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Why Is Apple On The Starbucks Model?

posted by Choire Sicha   Jan 18, 2008

Does it make sense for Apple to build a fourth store in Manhattan, hot on the heels of their new Meatpacking District outpost? Retail saturation schemes work for Dunkin’ Donuts. But in what way would the incredible overhead and costly building prices of the Apple temples serve the company? Surely there’s a good business reason for it—even though one doesn’t come to mind.

Reader comments

BenJan 18, 2008 at 11:35AM

My theory is that so many people are flying to NY from Europe to take advantage of the weak dollar that all four stores are needed to meet demand. In other words, it’s not a saturation scheme because the effective catchment area of these stores includes a load of well-off Europeans as well as Manhattanites.

RehanJan 18, 2008 at 11:41AM

There is an Apple store here in Omaha, NE. Population: Not that many. Land is certainly cheaper here, sure, but population-wise, NYC could use a few more.

Inigo MontoyaJan 18, 2008 at 11:41AM

More Genius Bar availability?

HarrisJan 18, 2008 at 11:45AM

Apple’s stuff has gotten so cheap now, especially as compared to the price of everything else in New York, that I don’t really think a saturation scheme is such a bad idea. Do I want to eat out tonight, or grab an iPod shuffle. Oh, there’s an apple store…i’ll just have a PB&J sandwich when i get home…

Couple that with the fact that it’s actually starting to make sense to have multiple ipods (nano to work with my Nike shoes, classic to store all my music, etc.) and it might actually make some business sense.

dansaysJan 18, 2008 at 11:45AM

Apple’s stores, per square foot, are among the most profitable in retail. I’ve been to all three stores, at all hours of the day (and night), and it’s always crowded. Clearly, there’s a demand.

JoshJan 18, 2008 at 11:50AM

The stores are always slammed. I’ve had a genius bar appointment at 2 am and seen huge crowds. Remember, NYC has 8 million residents and Manhattan has over 1 million alone. The stores are generally spaced out over the city, and an UWS location would make a lot of sense. The 5th ave store and SoHo stores are more full of tourists etc. An UWS location would actually probably draw more locals.

DeannaJan 18, 2008 at 11:50AM

Most of their high-volume product isn’t computers or other things that people are willing to research and go out of their way for. It’s ipods, accessories, and other items that people will buy spontaneously, if it’s convenient. So multiple locations totally make sense, in the same way that multiple H&Ms or multiple Best Buys make sense.

Joel!Jan 18, 2008 at 11:54AM

As costs of iPods approach those of donuts…

PeteJan 18, 2008 at 12:20PM

I wonder how Apple stores will do in a down market (especially when the nyc financial is facing a slow down).

Apple does have high volume, but i think the closing of one of their flagship stores is more of a negative than the positive of opening a store.

Right now Apple is the golden goose, but a store closing can send the wrong message to wall streetl.

AndyduncanJan 18, 2008 at 12:21PM

@dansays & @ Josh: yup, those stores are packed and profitable. Which are the two best reasons I can think of to open more.

MissPinkKateJan 18, 2008 at 12:28PM

Location wise, it makes perfect sense.

RafeJan 18, 2008 at 12:35PM

My guess is that it’s that demand for the Genius Bar is outstripping supply.

BrockJan 18, 2008 at 12:35PM

It’s about the Genius Bar. The Apple Stores sell services that support their computers and iPods. Services require floorspace (aka, a seat at the Genius Bar or in one of their classes), so the only way to increase sales is to increase floorspace. They will continue to do this until they’ve reached market saturation.

PatJan 18, 2008 at 12:44PM

I don’t know have you ever walked into one of the Apple Stores here, they are perpetually packed so obviously the demand is there. I’m curious, does anyone in New York even own a PC anymore?

RyanJan 18, 2008 at 12:49PM

In addition to what was mentioned above, one of their goals is to get people to try their products. That’s why they have so many of them sitting around, so if you’re interested in the iPhone, you can mess around with a fully functioning version of it for 30 minutes if you’d like to. This is key to Apple’s success.

EricJan 18, 2008 at 12:56PM

One poster above noted that it’s “starting to make sense to have multiple ipods.”

Hijack, but this is exactly why I didn’t buy an ipod recently. My 30GB video broke, and I went to buy a 80GB classic until I noticed that it takes forever to get through menus. so I look at the nano, which flies, but is stuck at 8GB. Want more than that with flash memory? better shell out $150 extra for a (large) touch. Apple is doing a f&*$ing fantastic job at segmenting the market.

So I’m now using my sister’s old mini (which works fine, and even still has great battery life because she dropped it to buy an iPhone. Yay hand me downs!).

Brian VanJan 18, 2008 at 12:58PM

Well, you know, both Apple and Starbucks sell music. I don’t know what that coincidence means but I’m more than happy to bite down on a Starbucks pillow while Steve Jobs has his way with me.

MaxJan 18, 2008 at 1:04PM

Saturating NYC takes more locations than you think.

Josh MadisonJan 18, 2008 at 1:58PM

With the fourth store on the UWS, Apple will have a store in Manhattan that is fairly easy for anyone setting foot on Manhattan to get to. With that, a person who wants a new computer or an iPod will be more likely to go to an Apple store than another store because all Apple products cost the same no matter where you buy them from (with few exceptions), and people will want to buy them from the “source” and take in the whole “Apple experience”, especially since so many people already hate Best Buy and Circuit City.

Plus, you can really sit down and spend time with a Mac at an Apple store that you really can’t do anywhere else.

paulJan 18, 2008 at 2:02PM

Surely there’s a good business reason for it—even though one doesn’t come to mind.

Um, as the previous commenters have noted — because it works?

Dan FrommerJan 18, 2008 at 2:39PM

Why is the Apple Store packed at 3 a.m.? Because it’s packed at 3 p.m.

How many times have you decided not to go near the place because of the crowd? Several, for me, which ended up making Amazon some money. I think a few more stores with less perceived congestion could increase NYC sales quite a bit.

dougJan 18, 2008 at 3:03PM

It’s probably not because of Genius Bar capacity, since I doubt much money is made from dealing with people who don’t know how to reboot their iPods. (At least compared to the amount of money made from straight-up sales of computers, iPods, and accessories.) After all, Starbucks doesn’t open more stores across from each other because there’s no place to sit in one location; they open more stores across from each other to process more drink orders in the same amount of time to keep the lines short.

It’s probably just a simple equation of how much money per square foot, per hour they think they can make in a city with millions of people and visitors.

pedroJan 18, 2008 at 4:18PM

I don’t really know about Apple’s saturation schemes, but I know I’m enjoying Choire Sicha’s week on Kottke.

Cheers!

pwbJan 18, 2008 at 4:29PM

I share your concern but I think 4 in Manhattan is not unreasonable.

RichardJan 18, 2008 at 4:34PM

I don’t know how saturated NY is with free wifi in public places but the times I venture into NY from rural Connecticut with my MacBook Pro I make a stop at one of the Apple stores (or Bryant Park in nice weather) a part of the trip just to check email and feeds and drool over the latest and greatest stuff. I rarely buy anything (ditto B&H photo) as I buy from them on the web, but it’s a great way for me to get my hands on stuff I can’t touch otherwise and get online without dealing with t-mobile or some other paid service.

I’ll plop down in the theater of the Soho store to do some work on my computer only to notice that folks sitting on either side of me are doing the same thing. Poor presenter, we’re not paying much attention at all.

Apple stores are fun and exciting for folks who’ve not been in them. The store employees take happy pills (for the most part) and the entire experience is great. Ron Johnson is the best thing that ever happened to Apple and Jobs was a genius for hiring him to do this.

pauldwaiteJan 19, 2008 at 6:10AM

> I wonder how Apple stores will do in a down market

Interesting point. I don’t think they’d close stores. During the last recession, Apple invested, often losing $40 million a quarter. And they got the iPod out of it. Their cash reserves have been swelling the past few years, so I think they’d simply weather it out again, and be out of the blocks quicker when things picked up.

rodJan 19, 2008 at 8:05AM

Joining the parade after the baton twirler has gone, but retailers often use Manhattan locations as branding tools in addition to the mere “retailing”.

Ross HillJan 20, 2008 at 9:24AM

More outlets to sell the iPhone, obviously :)

While AT&T (and later, everyone) have their own shops - Apple are the only ones who will upsell you to a laptop while you’re there.

DonJan 21, 2008 at 6:35AM

It’s simple. Apple is expanding its target demographic. They are no longer just selling computer to a cult following. Much like the iPod, they have created another cultural icon with the iPhone.

This thread is closed to new comments. Thanks to everyone who responded.