine the system of opening stores all makes sense.

    But at some point (years ago) the value of the stores and the system for opening stores has been proven and perfected and then it should be time to get aggressive opening stores.

    Apple has no shortage of money and has shown willingness to invest it back into the company. I don’t understand why they hadn’t doubled or tripled the pace of store openings.

    I think it is a notable misstep from Apple management.

    • normm

      Apple seems to have the philosophy that each store should be distinct and individually architected. At this point, though, it would make much more sense to pick a generic design and reuse it for most stores—they can still make a few distinctive flagship stores of course. They root out fake Apple stores in China, but these are filling an enormous vaccuum. They currently have eight stores there, to service a population of 1.4 billion people!

      • JohnDoey

        There are fairly generic Apple Stores in addition to the really unique ones. I would bet the holdup is related to human resources more than the actual store. The building is just a stage, the show is the staff you find there, waiting to treat you like you’re Steve Jobs, Jr.

      • normm

        You’re probably right that physical buildings aren’t the big holdup, but it’s hard to believe the rate limiting factor is personnel. The world is full of Apple fans eager to work at an Apple store. And training isn’t like adding developers to a project: training new people is a perfectly parallelizable process. There should be a doubling time it takes a group of trainers to produce an equal number of new trainers. Perhaps the rate limiting factor has to do with requiring direct oversight from top management at Apple?

    • stsk

      Apple is not Best Buy. The Apple stores do not just serve as shelf space, but as customer evangelism, tech support, education/training, brand development and sales arenas. It’s easy to throw money at shelf space and just open more locations. The rest takes an enormous amount of careful recruitment, training and staff development, and therefore, a substantial amount of time. The ripple effect of each store extends far beyond its walls and missteps have far larger consequences than for other retail brands. That’s why John Browett, who had no fricking clue what ANY part of the Apple retail experience was about, was such a complete disaster. He came from the same perspective you’re suggesting.

      • handleym

        These points are even more valid when it comes to opening stores outside the US. The “further” you get from the US, I imagine the less your potential employees and even management appreciate the nature of the Apple brand — the type of experience being sold, the way customers should be treated, how questions should be answered, etc.

        Just imagine opening a store in, say, Ho Chi Minh City — it’s going to take quite a bit more work to ensure that you have everything lined up just the way you want, compared with even opening a store in Anchorage or Mexico City. But the flip side is that it’s the first store that’s the hardest in each country, and after a few years of presence and expansion, it’s a lot easier to then grow as necessary.

      • chano1

        I guess that is why SJ is so widely respected in Asia – because people outside the US will never ‘get’ it, hmmm?

      • dajhilton

        I would say just the opposite. They don’t hide away Apple stores in faceless malls in Europe and Asia. They make them the most impressive public buildings in the town – almost temple-like in their drawing power. It is outside the US, that the Apple brand truly flourishes.

    • JohnDoey

      I think they are trying to avoid ever having to close a store. That would be worldwide news, wouldn’t it? Really bad PR.

      • Jerry

        It’s beyond that. Every store has to look busy pretty much all the time. The press has had a great deal of fun showing pictures of empty Microsoft stores. Imagine what they would do with a picture of employees standing around with nothing to in an empty Apple store. Given random variation, if the traffic gets below a certain level, at some point, that picture opportunity will present itself. (The fact that no one’s ever published such a picture is testimony to the incredible, continuous traffic in the stores that exist.)

        — Jerry

    • abugida

      Besides these other points I’d like to add that opening a retail store is a long term commitment. A website can be changed overnight, an iPod model can be replaced in a year, but a store will be open for a decade. Who knows how big or small Apple will be in a decade? Best not to set up too many future liabilities so the company can remain nimble and profitable.

  • highroller

    I still don’t understand why Apple opened so many stores in Southern Europe, particularly in Spain. It’s been clear for a while that Spain is not in the best shape as far as its economy is concerned. In fact, it’s never been a big market for Apple. Sicily also doesn’t look particularly appealing. At the same time, many other promising markets have been completely ignored.

    • handleym

      When this sort of thing happens, as much as anything else it often reflects random personnel.
      It may just be that Apple lucked into hiring a really dynamic Spaniard who was able to put together a team which could more rapidly overcome the problems I suggested above?

    • JohnDoey

      You’re forgetting that Apple is no longer just a high-end computer vendor. They also have the best-selling low-end computer, and it sells in higher volumes than the high-end systems. In other words, the less money a country has, the more they need iPads.

      Or maybe they are just in Sicily for the food.

      • chano1

        Or they were made an offer …..

    • Hosni

      Past sales are not necessarily a good way of measuring demand for Apple Stores. For example, recent iPhone adoptions by major carriers in Spain could justify new Apple Stores. Or perhaps Apple Stores are in greater demand there because customer needs are not being met by local resellers and repair/service providers. Without much more data, it is difficult to analyze Apple’s logic in opening a particular Store.

  • Relentlessfocus

    A few points. It was easy for Apple to open stores in the early years, USA is home turf, they know the culture, they speak the language, they know the laws or at least know how to tap into whatever resources they need and they know and can influence political issues more directly. So comparing the rate of store openings in the early years to the rate currently which entails opening shops internationally where they don’t have that home field advantage has to take those factors into account. To get a sense of the complexity of setting up shops in China look at ZTEs awkward presentation at MWC.

    Secondly, as you mention, American shops are mainly though not exclusively mall shops. Malls are easy but they’re small. International shops tend to be very large spaces in capital cities or major cities only which makes their profits on average larger or seem to be larger than the aggregate average in the US. Perhaps a sales per customer metric might prove helpful.

    In London the shops not only make a lot of money, they’re visited by hoards of foreigners who approach the 2 flagship stores with an awe and excitement reserved for major tourist attractions. Many of the computers in either of the London flagship stores are constantly used by young foreigners facebooking their friends and families. This I imagine is different than the local mall Apple Store in a suburban US setting.

    • Relentlessfocus

      And can I just add that DISQUS is a damn PITA on an iOS device.

      • JohnDoey

        It is amazing how bad it is and how long it has remained that way.

    • JohnDoey

      I think what you are seeing is the split between the first store in a city/country and the second and third and fourth, not a split between US and international. If a city/country has no Apple Store at all, then it is obviously more work to get in there and get one set up than it is to add a second location where you are already operating and have business licenses and government relationships and so on. The advantage in the US is that the first Apple Store here was opened over 10 years ago. Very old hat.

      London has 2 flagship stores because of its large size, but in a few years I would expect London to also have 4 or 5 smaller stores as well. San Francisco has a flagship store and 2 smaller stores and it is not nearly enough. They are always packed full.

      Another issue may be languages. Apple’s products support a lot of languages, but opening a store where the language is not yet supported in the products has to be harder than opening one in UK or France.

      • Relentlessfocus

        I think its far more complicated. As you say, London already has at least one “mall” store that I know of, but malls are not that common in Europe and I don’t see Apple’s European store distribution as being similar to the US.

        But more importantly I was thinking of China. Here Apple surely at the moment is only interested in setting up large stores in the large cities of which there are a staggering number. But my thinking is that the cultural, legal, political (everything in China is political) and linguistic challenges Apple faces in adding new stores surely means that the rollout of new stores is to a great extent out of Apple’s control and will not easily match the rollout rates of the US or Europe.

        I can’t imagine how Apple is handling the graft issues alone.

  • JohnDoey

    Where is my Castro Apple Store in San Francisco? Diesel is gone from the corner building at Castro and Market, in Harvey Milk Plaza, right above the Castro MUNI station and across the street from where the classic 1940’s F line streetcars turn around and the classic Castro Theater. It’s a beautiful building for an Apple Store, also. Not sure if Apple likes gargoyles, though.

    I know we already have 3 Apple Stores in San Francisco, but one is way in the northeast, one is way in the southwest, and the other is downtown and in spite of the fact that they have removed the theater and the boxed software, it is always overflowing with visitors, including many tourists. It’s a chore to shop there if you go there regularly, especially for business purchases. A location at the corner of Castro and Market would be the closest store for people in the Castro, the Mission, Haight-Ashbury, Inner Sunset, Sunset, and Richmond districts. It would put an Apple Store basically at both ends of Market Street.

    WANT.

  • Toon

    Holland isn’t a country, it’s a part of the Netherlands (http://en.wikipedia.org/wiki/Holland)

    • http://twitter.com/dreyfus2 dreyfus2

      Yeah, but since Apple’s only retail store is in Amsterdam, which happens to be the largest city in the province of North Holland…

  • http://www.robberends.com Rob Berends

    I don’t want to bitch about thuis amazing analysis, but it’s ‘The Netherlands’, not ‘Holland’. Holland are only 2 of the 12 provinces of The Netherlands.

    • Dekker

      The shop is in Amsterdam, so Holland is correct.

      • SiliconValley

        As far as I know there is no Holland as such but two separate provinces called North Holland and South Holland. The long awaited and still only? Dutch Apple Store would be in Amsterdam, North Holland.

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  • iwod

    I continue to wonder, if Apple will someday set up a Giant Big Screen Outside its Flagship store to stream when there is an Apple Event.

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  • Davgar

    Is it fair to compare stores to total income? The stores do not sell many iPhones — at least here in Europe — surely you should the iPhone revenue out?

  • Davgar

    Another point is that Europe is different – especially the continent, because Apple dealers survived much better here. So in 2006 there were still a couple in Basel for example.
    S

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  • chano1

    The question is, when will the Apple Store phenomenon become passé and the traffic begin to plateau? I used to like going. Nowadays, not so much. It is just a store after all.

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

      That’s easy to answer: when Apple will stop making new products.

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  • Laurent Giroud

    What surprises me the most is how Japan seems by far the most underserved of the developed countries. I can understand that China will stay underserved for quite a few years given the size of the country as well as all the intricacies of doing business there but it seems that of all countries Japan would be a no brainer to open new stores in.

    Despite the lack of economical growth the country have been experiencing for quite some time now the Japanese still have a very high buying power and they are well known for their appreciation of high tech in general. Also it doesn’t seem that there would be any special obstacles to new stores, so why did Apple stop opening stores after 2006?

    I would be interested to know what causes this singularity.

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