Talking Apple in the land of foreclosures

Modesto, Calif., has been hit hard by the housing crisis and already has double-digit unemployment. Nonetheless, there are plenty of shoppers in the new local Apple Store.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
4 min read

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

MODESTO, Calif.--As a driver for United Parcel Service and an Apple fan, Jeff Maciel is in an interesting position to observe how Central California's San Joaquin Valley is coping with a deepening recession just as Apple moves into the neighborhood.

Jeff Maciel is reducing his holiday spending this year, but is excited to have a nearby Apple retail store. Tom Krazit/CNET News

As he beat a path to the crowded parking lot outside the new Apple retail store at the Vintage Faire Mall in Modesto, Maciel grudgingly admitted that he and his family are spending less this holiday season as he watches the pile of boxes assigned to his UPS route dwindle.

"I'm making the same number of stops, but the shipments are way down," the soft-spoken shopper said as his son and daughter fidgeted, likely more interested in the large bag of See's Candies they were carrying rather than discussing economics with a stranger.

To purchase a new case for his iPhone 3G, Maciel drove half an hour across an area among the hardest hit by the credit crunch and resulting home foreclosures that have helped plunge the world into recession. Modesto, where Apple decided to open its 250th retail store in November, had the ninth-highest rate of foreclosure activity in the U.S. during October, according to statistics published by RealtyTrac. That number has probably been fueled by rising unemployment, which at 11.8 percent is nearing a 10-year high.

Just 8 miles away from the Vintage Faire Mall, one of Modesto's hardest-hit neighborhoods was very quiet on a sunny but brisk Saturday morning. Debris lined the streets near the Modesto airport, dotted with boarded-up houses bearing the telling "BANK OWNED" real estate signs out front.

But on the second-to-last shopping weekend before the holidays, shoppers were bustling at the Apple store, which was "dead" on Friday according to one Apple employee. A steady stream of people ventured into the store to check out the MacBooks and iPod Touches prominently on display on Apple's usual low wooden tables.

Apple's 250th retail store opened in foreclosure-plagued Modesto, California. Tom Krazit/CNET News

Amber Hill of Modesto came to the store because her two sons, Jacob and Josh, both want the new iPod Touches for Christmas. Hill thinks Apple's products are "overpriced" but the boys were clearly excited about the prospect of the iPods making their way from their wish lists to under the tree.

So how did Apple's milestone 250th retail store wind up in Modesto? Two years ago, when Modesto's agriculture-centered economy was in much better shape, the city wanted to find a way to keep its residents in town rather than having them drive to places like Sacramento or Pleasanton for high-end retail shops, said Brent Sinclair, community and economic development director for Modesto.

The city and Vintage Faire Mall management company Macerich decided the answer was a so-called "lifestyle center," a fancy outdoor mall supplement to the traditional indoor mall design with its two long floors and a food court. Lifestyle centers are designed to lure high-end retailers such as Coach, Bebe, Coldwater Creek, and, increasingly, Apple. Sinclair knew that women's clothing retailer Coldwater Creek would be a central part of the design, but received "a pleasant surprise" when--cloaked with the company's usual secrecy--it emerged that Apple would be occupying one of the smaller retail spaces within the center.

Indeed, the Apple store, flanked by retailers Coach and Bebe, drew far more shoppers on Saturday afternoon than either of the neighboring stores. It wasn't clear how many shoppers actually left the store with new iMacs or iPhones, but kids gathered to have their pictures taken next to an elf wearing iPod headphones as they excitedly discussed their own iPods.

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As it has become clear that the world is entering an economic downturn as bad as anything seen in the last 80 years, many have wondered whether Apple, with $24 billion in the bank and virtually no debt, is "recession-proof." NPD released numbers Tuesday that indicated that Mac growth may be ebbing as a recessionary mindset takes hold among U.S. consumers, the base of Apple's support.

One way to judge Apple's ability to ride out a recession is to track its performance in some of the areas hit hard by unemployment and foreclosures, such as Modesto, Las Vegas, and southern Florida. Apple has a reputation as a trendy tech supplier to the digerati on either coast, but it has been expanding its retail empire beyond its strongholds in San Francisco and New York for years now, and has been generating results.

Despite their clear desire to get on with their day, Maciel and his children were excited to have an Apple store in their neighborhood, even if it meant they had to make the half-hour trek past dairy farms and nut trees from the tiny town of Hilmar to the mall. Still, they aren't the kind of rabid Apple fanatics that kept the company afloat in years' past: the Maciels were not in the market for a new iPod this year, having upgraded the kids' iPods last year.

Nonetheless, Maciel seemed confident that even if things get worse next year and he has to slash his spending further, Apple would remain on his short list. Judging by the three strangers at the malls' Sweet River Bar and Grill who struck up a conversation about their new iPhones, and the steady parade of families passing in and out of the Apple store, there are others in the San Joaquin Valley who feel that way too.

Coming up Thursday: Working overtime for venture capital funding