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How Apple became the world's highest grossing retailer per square foot

When Apple closed its stores in March, the company didn’t lose profits as was expected; instead, its revenue grew. Net sales in the third quarter were up 10% in comparison to 2019’s Q3 and their gross margins increased by 11%.

Apple_Headquarters,_Cupertino,_California 

When Apple closed its stores in March, the company didn’t lose profits as was expected; instead, its revenue grew. Net sales in the third quarter were up 10% in comparison to 2019’s Q3 and their gross margins increased by 11%.

 

“Our June quarter was a testament to Apple’s ability to innovate and execute during challenging times,” said CFO Luca Maestri during the Q3 investor earnings call. “Our results speak to the resilience of our business and the relevance of our products and services in our customers’ lives.” That resilience not only makes the company more equipped in times of crisis but it’s also the reason the company is as profitable as it has been through most of its history.

 

In 2017, Apple made $5,546 in sales per square foot. By that metric, the company far surpassed every other retailer in the entire world. Although the company had only opened about 17 more stores by the end of 2019, net sales were 12% higher which indicates that the amount of revenue made per square foot is likely closer to $6,000 per square foot today.

 

Apple’s surprisingly limited store footprint is one of the many reasons they have performed so well. As Retailsphere has indicated in our past analyses of store shutdowns, brands often respond to strong growth by expanding their reach too rapidly. Managing brick-and-mortar is a hefty expense that sometimes costs more than it’s worth, which Apple clearly recognizes — the business has been in operation for over 40 years, but the first Apple Store didn’t open up until 2001.

 

Despite the company’s unparalleled success across digital and physical spaces, they currently only operate out of 271 stores in the United States and 510 stores worldwide. As with everything Apple does, the way that it determines when, where, and how to set up a store is notably intentional. “The retailers seeing sales per square foot grow fastest are those who are responding most effectively to these shifts in the marketplace — whether they are opening stores, closing stores, expanding square footage, or reducing it,” Clark Fredricksen, vice president of product marketing for eMarketer, told Forbes when asked about Apple’s strong and efficient performance.

 

That being said, Apple sells most of its products online, and only uses physical stores for brand development and providing AppleCare services. “From a normal retail perspective, there is more labor in there than you would ever expect per square foot,” said David Marcotte, the senior vice president of cross-border retail at Kantar Consulting. “Of course, the Apple Geniuses get paid less than everybody else, so why not?” As he described it, Apple Store is basically an empty box with a bunch of tables that are hooked up to electricity. Because of that, the company invests very little in the stores, which means that margins are a lot wider than those of the average retailer.

 

The small store footprint and wide margins can also be attributed to the fact that Apple is, first and foremost, a manufacturing and media company that just so happens to participate in retail. “In a lot of ways, Apple was in the right place at the right time to have a real manufacturing base with incredible flexibility,” said Marcotte. Maintaining control over what has become a vast and incredibly complex supply chain not only allows Apple to manage costs and inventory turnover but also results in a product that operates more efficiently and securely than any other piece of tech on the market. Because Apple designs, builds, and sells both the device and the software that goes into it, the system is a closed-loop which makes it much more difficult to infiltrate than a non-Apple device. “Security became an accidental part of Apple because they operate in a closed universe of machines and software,” said Marcotte. “They came to realize that the security side was a major selling point, so they ramped it up big time.”

 

According to Kantar Consulting’s report on the Top 100 Most Valuable Global Brands, “consumers increasingly align their current and future consumption with ethical values, what a company — and therefore its portfolio of brands — stands for is becoming more important than its effectiveness.” Just as security and privacy have become more important to consumers in the past few years, a company’s values around sustainability can have a huge impact on its bottom line. In fact, the report estimates that companies with the best reputations for sustainability grow 10 times faster than those with the worst reputation. As of 2018, every single one of Apple’s facilities run on renewable energy. This July, the company vowed to become 100% carbon neutral, including their supply chain and the devices they produce, by 2030.

 

Apple’s small store footprint, manufacturing base, and values certainly have a substantial effect on their bottom line, but perhaps the aspect that has contributed the most to the company’s success is its versatility. “Before they came up with iTunes, they were going out of business,” said Marcotte. Within 10 years of launching iTunes, Apple created the Apple Store, the iMac, the iPod, the iPhone, and the iPad. “They’ve been able to go from place to place by being able to switch their cash streams from devices to services, which is not an easy thing to do.” In the past decade, Apple branched out to different industries with the Apple Watch, AirPods, Apple TV+ (which received 95 award nominations in its first 9 months), Apple Arcade, Apple News+, and the Apple Card (which was the fastest credit card rollout in history).

 

Every time Apple did something new, it became more and more capable of withstanding hardships like the current pandemic and recession. If the products category has a bad quarter, gains in the services category blunt the impact. If an experiment doesn’t pan out, those that did cover the losses. When stores closed, the digital platform carried the load, which brings us to this inescapable fact: Technology is no longer a luxury but a necessity. With students and employees alike spending most of their time at home and away from other people, technology is basically their only outlet for work, play, learning, socializing, and shopping.

 

Apple’s strong digital infrastructure went a long way to ensuring that closing its brick-and-mortar wouldn’t pose an impediment to consumers on the hunt for products and services. The website is service-driven with its clear breakdown of the distinct products and services and makes ordering a pair of AirPods or sending a laptop in for a tune-up just as easy as it is to do to in one of the stores. “Our retail business had record June quarter revenue, thanks to the performance of our online store,” said Maestri. “We set records in all geographic segments and grew across all major product categories.” He added that rolling out the option for Apple Card holders to pay in interest-free monthly installments in June made the products more financially accessible and believes that that played a role in the quarter’s performance.

 

Obviously, Apple is in a class of its own, and it would be foolish for any brand of any size to try and replicate its success. Still, there is so much to learn from the company’s retail strategies: Diversifying a business model, offering services in addition to products within a store, making careful determinations about how many stores and how much space the business actually needs to grow, and developing a stronger digital presence are all accessible ways to increase the value of a store’s footprint and push a business in a more efficient and profitable direction.

 

 

Tags: In Depth

Written by Emily Shwake