Apple Poaches Angela Ahrendts: What Investors Should Know

On Tuesday, Apple (NASDAQ: AAPL  ) shocked the greater investing community by announcing it had hired Burberry CEO Angela Ahrendts as its new retail chief. While most articles have focused on her background, Foolish investors want to know what this means for Apple from an investment perspective. Also, what does this mean for investors of Microsoft (NASDAQ: MSFT  ) and Samsung (NASDAQOTH: SSNLF  )

Why now?
Many Apple investors may have questioned the decision to bring on a luxury brand specialist, opining that Apple is already a luxury brand. They're right; according to a recent Retail Sails report, in 2012 Apple had the highest sales per square foot -- topping second-place Tiffany by more than 100%. However, all is not well in retail land. Apple has been without a retail leader for nearly a year, with the division reporting directly to CEO Tim Cook during that time. The previous retail chief, John Browett, appeared to have been dismissed in 2012 after less than a year on the job. The company's retail segment had a particularly poor third quarter -- net sales decreased $10 million, with iPads and iPods as the primary culprits. Apple insiders are hoping the clothing CEO can reverse this slide and build on Apple's retail advantages against Microsoft and Samsung.

Can selling clothes prepare you for selling iPhones?
If anything, the sad saga of former Apple retail chief Ron Johnson's foray into clothing seems to be a cautionary tale. J.C. Penney was already a sagging retailer, but under Johnson's guidance it performed miserably, and the company now finds its stock trading near all-time lows amid same-store sales drops.

However, those who have followed Ahrendts know she has the skill set to improve Apple's retail experience and reorient the brand. Her career at Burberry could be considered a case study in brand redefinition by taking the formerly stodgy clothing maker to a more hip audience and growing revenue at a healthy 15% annual clip from fiscal 2006 to 2013.

Apple's retail competition
Apple is by no means the only tech company to have a retail distribution chain, but it's clearly the largest among its consumer-electronics competitors. There were 480 Apple stores as of the last quarter, far more than Microsoft's 78. Samsung has chosen to partner with Best Buy for "experience shops." It will be up to Ahrendts to continue to execute and accentuate the competitive advantages Apple already has over Microsoft by its sheer numbers and its sales per square foot. The competition with Samsung will be interesting to watch; will the lower cost, lighter-footprint model work for Samsung?

The real benchmark for the retail chief is whether Apple can grow its retail sales as a percentage of net total sales. That number has been stuck at 12% for more than a year. Cook particularly wants a higher percentage of iPhones sold at the retail stores:

The iPhone is Apple's central "gateway product" to other devices like iPads and Macs, so it is critical that the Apple smartphone is sold via an Apple Store so new customers are immediately exposed to iPads, Macs and other devices on the showroom floor.

Apple currently sells roughly 20% of its iPhone units in the retail stores. So Ahrendts has a lot of work to do. And she may not have a lot of time to waste.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 17, 2013, at 4:34 AM, st0815 wrote:

    Not too impressed by hiring executives who don't understand the company's products.

    So at Burberry she redefined the brand. How could she do that at Apple? Change the design of the devices? There are already people in charge of the design at Apple, and they are doing an excellent job. Change the image of Apple ... does that sound like a good idea? Find a more hip audience for Apple? Come on, now.

    So what's it going to be then? Apple is making a high-tech product, she knows about coats. Sure an executive doesn't need to know about every single detail and is probably better off not bothering. Knowing nothing about the business is not a good idea, though.

    Nokia tried to make a guy CEO who knew about selling chickens - didn't work out for them.

  • Report this Comment On October 17, 2013, at 5:42 AM, hkspike wrote:

    Wasn't it John Browett who went after 6 months?

    Forstall arrived with NeXT.

  • Report this Comment On October 17, 2013, at 10:30 AM, TMFJCar wrote:

    @hkspike,

    Good catch, this has been corrected.

  • Report this Comment On October 17, 2013, at 10:33 AM, TMFJCar wrote:

    @hkspike

    You're right. Was going to write about both and removed the wrong name. Thanks for the heads up. It has been fixed.

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