Hey guys it’s Greg with Apple Explained and today we’re going to explore the history
of the Apple Store. This topic won second place in last week’s voting poll and if
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Now Apple’s retail stores are the most financially successful in the world, generating more than
$5,500 per square foot of retail space. But this level of success was not anticipated
by anyone back in 2001 when Steve Jobs debuted the first Apple Store, and you may wonder
why that was. Well it’s because Apple had tried establishing a retail presence before,
but it ended badly. So let’s start off by examining why Apple’s first attempt at retail
failed while their second attempt was a wild success.
Back in 1997, Steve Jobs returned to Apple and found the company in terrible shape, including
their retail presence. For many years Apple had been establishing store-within-a-store
concepts. Where a section of a retail store like Best Buy would be dedicated to Macintosh
computers. But there were some fundamental problems with this approach. Most retail store
staff had no training or experience with Macs so they often directed customers to PCs instead.
Also, the reseller’s profit margin on selling Macs were only around 9% so they weren’t
incentivized to recommend them to customers
So with all these problems with the store-within-a-store approach, you might assume that Apple scrapped
the idea and began working on their own retail stores. But that wasn’t the case. Instead,
Apple continued to toy around with store-within-a-store and focused most of their resources on building
an online store. Now Apple’s decision to create an online store instead of improving
their retail stores may sound a bit counterintuitive, but there is some backstory here. You see,
the reason why Jobs was able to return to Apple is because they purchased NeXT, a computer
company Jobs founded shortly after being forced out of Apple. And some of the technology developed
by NeXT was used to build Dell’s successful online store. And when Dell’s CEO, Michael
Dell, was asked how he would fix Apple, he said, “I'd shut it down and give the money
back to the shareholders.” And this angered Jobs very much. So he assembled a team of
Apple and NeXT employees to build and online store that would be better than Dell’s.
On November 10, 1997, Steve Jobs announced the online store at a press event, and said:
"I guess what we want to tell you, Michael, is that with our new products and our new
store and our new build-to-order manufacturing, we're coming after you, buddy."
Apple generated $16 million in revenue from its online store in the second quarter of
1998, shortly after it launched. By 2006, Apple was generating millions in revenue a
day from the online store. In fact, the online store team used to compete against the retail
store team to see which achieved more sales, the two were neck and neck for years, and
this sent a signal to Apple that the demand for a retail Apple Store definitely existed,
they just had to figure out an approach that worked best.
Tim Cook, who joined Apple in 1998 as Senior Vice President for Worldwide Operations, announced
that Apple would "cut some channel partners that may not be providing the buying experience
Apple expects. We're not happy with everybody.” Cook cut ties with every big box retailer,
including Sears, Best Buy, Circuit City, Computer City and Office Max to focus its retail efforts
with CompUSA. Between 1997 and 2000, the number of Mac authorized resellers dropped from 20,000
to just 11,000.
At that point, Apple could focus their retail efforts on CompUSA, expecting their hands-on
approach to help increase Mac sales. And while sales did increase slightly, the "store within
a store" concept still didn’t meet Apple’s expectations, partly because the Apple section
was in the lowest-traffic area of CompUSA stores. Apple added Best Buy as a second authorized
reseller, but challenges still remained and Mac sales never achieved the kind of numbers
Apple wanted.
Jobs recognized the limitations of selling Apple products through third-party retailers
and began exploring ways to improve the model. Jobs believed the Apple retail program needed
to fundamentally change the relationship to the customer, and provide more control over
the presentation of Apple products and their brand message.
This new approach to retail required new ideas and a few new employees too. In 1999, Jobs
personally recruited Millard Drexler, former CEO of Gap, to serve on Apple's board of directors
and the following year Jobs hired Ron Johnson from Target. The retail and development teams
headed by Allen Moyer from The Walt Disney Company then began a series of mock-ups for
the Apple Store inside a warehouse near the company's Cupertino headquarters.
But not everyone agreed on how to create a great retail experience. For example, when
Ron Johnson shared his idea of including a Genius Bar for technical support, Jobs blasted
the idea. Saying, “That's so idiotic! It'll never work! Ron, you might have the right
idea, but here's the big gap: I've never met someone who knows technology who knows how
to connect with people. They're all geeks! You can call it the Geek Bar.”
Johnson replied by pointing out that many of the Genius Bar workers would be in their
20s, and have grown up with the kind of technology they'd be supporting. Jobs told Apple's general
counsel to trademark "Genius Bar" the following day. Although this development process didn’t
always go smoothly, it led to the creation of a very successful store.
On May 15, 2001, Jobs hosted a press event at Apple's first store, located at the Tysons
Corner Center mall in Virginia near Washington, D.C. The store officially opened on May 19,
along with a second store in Glendale Galleria in California. More than 7,700 people visited
Apple’s first two stores in the opening weekend, spending a total of $599,000.
The vast majority of media publications and analysts thought opening Apple Stores was
retail suicide. But Apple quickly proved them wrong, bypassing their competition in sales-per-square-foot,
and in three years reached $1 billion in annual sales, the fastest of any retailer in history.
But the explosive growth didn’t stop there, by 2006 Apple retail stores were generating
$1 billion a quarter. In response to all this success, Jobs said that "People haven't been
willing to invest this much time and money or engineering in a store before. It’s not
important if the customer knows that. They just feel it. They feel something's a little
different.” By 2011, Apple Stores in the US were generating an average of $473,000
per employee. According to research firm RetailSails, Apple Stores ranked first among US retailers
in terms of sales-per-square-foot, almost doubling Tiffany, the second retailer on the
list. And on a global level, all Apple Stores had a combined annual revenue of $16 billion.
Under the leadership of Ron Johnson, the former senior Vice President of Retail Operations,
the Apple Stores have been responsible for "turning the boring computer sales floor into
a sleek playroom filled with gadgets.”
With the success of Apple’s own retail stores, they re-established ties with major big box
retailers like Best Buy and Staples. Authorized Apple resellers have a dedicated store-within-a-store
section, offering a distinctive Apple-style experience to showcase products. The relationship
with Best Buy calls for the company to send Apple Solutions Consultants to train Best
Buy employees to become familiar with Apple's product lineup.
Now Ron Johnson left Apple in 2011 to accept a CEO position at JC Penney, where he executed
an extremely unsuccessful retail plan that dropped their store sales by 32%. But that’s
a story of another time. Back at Apple, Tim Cook began searching for a new senior Vice
President of Retail Operations which took almost a year since they were being very careful
to choose someone who was a good match for Apple. It came as a surprise then, when John
Browett, then CEO of Dixons, was picked as Ron Johnson’s successor. Cook said, "I talked
to many people and John was the best by far. I think you will be as pleased as I am. His
role isn't to bring Dixons to Apple, it's to bring Apple to an even higher level of
customer service and satisfaction.” Now Dixons is a consumer electronics retailer
in the UK and doesn’t have a particularly good reputation. Many people were confused
why Apple chose Browett, asking, “Did he only interview one person?” Although Cook
was initially confident in his decision, that confidence began dwindling as Browett’s
changes to Apple’s retail stores took effect.
Just a couple months after taking the reigns, Browett began implementing cutbacks and layoffs
in an effort to meet profit goals and encourage the, what he considered, ”bloated” store
staffs to run "leaner", despite the objections of retail veterans within the company. This
led to store employees seeing their hours cut or even losing their job, and caused store
to be understaffed. Apple spokesperson Kristin Huguet eventually admitted, "Making these
changes was a mistake and the changes are being reversed. Our employees are our most
important asset and the ones who provide the world-class service our customers deserve.”
Six months after being hired, John Browett was forced to step down and Apple began a
year-long search for its next Senior Vice President of Retail Operations. Apple’s
patience was rewarded in October 2013 when they hired Burberry CEO Angela Ahrendts, but
Apple changed the retail operations position to Retail and Online Stores, since Apple wanted
to make the online and retail shopping experience more seamless. Cook said, “I am thrilled
that Angela will be joining our team. She shares our values and our focus on innovation,
and she places the same strong emphasis as we do on the customer experience. She has
shown herself to be an extraordinary leader throughout her career and has a proven track
record.” This time he was right. Ahrendts implemented some clever technology at Burberry
to help improve the customer experience and she was an integral part of the changes Apple
made to their Apple Stores in recent years.
In 2016, Angela Ahrendts and Jonathan Ive collaborated on a new redesign of Apple Stores
that was first implemented at the Union Square in downtown San Francisco. The idea was to
turn Apple Stores into "town squares", a gathering place that draws people in naturally and helps
foster human experiences that draw people out of their digital bubbles. There were open
spaces with touch-sensitive tables and shelves for product displays, and rebranded rooms
for the store. "The Avenue" is the central location for hardware, as well as for receiving
advice from sales associates and individuals with specialized knowledge of music, creativity,
apps and photography called Creative Pros. The Genius Bar became the "Genius Grove",
a tree-lined area for help and support. "The Forum" features a large video screen and offers
game nights, sessions with experts in creative arts, and community events. "The Boardroom"
lets aspiring developers and entrepreneurs learn how to use their products to their full
potential. And "The Plaza", while limited to select locations, offers a "park-like"
space outside the store featuring free Wi-Fi and occasionally hosts live concerts. There’s
also "Today at Apple" educational sessions, which offers more than 60 free hands-on sessions
for learning different skills using Apple’s products and software. The new design will
eventually be adopted by every Apple store across the globe.
So that is the history of the Apple Store, and if you want to vote for the next video
topic, don’t forget to subscribe. Thanks for watching, and I’ll see you next time.