Would Target and Sam's Club be drag on Apple's upscale image?

The rise of Apple's stores is one of the past decade's great retail stories. So, why then does the company continue to creep back into the big-box outlets and will this hurt the brand?

When it comes to consumer electronics, Apple's stores are a cut above; from their prime locations (this one is on New York's Fifth Avenue), to their design, to the revenue they generate. Why would the company alter a winning formula? Greg Sandoval/CNET

Oh no, Apple. If you start to sell out of big-box stores again, you'll cheapen your brand. Don't let the iPad suffer the same fate as Calvin Klein jeans.

That was my first thought last month when I heard that Apple plans to create Apple boutiques within some Target stores and supply the merchant with even more gadgets and gear to sell. Then, last week, 9to5Mac reported that Apple was considering whether to do something similar in Sam's Club .

There's no mistaking what's going on. Apple continues to increase its presence in mass-market retailers after walking away from most of them a decade ago. I wondered if the company isn't risking its image and reputation in the hope of expanding its market.

Apple already sells iPads and iPods through Target but soon, mini Apple stores will be available in some Target locations. Greg Sandoval/CNET

The public is fickle and sometimes snooty. Every few years an exclusive designer label or maker of a popular consumer good sells out to mass-market stores only to see their prestige erode. In the 1990s, it happened to Calvin Klein jeans after the much sought-after fashion item became available in (gasp!) discount outlets.

When the jeans sold in trendy boutiques, people were willing to pay top dollar. When the pants became available in Costco and similar stores, the taste makers turned up their noses. Things got so bad that Calvin Klein himself tried to sue one of the company's distributors to keep them from selling to those stores.

Apple's Target audience
To find out if the same could happen to Apple I needed an expert. I went to the people at Siegel+Gale, a firm that helps businesses from all over the world care for their brands. In an interview I did last summer, Siegel+Gale execs not only correctly assessed how Netflix botched its price-hike message but the consultants also accurately predicted the nasty fallout that ensued .

Last week, I asked David Srere, Siegel+Gale's co-president and CEO, if Apple's image was headed for trouble.

"I think Target is a good partner for Apple, but they should stay away from Sam's Club," Srere said. "Target and Apple share many of the same goals. Target talks about outstanding value and continuous innovation and exceptional guest experience. With Target, it's not just about cost. It's about providing value."

Srere noted that Target has a successful track record at selling higher-end goods, including Burberry. Last September, when Target began discounting Missoni, a luxury women's clothing line, Target's Web site buckled under a traffic tsunami.

Missoni shoppers obviously weren't too proud to buy from a big-box store.

As for Sam's Club, Srere said that the Wal-Mart-owned chain is more concerned with eliminating unnecessary costs and moving lots of product. Srere said he thinks Target is a much better strategic fit.

That makes sense. Target has carved a niche for itself among the big boxes. Lots of people still say the company's name with a French accent, as in, "I bought this $35 desk lamp at Tar-shay." The implication being that Target may discount, but the products are classier, even chic.

In addition, Apple has important ties to Target. In 2000, Apple CEO Steve Jobs hired Ron Johnson, Target's one-time marketing guru, to help him design and set the tone for the Apple stores. Johnson, who is now CEO of J.C. Penny , spilled some of Apple retailing secret sauce in this story .

Think out of the (big) box
Following his return to Apple in 1997, Jobs grew disenchanted with the retail experience provided by the big-box retailers. He pulled Apple's products after deciding to create an environment that would help instill customer loyalty and set his devices apart from the competition.

By almost every measure, Jobs succeeded.

The first two Apple stores opened in May 2001, in McLean, Va., and Glendale, Calif. Apple's stores now number more than 360 worldwide and the company plans to open 40 more in 2012. Apple's flagship stores are known for their legions of knowledgeable salespeople who are typically eager to help, and for the scores of devices available for customers to try out.

Some of the locations are design marvels. Put it this way, when was the last time someone wanted their picture taken in front of a Sam's Club? The Apple store on 5th Avenue in New York is a tourist destination. Day or night, someone is out there snapping pictures in front of the glass facade.

The fruit of Apple's efforts: For 2011, the company reported $3.3 billion in operating income on $14.1 billion in sales. That's up from 2010, when Apple generated $2.3 billion in operating income and $9.7 billion in revenue.

Playing catch up is Microsoft, which began opening retail stores in 2009. If imitation is the sincerest form of flattery then Microsoft has tipped its hat to Apple. It hasn't gone unnoticed how similar Microsoft's stores are to Apple.

The 'people's brand'
So, if Apple's stores are a gold mine, why change the strategy now? Why give up some of that hard-won control to a third party--again? Ask anyone who has shopped in Best Buy for awhile, one of frustrations there is the sometimes spotty customer service, and this is a chain that specializes in electronics. How much will Target and Sam's Club employees know about Apple products?

Srere waves off my concerns. What's most important, he tells me, is that some people have wrongly perceived Apple's products to be luxury items, or strictly for super geeks.

He reminded me that Apple's goals from the beginning were completely the opposite. Before Jobs and Steve Wozniak came along, the power of computing rested almost exclusively with governments and mammoth corporations. Apple handed that power to everyone.

According to Srere, Apple's brand will only benefit if the company can get its products into more hands.

"Apple has transcended every other category to become the people's brand," Srere said. "If they expand their distribution this way, the passion that people have for Apple will only increase on a more ubiquitous level."

 

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