Apple's New Retail King Able To Get Asia?

Apple (Nasdaq: AAPL  ) crowned its new retailing king, John Browett, on Tuesday, a move that puts a major retailing executive at the helm of the company's brick-and-mortar expansion.

Although Apple investors applauded the selection of Browett, who currently serves as the CEO of Dixons Retail, it's questionable whether they'll still be clapping when Browett  makes his move to further expand Apple's presence in Asia -- a key growth market for the company.

Browett, who will join Apple in April as senior vice president of retail sales and comes from from the UK's largest electronics retailer, has never run a brick-and-mortar retail operation in Asia or Japan.

Asia is where it's at
Asia is one of Apple's hot growth areas.

Apple generated approximately $7.7 billion in first quarter revenues from Asia-Pacific, its third-largest market. And when combining Asia-Pacific with Japan's $3.6 billion in revenues, it rivals the sales of Apple's second largest market, Europe, which pumped out $11.3 billion in revenues for the quarter.

Asia-Pacific and Japan grew a combined 75.2% in first-quarter revenues over last year's performance and outperformed Europe's growth of 55.1%.

"Customer response to our products in China has been off the charts," Tim Cook, Apple's CEO, said in a statement when Apple launched its iPhone 4S in China.

And it's expected to grow even larger in China, given Apple is likely to move from an exclusive carrier relationship with China Unicom to one where it sells its mobile devices though other players like China Mobile and China Telecom. That game plan would mimic the moves it's already taken here in the U.S. with AT&T, Verizon Wireless and Sprint. 

Culture Clash
Browett, who was hired by Cook for his expertise in customer service, is quite familiar with European customers. But it has yet to be seen whether his experience can transfer over to a customer base that's shown it's capable of becoming unruly.

Earlier this month, an Apple store in Beijing was pelted with eggs after customers who camped overnight in near freezing conditions were told that the coveted iPhone 4S would not go on sale and the store would remain closed due to safety concerns.

And in May, a customer engaged in fistacuffs with an Apple employee at a Beijing store as a crowd became agitated waiting to purchase the newly released white iPhone 4, according to an Associated Press report.

Nonetheless, Browett will need to adapt. And he apparently has the confidence of Apple's newly minted CEO, who made his first major hire in naming Browett retail senior V.P.

"Our retail stores are all about customer service, and John shares that commitment like no one else we've met," Cook said in a statement. "We are thrilled to have him join our team and bring his incredible retail experience to Apple."

Apple's retail road
Retail sales accounted for 13% of Apple's total first-quarter revenues of $46.3 billion, growing 59% over the previous year. And its operating income nearly doubled during this time to $1.9 billion from $1 billion a year ago. Suffice it to say, Apple's retail stores are a core part of its business.

And the company plans to seed that business with overseas expansion. In the first quarter, Apple opened four new stores, three of them overseas, giving itself a retail chain of 361 stores.

Overall, Apple's on tap to open a total of 40 new stores during this year, with 30 of the stores slated for outside the U.S., according to Ashok Kumar, an analyst with the Maxim Group.  He added that he's not concerned with Apple's new retail king's lack of experience running retail stores in Asia.

"He can't do much damage to Apple. It's not like he's the CEO, where one person can make a big impact," Kumar said.   

Where Browett can make a difference, however, is in applying his retail acumen to selecting the best cities and locations in which to open stores as well as delivering a customer experience that won't get egged.

Should he fall short on Apple's lofty retail plans, investors will likely feel the pain. 

At the close of the year, Apple noted in its Securities and Exchange Commission filing that it has 41,800 full-time employees and $2.6 billion in outstanding lease contracts and related expenses. If Apple has to close multiple retail stores, the costs it could incur may be substantial and adversely affect its operating results.

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Fool contributor Dawn Kawamoto does not own stock in any of the companies mentioned. Her family's time is too heavily invested in playing with their Apple gadgets. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 02, 2012, at 9:25 PM, MHedgeFundTrader wrote:

    Apple has become a monster cash flow generator. Apple now has the envious problem in that sales of several of its products are going hyperbolic at the same time.

    Apple announced net profits of $13.06 billion, or $13.87 per share, up 11% from the previous year. If the company just maintains that rate for the rest of the year, it will generate $55.48 in earnings, which at the current 11.5 multiple should take the stock up to $638, up 40%. If Apple makes it up to a market multiple, the stock should rise to $721, a gain from here of 58%.

    If the multiple expands to its pre-crash average of 35 X, that would take the stock to a positively nose bleeding $1,941, giving you a 424% return from current levels. Then the company would be worth $2.8 trillion and rank 5th in the world in GDP, more than France, and just behind Germany. Wow!

    It all reinforces my view that Apple shares will reach my long term target of $1,000 sooner than anyone thinks. Long term readers are well aware that I have been making this call for the past two years back when it was trading at a lowly $240. More recent subscribers will also recall that I predicted that Apple would be the top performing technology stock in my 2012 Annual Asset Class Review.

    I'm not saying that you should rush out and load up on stock today. But it might be worth taking a stake on the next wave of fear that strikes the market.

    The Mad Hedge Fund Trader

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