Does Apple have a future in retail?

Apple Computer's decision to get into the retail business is drawing cautious praise from analysts and longtime Mac owners, as well as criticism from some computer dealers.

Apple stores to lure PC buyers Steve Jobs, CEO, Apple

In a press briefing Tuesday, Apple CEO Steve Jobs said the company is opening 25 retail outlets this year to expand brand awareness, among other reasons.

The company will open the first two Apple Stores on May 19 at Tysons Corner Center in McLean, Va., and at the Glendale Mall in the Los Angeles area. Jobs said the other stores will open this year throughout the country, including in Bloomington, Minn.; Chicago; Littleton, Colo.; and New York.

Some Mac owners and analysts greeted Apple's plan for retail stores warmly, calling it an important step in the right direction.

"I think the Apple stores are a great idea," said Alan Dail, a longtime Mac user from Leetonia, Ohio. "This will give Apple a nice market-share boost. They should have done this years ago."

Dail sees the stores as a way of helping to show "there's a ton of stuff for the Mac. People should walk into the new Apple stores and say, 'Wow, I didn't know there was so much stuff for the Mac.'"

NPD Intelect analyst Stephen Baker, while more cautious, also praised Apple's strategy.

"I think the idea of having a limited number of stores in the country is a great idea for Apple," he said. Apple needs to build brand awareness in a number of ways, he added. "One of them is to be in front of a lot of people who might not otherwise pay attention to it."

Mac dealers reacted differently. "Apple might do just well enough to really hurt our business. They've also done a...poor job telling us how sales and service will work when an Apple Store opens nearby," one complained.

Another dealer said he was ready to "go to war" if necessary against Apple. "What are we supposed to do when Apple opens a company store in our back yard without any kind of warning?"

Sale or no sale?
The retail outlet openings have some analysts puzzled, considering the economy's impact on computer sales and Gateway's troubles with its Country stores. Combined PC and notebook retail sales in March plummeted 27 percent in units and 25 percent in revenue from a year earlier, according to NPD Intelect. Apple sales fell deeper, plummeting 29 percent in shipments and 35 percent in dollars.

Gateway--which like Apple is strongly associated with consumers--closed nearly 40 of its stores in the United States and Canada. The company cited over-expansion as one reason for the closings.

"I don't think it's too good an idea--especially following Gateway's experience with the Country stores--for Apple to be opening stores," ARS analyst Toni Duboise said. "The climate isn't good right now. Retail's in trouble."

Duboise described the retail outlets as nothing more than "toy stores for the Mac faithful. To be able to boost Apple sales, I don't see them doing that."

Some Mac owners, while hopeful, remained cautious about Apple's strategy, noting that some of the company's dealers have recently closed their doors.

"The fate of Mac-only retailers like ComputerWare calls into question the viability of an Apple Store concept," said Kevin Pedraja, a longtime Mac owner who lives in San Francisco. "More broadly, in a very challenging market, is this an area where Apple should be investing its limited resources?"

Wayne Hastings, a longtime Mac owner in Memphis, Tenn., wants to believe Apple can make the stores viable businesses beyond the initial novelty.

"It'll be a challenge for Apple to open a chain of retail stores and keep them open for more than a year," he said. "I just hope Steve Jobs has a master plan for using the stores to do something innovative and unusual to bring people in, get them interacting with each other, and definitely keep them coming back."

The real trick for Apple will be limiting expansion, rather than opening hundreds of stores the way Gateway did, analysts say.

"The key thing for Apple to be aware of: When you're in a store, you're in the real estate business," Guernsey Research analyst Chris LeTocq said. "That's a different business than the technology business. So you want to make sure you're not owned by the real estate. That's what happened to Gateway."

Jobs gives tour of new Apple store Steve Jobs, CEO, Apple

The Mac experience
One thing the Apple Stores may deliver is a better buying experience than retail outlets carrying both Macs and PCs can. This is a big problem for Apple to resolve, LeTocq said.

"If you want to buy a Mac in a PC store, you've got to really want to buy a Mac--mainly because they shove the stuff in a corner somewhere," he said.

While CompUSA and Circuit City both prominently display Mac products, "Apple hasn't been well served by existing retail store chains," Pedraja said. "My own experience at places like CompUSA, Circuit City, Fry's Electronics and other outlets has been that Macs are usually not well displayed, prominently featured or even understood by the people who are supposed to be selling them."

Dail sees a bigger problem. "I can't tell you how many times I've been at stores selling Macs and watched salespeople flat out lie to people who walked in there to buy a Mac to talk them into buying PCs," he said.

In stores run by Apple, analysts said, the company is in control: The message is clear, the products are all Mac, and Apple can guarantee there is sufficient supply of software and peripherals.

But Apple may gain much more from increased visibility, say analysts and Mac owners.

"Anything that increases Apple's visibility to the average consumer and builds either prestige and/or an appearance of stability for business customers can only be a good thing," Hastings said.

Niche companies such as Apple have a much harder time promoting their brands, Baker said. But particularly for Apple, which sells products as much on the looks as on the features, the stores could go a long way toward showing the differences between Macs and PCs.

"Apple is a company with style and panache," he said. "They ought to be able to exploit that in a retail environment."

But IDC analyst Roger Kay isn't so sure stores are the right way to promote Apple's brand.

"Wouldn't it just make more sense to spend $100 million on an advertising campaign that reaches a lot of people," he said, "rather than opening stores that get a little traffic in select areas and are expensive to maintain over time?"

Ultimately, much depends on how far Apple is willing to carry the retail concept, Duboise said. Because of Apple's tendency to keep products secret before a big announcement, the company doesn't stock dealers' shelves ahead of time the way many PC competitors do. In the past, the lag has meant that people couldn't get Apple products immediately, even if they wanted to.

"But Apple could stock its stores the day of the announcement, which could solve a big problem for them," she said. Duboise expressed great reservations about the store concept, yet gave Apple the benefit of the doubt.

"In the end, I think the benefits might outweigh the negatives," she said. "But this still is a shaky time to be doing this."