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Here's the Huge Business Apple Inc. Is Building Right Under Your Nose

When you first think of technology giant Apple (NASDAQ: AAPL  ) , its iPhone and iPad probably come to mind. While those two products are undoubtedly the foundation of the company, what you might not know is that Apple is quickly becoming a retail giant as well. Indeed, Apple's retail segment is now a powerful, multi-billion dollar business that has become a hugely important part of the company.

Going forward, Apple has even bigger things in store for its retail business. The company is on the precipice of some critical new product releases, and it's been simultaneously making strategic moves designed to boost its retail business to better compete with (NASDAQ: AMZN  ) . If successful, Apple may be able to add the distinction of retail juggernaut to its corporate resume.

Source: Wikimedia Commons.

Retail is a hefty slice of the Apple pie
As an indication of how powerful Apple's retail business has become, the company now separately breaks out its retail business as its own operating segment in its SEC filings. How rapidly Apple has built its retail segment, and the sheer size of it, are truly impressive.

Apple's retail business generated $5.2 billion in sales in the second quarter, representing 12% of Apple's total sales by operating segment. This represents a one percentage-point increase from last year.

In 2013, Apple's retail division posted more than $20 billion in sales. That means Apple's retail business racks up more sales than it does in Japan. In fact, retail now rivals Apple's China business, which produces $25 billion in annual sales. To put that in perspective, Apple's retail business generated about half as much revenue as Best Buy did last year.

Its retail growth rate is also significant. Apple's retail business did just $14 billion in 2011, meaning the company's retail segment is growing sales at a near-20% annual clip. Even better, Apple is continuously tweaking its retail strategy, to allow it to better compete.

Apple improves its online performance
Not only is Apple doing extremely well with its physical locations, it's improving its online presence to be on more even footing with Amazon. According to a report from retail industry research firm StellaService, Apple has cut its refund times in half for online customers. Previously, it took 10 days for customers to receive refunds. Now, the wait is down to a week.

The move is meant to better compete with Amazon, which is famous for its rapid customer service. In some instances, Amazon can offer instant refunds. While it's unlikely Apple will be able to match that, its reduced wait time for refunds may put a slight dent in customers opting for one of its rivals.

The effort will cost Apple initially, but it's a wise move as a precursor to its much-awaited product releases. Apple will most likely release the iPhone 6 later this year, and the company may have even more in store. Rumored possibilities include an Apple television or a wearable device like an iWatch.

Why retail is such a promising catalyst
Apple has created a massive and highly profitable retail business right under everyone's nose. While its core products like the iPhone and iPad get most of the attention in the media, Apple's retail business has grown so quickly, it's a huge business.

Future growth is likely, as Apple continues to build out its physical retail presence. And, when it comes to the Internet retailing space, Apple is taking big strides there too. More and more customers are going right to the source for Apple devices, just when we're on the cusp of several new product releases.

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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 May 14, 2014, at 3:11 PM, deasystems wrote:

    The article states that, "Apple is quickly becoming a retail giant as well…Apple may be able to add the distinction of retail juggernaut to its corporate resume."

    Actually, Apple has been a retail juggernaut for at least several years now—it has enjoyed the highest sales per square foot by far of any retailer, more than twice as high as the next best (Tiffany's).

  • Report this Comment On May 14, 2014, at 3:47 PM, twolf2919 wrote:

    This article would have been worth writing a few years ago. Where have you been?

    For years Apple has been building its retail channel. For years, it's been a multi-billion dollar revenue source. For years, its stores' "per employee" and "per square foot" sales numbers have been #1 in the world of retail.....but only in 2014 *you* notice and write a piece about it.

    The only new data this piece brings to the table is the claim that "[Apple is] making strategic moves designed to boost its retail business to better compete with" - but it doesn't give any strategic examples to back up that claim. It mentions a recently published report of Apple improving its online customer refund time - how is that *strategic*??? While it might help it compete with Amazon (but since no refund times are given for either company, it is not clear whether Apple even needed to improve it - for all we know, Apple's refund time was already better than Amazon's....and Apple definitely gave refunds IMMEDIATELY if you returned an item to the store - which is definitely already superior to Amazon!) - so this is hardly "strategy". It's but a minor improvement that nobody really cares much about.

  • Report this Comment On May 14, 2014, at 3:52 PM, melegross wrote:

    The new hire of Burberry's CEO Angela Ahrends should mean a revitalizing of their retail business.

  • Report this Comment On May 14, 2014, at 10:43 PM, singaporenick wrote:

    What a weird article! Nothing new in it,and anyway the retail business is not separate from its iPad and iPhone business.

    Motley Fool really needs to do better than this.

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Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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