How Apple's stores turned into a retail juggernaut

On the 10th anniversary of Apple's first store, CNET takes a look at how it got to 320 stores and avoided an early idea to tempt you with pastries.

Apple's flagship retail store in downtown San Francisco the morning the iPad 2 launched.
Apple's flagship retail store in downtown San Francisco the morning the iPad 2 launched. James Martin/CNET

The Apple retail store we know today nearly began as a place where you could grab coffee and a danish and do a little Web browsing on Mac.

Today, on the 10th anniversary of Apple's first retail store, it's time to take stock of just how successful Apple's retail push has turned out to be, despite skepticism from tech pundits and--true story--a near false start selling tasty baked things.

Dial back to 1996, several years before the first retail store would ever open its door: Apple had a very different plan in mind to get its brand into the minds and wallets of consumers. Cyber cafes, with their high speed Internet access, software libraries, and nearby patrons and support staff were popping up in cities around the world.

Apple announced it would be joining forces with the Landmark Entertainment Group and Mega Bytes International to collaborate on state-of-the-art cyber cafes in Los Angeles, London, Paris, New York, Tokyo, and Sydney, Australia. There visitors would be able to surf the Web, grab a snack, and use Apple's latest hardware and software, which they might later end up buying. Then senior vice president of marketing for Apple Satjiv Chahil described it as "a place to showcase our products in the real world."

Just a month after that announcement, Apple acquired NeXT, and soon after Steve Jobs took the spot as Apple's CEO. In the last few days of 1997, the cybercafe idea was quietly shelved, a decision Apple attributed to its partners on the business venture.

The big box dilemma
Partner relationships are one of the big reasons Apple ventured into its own retail efforts in the first place. In the lead-up to Apple opening its own stores, the retail computing landscape was ruled by a handful of giants, few of which are still around today. They stocked their shelves with goods from a number of manufacturers, hired their own staff, and controlled where products went.

This system wasn't working for Apple, when at the time its main product was still computers. In 1998, the company began pulling out of several of these stores, including Best Buy, Circuit City, and Sears, to puts its focus into a "store within a store" concept it had with retailer CompUSA. There, buyers would be able to experience Apple products in a controlled environment that was made separate from the sea of PCs, laptops, and gadgets from other vendors. Similar efforts can still be found in places like Fry's and Best Buy.

But these "store within a store" concepts pitted Apple's products against others in an environment where potential buyers would walk just a few feet to go look at what others were offering. With that in mind, Apple dug deep to find an alternative.

An Apple "store within a store" in Best Buy circa 2006.
An Apple "store within a store" in Best Buy circa 2006. Samir Bhavnani/Current Analysis

In 1999, Apple hired Allen Moyer, a former Sony executive who had been part of the company's retail development projects, including the Metreon complex in downtown San Francisco. There, Sony had opened its own Sony Style store where consumers could wander in and get their hands on Sony's gadgets. Being in the middle of a densely populated and tourist-filled city, the store had the potential for big foot traffic. More importantly, it could be an attraction.

Apple's retail store in the Pudong District of Shanghai.
Apple's retail store in the Pudong District of Shanghai. Apple

That very idea is in the DNA of Apple's current retail stores, which run the gamut from rectangular blocks in shopping malls, to giant glass geometry that juts out of the ground, beckoning shoppers to descend into Apple's universe in cities such as New York and Shanghai.

Much of the success around Apple's retail efforts can be attributed to Ron Johnson, the senior vice president of retail for Apple. Johnson left Target to join Apple in 2000 and reports directly to Jobs. Johnson is credited both with the strategy of the stores, as well as much of the micromanaging that goes into the details, from from materials used, all the way to the layout of each store. This includes designing the stores to instill visitors with an idea of owning the products that are being sold.

When introducing the company's now iconic "cube" store in New York, Johnson noted that one of the biggest challenges the company faced early on when planning to open its SoHo store across town was what to do with such a big retail space.

"We had booked a site before we opened our first store that was almost 20,000 square feet. At that time, our product line you could fit on one conference room table," Johnson said. "Yet we're coming to New York, the biggest retailing city of the world, and we're going to fill 20,000 square feet of retail space!"

That store went on to become a big earner for Apple, reportedly pulling in nine-figure annual sales even in the height of the recession. Johnson said it was just weeks into running the SoHo store before the company realized it needed to continue expanding.

It's what's on the inside
The interior design of the modern Apple retail store varies by location. Some include movie theaters with podiums for training sessions, product promotion, and special events. Others include special areas for children to play games and use educational software. However one of the most iconic fixtures is the Genius Bar, a place where users can come get their Apple hardware and software problems fixed by company-certified repair technicians. It takes customer relationships one step beyond what Apple originally intended with the unrealized cyber cafe concept by supporting those who have already bought into the company's product ecosystem.

The Genius Bar at Apple's retail store on West 14th Street in New York, which can service 100 customers an hour.
The Genius Bar at Apple's retail store on West 14th Street in New York, which can service 100 customers an hour. Caroline McCarthy/CNET

When Apple stores first opened up, they actually provided bottled water to visitors of the Genius Bar but halted the practice a few months later. In a keynote speech at a design conference in 2004, Johnson said the practice was too expensive. He also noted the company had contemplated serving hot beverages too but was turned off by getting permits and having to train employees.

Over the years, the Genius Bar has evolved to support all of Apple's products, moving from just computers and computer accessories to iPods, iPhones, and iPads. Apple has also expanded the support offerings offered at Apple stores, with training and support programs for PC switchers, users of its pro software products, and small businesses using Apple software and hardware. These efforts go hand in hand with the company's AppleCare support service, which can be done over the phone, and by mail.

With Apple's iconic New York "cube" store, the company spun off the Genius Bar, breaking out separate support bars for iPods and another for people working on creative projects. Apple calls that effort "The Studio" and staffs it with photographers and other creative professionals.

Launch factor
One of the areas where the advantages having your own retail stores can be seen is when it comes to launch a new product. Apple frequently updates its hardware, with some launches garnering more public attention than others.

While modest lines can form for new laptops or iPods, nothing's had quite the effect of the iPhone and now iPad. Following the introduction of new versions of these devices, the place to go has become Apple's retail stores, where buyers tend to have the best shot at grabbing a new product the day, or weekend it's first out. Of course buyers line up in front of other retailers too, but for the past few years the largest lines have tended to be at an Apple venue, stretching around entire city blocks.

A sea of Apple Store employees meet a much larger sea of first-generation iPad buyers, press, and other onlookers in April, 2010.
A sea of Apple Store employees meet a much larger sea of first-generation iPad buyers, press, and other onlookers in April, 2010. James Martin/CNET

Apple famously does not talk about how much stock it has on hand at its stores. This changed briefly around the launch of the iPhone 3G, with Apple offering an online stock availability tool for customers to see if certain models were in stock before leaving home. Apple tried a slightly different approach with the launch of the first iPad and the iPhone 4, offering customers a way to reserve a unit when it came in stock, then come in to purchase it. This practice was not repeated with the second-generation iPad, which was released earlier this year.

There are also lines for new store openings, with some camping out overnight for at a chance to be the first through the doors. Apple has a long history of giving these customers a small gift, usually a T-shirt with the name of the store emblazoned on the front. A few years ago, these lines were stocked with only the most fervent Mac buyers, but with Apple's broadening consumer electronics appeal, that's changed too.

Future growth
One question that remains is how much bigger Apple plans to grow its retail venture. Apple is now up to more than 320 stores worldwide, with most of those in the United States. Coming in at a distant second is the U.K., followed by Canada. The company noted last month that it has plans to open 40 new stores by the end of September, 30 of which will be outside the U.S.

In Apple's most recent earnings call, the company said that more than 1 billion visitors have stepped foot inside its retail stores since their debut in 2001. Perhaps more impressively, Apple's stores now average $9.9 million in annual revenue, per store.

Apple's efforts have not gone unnoticed by competitors. Microsoft hired Wal-Mart veteran David Porter to captain the creation of its own line of retail stores in 2009. Similarities to Apple's efforts were made almost immediately. Just like Apple, the insides of Microsoft's retail stores have broad tables with a number of gadgets that fall into the company's ecosystem, as well as its own software and hardware. Microsoft also staffs its own employees to talk to customers to find out their computing needs and handle support issues in a designated section of the store staffed by what early store plans referred to as "gurus."

Like Apple, Microsoft has used the stores to give its giant brand a personal touch, hosting store opening concerts and giving store visitors a chance to mingle with company executives. It also uses its retail locations to offer consumers "Signature" PCs, which come with without any third-party software trials, or add-ons.

Microsoft's retail store in Mission Viejo, Calif., takes a page from Apple's efforts. Microsoft launched into its own retail business in 2009.
Microsoft's retail store in Mission Viejo, Calif., takes a page from Apple's efforts. Microsoft launched into its own retail business in 2009. Ina Fried/CNET

That Microsoft was late to the retail fray is not without its own irony. In the days before the first Apple store opened, Jobs noted that the company's retail expansion was part of a greater effort to double Apple's market share against Windows machines. "Five down, 95 to go," Jobs told the press during a preview of the first stores.

While Apple has not quite caught up to Microsoft in terms of market share, the company is outpacing the growth of the rest of rest of the PC market for the 20th quarter in a row. And Apple's retail stores are a big part of that. During the last several years, Apple has noted that around half of its Mac sales at its retail stores are people buying their first Mac.

Coming back to where things almost began, Apple didn't completely ditch the idea of mixing its computers with food. The company will happily give you things to drink and eat. That is, if you're willing to camp out to be one of the first to buy a new product from its stores.

 

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