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

Apple's retail segment doesn't get much attention, but it's been rapidly built into a huge business, with even more growth left to come.

May 14, 2014 at 2:05PM

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.

Apple Store

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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Bob Ciura owns shares of Apple. The Motley Fool recommends and Apple. The Motley Fool owns shares of and 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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