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25 Apple stores to sprout this year

The computer maker plans to open retail stores across the United States by the end of the year, CEO Steve Jobs announces.

MCLEAN, Va.--Apple Computer plans to open 25 retail stores across the country by the end of this year, CEO Steve Jobs announced Tuesday.

see story: What is Apple's future in retail? The first two stores will open Saturday in McLean, Va., just outside of Washington, D.C., and in Glendale, Calif., near Los Angeles. "Why these two?" Jobs said. "They were the first two that were ready."

Additional stores will open in another six to eight weeks. Jobs said three stores are planned for the Chicago area, four total for the Los Angeles area, and three for the San Francisco area. Other locations include Bloomington, Minn.; Hartford, Conn.; and New York's Soho district.

Apple plans to open an average of one store every 10 days for the remainder of the year, Jobs added. In total, Apple revealed locations for 14 of the 25 stores. The company also plans to open stores in 2002 but would not say how many.

Jobs said Apple will pay roughly $500,000 a year in rent for the McLean store.

The company expects the stores to break even this year and to make a slight profit in 2002, Apple Chief Financial Officer Fred Anderson said.

Analysts said the move could be a good one for Apple. Brett Miller of A.G. Edwards said the stores will be in highly visible locations at upscale malls that target affluent buyers. "This is the market the (Power Mac G4) Cube was designed for," Miller said.

The retail store approach is a "great brand builder," said Stephen Baker, an analyst at NPD Intelect. "More people know Gateway because they drive past the stores every day."

The Mac stores will stock about 500 different items, including third-party peripherals and 300 software titles. Contrary to speculation that Apple--like Gateway--would use the stores to simply showcase products, "all our stores will carry inventory," Jobs said. Why? Because people want to buy things and take them home, he said.

Apple's CEO described shopping with one of his children and the look of excitement when opening a new Mac. "I like that look," he said. "I don't want the UPS man to have that look tomorrow while I'm at work."

Five down, 95 to go
Apple's main reason for opening the stores is growth. "Apple has about 5 percent market share today," Jobs said. He noted that most of the other 95 percent of computer buyers "don't even consider us."

Apple will start a newspaper ad campaign Wednesday called "five down, 95 to go," referring to the company's computer market share. "If only 5 of those remaining 95 people switch, we'll double our market share," Jobs said.

To achieve that goal, Apple is opening the stores in "high-traffic gathering places," Jobs said. That "other 95 percent" will be unlikely to drive six miles to an Apple Store, but they might easily walk six feet on a busy street or mall, he added. Apple's strategy is to "ambush the other 95 percent" where they more regularly shop, Jobs said.

Besides reaching out to PC owners, the company hopes to build on its base of loyal customers. Of the 25 million Mac users worldwide, only 11 million have upgraded to Macs with G3 and G4 processors. The rest of them "should be thinking about upgrading," Jobs said.

Digital lifestyle
The other main reason for the store strategy has to do with how computers are evolving as hubs for other devices, such as MP3 players or digital camcorders.

"We believe the PC is evolving into the center of our digital lifestyle," Jobs said.

For this reason, the Apple stores will be more "solution focused," he said, where people will be shown what they can do with Macs. This includes burning music onto CDs and recording movies on DVDs. Customers should be able to "burn a CD right in the store and take that with them," Jobs said.

Apple is taking this approach based on how its customers use their Macs. In a study Apple conducted in March, the company found that PowerBook laptop owners tend to use more portable digital devices than their PC counterparts do.

Sixty-two percent use digital cameras vs. 33 percent of PC laptop owners. For digital camcorders, the gap was 44 percent compared with 26 percent. For handhelds, 46 percent of PowerBook owners had one of the gadgets vs. 8 percent of PC owners. For MP3 players, it was 20 percent vs. 9 percent.

"Macintosh users are early adopters for portable digital devices," Jobs said.

For this reason, about half of each Apple Store will be dedicated to what people can do with Macs, he said. The company will stock third-party digital devices: six models each for handhelds, MP3 players, digital cameras and digital camcorders.

Retail is hard
Apple has no misgivings that it is moving into an area where a tech company can get into trouble.

"Our attitude is retailing is really hard," Jobs said. "We're from the high-tech industry, and we don't know much about retail." For this reason, Apple wanted to "surround ourselves with experienced people in retail," he added.

Apple recruited Mickey Drexler, CEO of Gap, to join Apple's board to advise on the retail project. Apple also hired Ron Johnson, a former vice president of merchandizing at Target, and George Blankenship, a former Gap executive, to help run the project.

In other areas, the company will lean on its own assets: It will rely on its more than $4 billion in cash to open the stores, rather than financing them. It will also use its existing supply-chain management system and brand marketing program.

The new stores will not conflict with Apple's relationships with more than 3,000 dealers, Jobs said. "Our stores represent less than 1 percent additional businesses" selling the company's products, he said.

But one Apple dealer in the Washington, D.C., area balked at that. He asked not to be identified for fear of reprisal from Apple.

"How are we different from them and they different from us?" he asked. "We sell the same products and both offer service." The Apple Store opening means spending money "we don't have in this economy to advertise and differentiate ourselves."

But Jobs insisted Apple wants to work with its dealers, known in industry lingo as resellers.

"Our strategy is not to put our resellers out of business," he said.