As Steve Jobs' favorite musician, Bob Dylan, famously sang, "The times they are a-changin'." Today, that sentiment rings true for Apple (NASDAQ:AAPL) in several critical respects.
iPhone 6 shipments continue to surge, putting Apple on course to set fresh financial records by nearly every measure in its current fiscal year. Of arguably greater long-term significance, the Apple Watch marks the tech giant's first new product launch in five years, an occasion that creates entirely new opportunities and challenges for Apple and newly minted retail chief Angela Ahrendts. According to reports, Ahrendts plans to overhaul Apple's retail operations, starting with its iconic in-store layout. Recently, a number of details of Ahrendts' plans were reported. Let's review the key details.
Make room for the Apple Watch
Rumors of Apple's plans to revamp its retail operation date back several years. However, recent coverage suggests that adjusting the flow and feel of Apple's retail stores for the Apple Watch lies at the center of its coming retail renovations.
According to Apple fan site AppleInsider, the updated Apple Stores will project a more "premium feel" intended to help extend the Watch's branding as a high-end consumer good. Regarding Apple Stores as a whole, this entails decreasing the number of total products in Apple's retail locations and emphasizing only premium quality accessories rather than the wide array of complementary goods currently available for purchase.
The report also speculates that a number of layout innovations currently found at select Apple Store locations -- notably the ingenious accessory storage system currently found in New York's Upper East Side location -- will feature prominently in these less cluttered Apple Stores. Additionally, areas featuring better seating have already begun surfacing at Apple Stores across the U.S. Clearly, significant changes are coming to the entire Apple Store feel, starting as early as July by some accounts.
Beyond these storewide aesthetic shifts, the Apple Watch's upcoming place within Apple's stores has also proven an area of intense interest. With prices for the Watch Edition reaching as high as $17,000, Apple must find a way to create a coherent retail experience for Apple's suite of iDevices -- long branded as devices aimed at empowering creative individuals -- along with a smartwatch that blurs the line between high tech and high fashion.
Successfully evolving the Apple in-store experience in a way that effectively marries these two seemingly conflicting ideals will be no easy task for Ahrendts. However, she won't be working alone. As has been widely reported, Apple's chief of design, Jony Ive, has been collaborating with Ahrendts in crafting Apple's new retail vision.
Much remains unknown about how this still-emerging storyline will ultimately play out. However, this will be an early, and highly useful, test of whether Ive and Ahrendts can deliver in their new roles.
Retail revenue revival?
Within the last decade, the financial importance of Apple's Retail segment peaked in the year following the introduction of the original iPhone in 2007. In 2008, retail produced just below 20% of Apple's total sales. However, as Apple's mobile devices, especially the iPhone, have risen to prominence, the economic importance of Apple's Retail segment has gradually declined.
Although retail shrank as a percentage of Apple's total sales over the past decade, this trend owes more to the overwhelming success of other Apple products, versus acute issues with Apple's retail operations. Case in point: the Retail segment's impressive 28% average annual growth rate over the past decade is astounding in its own right. And while it lagged other reporting segments in recent years, there's reason to think Apple might be primed for a retail renaissance in the coming years.
A major contributor to Retail's declining importance within Apple's reporting structure was the emergence of the iPhone (and to a lesser extent the iPad). Unlike any other Apple product, the iPhone's distribution strategy utilized third-party and telecom companies to sell a significant portion of Apple's iPhones in addition to Apple's branded stores.
Naturally, the increase in external sales partners de-emphasized Apple's own direct retail channels. But given the lack of context interested consumers will face in deciding whether or not to purchase an Apple Watch, it follows that the Apple Store is particularly well suited to be the primary sales channel for the Watch.
It's been easy for investors to interpret Apple's retail slide as a more systemic problem than is actually the case. Hopefully, with the advent of the Apple Watch era and a retail redesign tailored to help improve the Apple shopping experience, Apple's retail operations will return to the spotlight in short order.