How Apple and Amazon Changed Retail Forever

Apple created a revolution with its move into retail, showing how valuable the showroom can be for consumer companies. The model has changed retail and helped Amazon become a powerhouse in the process.

Mar 19, 2014 at 6:00PM

When Jeff Bezos founded (NASDAQ:AMZN) in 1994, he thought he could change the way the world bought books, and two decades later, he's changed everything we thought we knew about retail. While that may not have been his initial goal in launching Amazon, his visions have always been big, and disrupting businesses from Barnes & Noble to Wal-Mart was where he saw opportunities to disrupt the status quo.

As big as Amazon has become, it's easy to say we'll look back at the company as playing a major role in the shift of retail online, but there's a component of Amazon's success that can't be understated: the showroom.

That's where Apple (NASDAQ:AAPL) showed companies how to turn a showroom into strength rather than a weakness and played a pivotal role in the retail stores we see today.

Apple's accidental retail revolution
When Steve Jobs pushed Apple into retail in 2001, I don't think he had any idea what a profound impact his company would have on the way we buy products. What started as a way to educate people about Apple products that were often foreign to PC owners became a revolution in the way we look at retail. Apple created the modern retail showroom and changed the way companies would sell their goods both in person and online forever.

Apple's retail stores are amazingly successful, generating around $6,000 in annual sales per square foot, but Apple never really cared if you bought a Mac in-store or online, and you can often find iPhones a matter of steps away from an Apple Store at another shop or kiosk. The intention of the Apple Store was to make its devices accessible and show people what they could do, even fixing them if something went wrong. Apple Geniuses are there to teach, not just sell, Apple products, and with a few tweaks, it's a strategy companies from a variety of industries are adopting.  

Nke Store Image Tmf

The Nike store is more about building the brand than just selling merchandise.

The advent of showroom retail
Look at the way malls have changed over the last decade and you'll notice the showroom effect. No longer are J.C. Penney, Sears, and Macy's the heart of the mall -- it's stores from Nike (NYSE:NKE), Harley-Davidson, Tiffany, Oakley, and Walt Disney (NYSE:DIS) that are drawing in customers. These are companies that have expanded their retail presence, in part to show off their goods so people can buy them in other stores or online.

Nike is one of the best at showrooming, building stores in some of the most desirable retail locations as a way to expand the brand and show off the latest styles to consumers. At the end of the day, if you buy a Nike shirt from Amazon instead of at Nike's store, it's no big loss to Nike as long as it can get you to buy the shirt.

Dis Store Image

Disney stores can be found around the country, showing just what a vast world Disney is selling to consumers.

Disney may not seem like a showroom company, but it garners very little of its revenue from retail stores. Instead, by having stores, it builds its brand and sells movie tickets, trips to theme parks, and other goods. When kids can go in and see the toys and the art that animators make, it makes a theme park trip that much more appealing.

Walk around your local mall and you'll see brands filling the halls instead of just retail shops. Sure, they'll sell you anything you want to buy, but their biggest role is communicating with customers, showing off the product, allowing you to test it, and controlling the image through their own stores. That's something few of these companies could do before opening their own retail shops, and Apple showed the way.

Brick-and-mortar isn't dying -- it's evolving
One of the complaints brick-and-mortar retailers have long had about Amazon is that they do the work by showing products to customers who end up purchasing the products on Amazon anyway. This has long been a problem for Best Buy (NYSE:BBY), which is often jokingly referred to as a showroom for Amazon's electronics.

I think the bigger problem are the retailers that lose your sale once you leave the premises. Best Buy, J.C. Penney, and Sears are just a few of the struggling retailers, and the second you leave their store, they've lost an opportunity to sell you goods.

Amzn Box Image Tmf

Consumer brands don't care if you purchase an item in their store or get it in one of these boxes, as long as you buy their brand. 

But when you visit Nike, Oakley, Harley-Davidson, or a Disney store, the opportunity for sales aren't over, they're just beginning. You may have a shirt in mind or be pondering a jacket you tried on and a few days later you may decide to buy it and do so on Amazon. That sale is still a success for those companies even if you didn't buy it at their retail store, just like Apple doesn't really care if you buy its products through another channel.

The future of retail
Companies who win in the future of retail won't be those who only stock everyone else's goods, something any brick-and-mortar or online shop can do. I think success stories will come with one of two strategies, either using controlled sales channels with differentiated brand and products (Tiffany, Harley-Davidson, and Williams-Sonoma) or creating a brand and using broad distribution channels to make sales (Nike, Oakley, and Disney). Retail stores augment both strategies, and that's what Apple taught the industry.

The companies caught in the middle are those that will suffer. When Best Buy or Sears becomes a showroom for a sale that eventually goes to Amazon, which can offer products for less, there's no competitive advantage.

As we look back on how retail has changed, I think Apple and Amazon showed us retail of the future a decade ago, something that may have even surprised Steve Jobs himself. Jeff Bezos, on the other hand, saw a retail revolution coming the whole way.

Two stocks for the future of retail
A lot of retailers are struggling, but those who can take advantage of the trends above will have a strategic advantage. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Travis Hoium manages an account that owns shares of Apple and is personally short shares of The Motley Fool recommends, Apple, Nike, Walt Disney, and Williams-Sonoma. The Motley Fool owns shares of, Apple, Barnes & Noble, Nike, and Walt Disney. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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