Retail pro behind Apple stores

Apple Computer is charging a veteran retailer with a monumental challenge: Win over the 95 percent of computer buyers who opt for something other than a Mac.

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Ron Johnson, senior VP, Apple
Apple Computer has charged veteran retailer Ron Johnson with a monumental challenge: Win over the 95 percent of computer buyers who opt for something other than a Mac.

While not promising total victory, Johnson said this week he thinks a chain of Apple-owned stores can grab significant market share over the long term. For starters, Johnson said he is targeting what he says are a significant number of people that were Mac owners at one point but now use some other brand of PC.

"That's kind of the low-hanging fruit," he said.

Johnson, a former executive at Target Stores, was hired 18 months ago as part of Apple's boldest move in some time. The company has since hired 300 people, inked millions of dollars worth of long-term leases, and placed a significant bet that it cannot just make great computers, but sell them.

Johnson would not say how large the store effort might get.

"We'll open 25 this year," he said. "We're working actively on more stores."

In opening a large number of stores, the risk for Apple is that the company is creating a substantial new expense that is hard to reduce when sales slow. Gateway, which opened hundreds of Gateway Country stores only to close many when the market went sour, is taking heat for that very issue.

On Thursday, Gateway warned that its sales, like other computer makers, would fall short of expectations. But, because of its stores, Gateway will be hurt worse, said US Bancorp Piper Jaffray analyst Ashok Kumar.

"Due to its fixed cost structure, the shrinking volume makes it difficult for Gateway to compete with Dell's pricing model," Kumar said in a research note Friday.

Johnson declined to say how Apple's stores have done financially since the first outlet opened in May.

Apple's ninth store, which opens Saturday in Palo Alto, Calif., is Apple's first try as a storefront rather than as part of a shopping center. As such, it is a bit of a test case.

"We know retail malls work," Johnson said. "We want to learn how streets work."

In many cases, Apple is opening multiple stores in an area, even as some cities have yet to get their first store. For example, Apple plans to open a store in Pasadena, Calif., only about 10 miles away from its current store in Glendale, Calif. Similarly, Apple plans the day after Thanksgiving to open a store in San Jose, Calif., 14 miles from the one that opens this weekend in Palo Alto, Calif.

Johnson said the thinking behind locations is not to blanket the country but rather to pick locations with good demographics and a potentially large untapped market for Mac buyers.

"Where we find great real estate, we will open stores," he said.

In a tour of the Palo Alto store with reporters, Johnson took pains to dismiss the notion that the stores are merely advertising, saying that to be successful, they must generate significant sales.

"This is not a billboard," he said. "This is a retail store that has to grow (our) market share profitably.

Johnson also responded to concerns that the Apple stores might upset the computer maker's relationships with its existing dealers.

That won't happen, he said, if Apple sticks to its pledge that the stores

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will bring in entirely new buyers to the Mac market.

"We've got to make sure these are adding incremental volume to Apple and the (reseller) channel," Johnson said.

Johnson added that Apple is working hard to be a good neighbor to nearby stores, learning their strengths and sending along customers who need something the company-owned stores don't offer.

"We've spent a lot of time with retailers," Johnson said. "Generally we are very pleased with the reaction from retailers."

The effort has not been without stumbling blocks, though.

Apple's store in Germantown, Tenn., for example, has been held up because of a local sign ordinance. The Memphis-area city had three problems with Apple's sign--its size, how it is lit, and the fact that it includes an image of fruit, something forbidden by local statute.

Johnson said the city has already made accommodations for Apple's fruitiness and the size of the sign, but said the two sides are still trying to work out the lighting issue.

"They've got their vision; we've got ours," Johnson said. "We'll reach agreement."