Lost in the hoopla surrounding Apple's (NASDAQ:AAPL) second quarter 2014 earnings results (where an increased dividend and share buyback plan were announced) was a comment CEO Tim Cook made that the company plans to triple the number of retail stores it has worldwide in the next two years. That would give Apple roughly 1,200 retail outlets around the world at the end of the expansion.
The huge increase in stores is aimed at bringing more points of sale for Apple's products in markets like China where the company's retail footprint is fairly small, GeekWire reported,
The expansion will be headed up by former Burberry CEO Angela Ahrendts, who will be joining Apple to run its retail and online store operations.
Apple's stores are really profitable
Apple's brick-and-mortar stores brought in $20.3 billion in 2013, a 7% increase over the $18.8 billion they made in 2012.
The growth in net sales during 2013 was primarily driven by increased unit sales of iPhones and iPads following the new product introductions in the first half of 2013 and increased sales of services, according to the company's 2013 annual report.
An analysis of data provided to Fox Business by research firm Retail Sails showed that Apple's virtual registers rang up $4,650 in sales per square foot in fiscal 2013. "That's about $500/square foot less than the previous year, but the data show Apple manages to get more out of its stores than its publicly traded rivals at the mall, or on Fifth Avenue for that matter. Tiffany (NYSE: TIF) posted sales of $2,990/square foot in 2013 while Michael Kors (NYSE: KORS) hauled in $1,746/square foot. Signet Jewelers (NYSE: SIG) took in $1,276/square foot," the business website reported.
Apple has clearly hit a home run with its stores, which led Microsoft (NASDAQ:MSFT), now with around 80 U.S. stores, to attempt to copy the model. Apple's stores not only drive sales they also make it easier for the company to offer a better customer experience. If your iPad, MacBook, or other Apple product breaks, for many in the United States help is as close as the mall. For a Windows-based product or one running Google Android, there is no comparable way to get face-to-face service, repairs, and technical help.
Can there be too much of a good thing?
Part of the Apple brand is a touch of arrogance and exclusivity, so less might be more when it comes to locations.
Apple stores drive Apple sales and they are clearly wildly successful at moving product, but one of the driving factors behind their success has also been their relative rarity. Adding stores even on a small level has sent average sales lower, so adding another 800 or so retail outlets may remove some of the magic and drive sales down to more traditional retail levels.
With an average of 403 and 365 open stores during 2013 and 2012, respectively, average revenue per store decreased to $50.2 million in 2013, compared to $51.5 million in 2012, according to the company's annual report.
"You get over-retailed. It's great to add (locations) but at some point you get cannibalization. That holds true for all the retailers," Retail Sails CEO Marc Heller told Fox Business.
Still Apple's expansion will be spread out around the world. Even if that drives per-sale stores down it should also open up opportunity for the company specifically in markets where it has a limited retail presence.
Much worse would still be really good
Even if expanding to 1,200 stores across the globe causes a continued decline in sales per store and sales per square foot, the company has a long way to fall before its outlets even fall below where they would be considered incredibly successful. In the United States where Apple has a deeper retail presence the company should be careful with expansion and stick to the high-end malls and shopping centers that contribute to the feeling of Apple being a superior brand.
In the rest of the world however Apple should use its stores as brand ambassadors building hype, bringing sales opportunities, and generally building the brand in places where it is not already strong.
Apple has been an unparalleled retail success story and there is not reason to think that won't stay true as long as the company manages its expansion in the careful fashion it has so far.
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Daniel Kline is long Microsoft. An Apple store replaced his MacBook Air with a new one after it could not be fixed after multiple visits The Motley Fool recommends Michael Kors Holdings. The Motley Fool owns shares of Michael Kors Holdings and Microsoft. 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.