Otherwise, sales of Macs, iPhones, and iPads look great, and Apple’s entire ecosystem looks vibrant and healthy. Walk into an Apple Store and what do you see? Hundreds of happy customers (save a few grumps at the Genius Bar) and Apple associates everywhere. That hidden problem is in plain sight.
It’s Déjà vu All Over Again
How do Apple’s retail stores differ from almost any other retail store you walk into? It’s bright and clean, but that’s not unique. There’s sales and service options. Again, not unique.
Tables are laid out with the company’s latest products, all ready for the touch and feel necessary for a walk-in customer.
What’s really different about an Apple Store is the number of retail associates; employees, when compared with almost any other store of a similar size.
Yes, today’s Apple Stores are crowded with customers. As Yogi Berra put it, ‘Nobody goes there anymore. It’s too crowded.’ Except that Apple’s stores still bring in the customers, though tracking down a not-so-busy associate takes a bit of work at times.
I like it that most Apple Stores now have a Walmart-like greeter at the door, so finding an associate is not as difficult as in the past.
That’s the problem, though. Associates. And what they cost. Apple has more employees per square foot than any store I can remember. How can Apple afford all those employees? The company sells plenty of expensive products at each store, and Apple products are notorious for high gross margins.
This is how we’ll know when Apple is in trouble on the sales front: lower gross margins, and fewer employees in the stores.
Sales units can be increased by lowering a product’s price (up to a point). Apple did it with the original iPhone model and that stimulated sales. Recently, the MacBook Pro models got a nice price cut. Lower prices usually mean lower margins, and lower gross margins mean Apple doesn’t make as much money on each unit sold.
Lower profits mean that those expensive, glass-laden palace-like retail stores, with more employees than you can count, could easily become a liability, an expensive brick and mortar albatross.
That’s an inherent danger in Apple’s retail store strategy. The company must maintain higher margins to support the retail lifestyle they, and customers, have become accustomed to.
If we see Apple continue to cut prices on products (low priced iPhone, for example), and we see fewer retail employees at each store, then we’ll know that Apple is feeling the pinch of math and competition.