November 12, 1999 9:20 AM PST

Apple may be heading toward opening retail stores

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Apple Computer appears to be inching closer to emulating Gateway by opening its own retail stores.

Apple yesterday confirmed that it recently hired Allen Moyer, a former Sony executive involved in retail development projects, including the futuristic Metreon retail-entertainment complex in San Francisco. Industry observers say moves such as this one are a strong indication that the company is interested in creating retail outlets.

Such stores would likely focus on Apple products, services, and related What's behind Redmond-RadioShack deal? equipment in a fashion similar to Gateway's Country Stores, analysts say. Operating retail stores potentially would pit Apple against its resellers but also raise the possibility of boosting the company's bottom line.

Retail outlets address a growing need among computer makers to expand their reach into the mass market. And the need for retail shelf space isn't limited to PC makers. Yesterday, Microsoft and RadioShack announced a deal to showcase Microsoft's broadband and Internet technologies through RadioShack's more than 7,000 retail outlets.

Apple declined to comment on whether the company is considering opening retail stores. Moyer declined to comment for this story.

The company this week registered several Net domain names that could be related to a retail venture.

Apple secured the domain names Shop-Different.com and Buy-Different.com, both of which currently lead to the company's main Web page. Apple also registered Apple-Store.net, which is a variation on the company's current Apple Store.

Apple's plans for the domain names is not known. It's possible that these sites could be used to augment its online store. But they could also be used for customers placing orders from a retail kiosk, for one example.

"I think it's something [Apple is] going to do. It's just a question of when," said Walter Winnitzki, a financial analyst with Hambrecht and Quist. An announcement regarding such a move could come as soon as January, he suggested.

Plans for Apple "boutiques" wouldn't be the first time the company has contemplated such a move. In 1996, the company planned on opening cybercafes in London, Paris, New York, Tokyo, and Sydney along with a 15,000-square-foot facility in Los Angeles.

Those plans were dropped in 1997 with the increasingly bad earnings reports coming out of the company's Cupertino, California, headquarters.

Moyer joined Sony in June 1995 as a senior vice president for project management, according to representatives from Sony Development. His main assignment involved the design and creation of Sony's Metreon, which officially opened with much fanfare this past June.

The Metreon center is a 350,000-square-foot complex located near the heart of downtown San Francisco. It features a 15-screen movie theater and retail outlets, including two dedicated to Sony products such as the PlayStation game console and a Microsoft store that sells Windows-related products. Moyer left Sony just before the complex opened.

Eye on Gateway
PC maker Gateway has enjoyed significant success with its move into retail, which has caused other PC companies to take notice. The 238 stores it now operates worldwide showcase its products and provide consumers a new venue to buy its products while avoiding problems associated with normal retail stores. At Country Stores, customers "test drive" systems and then order them online.

"Offering consumers the chance to touch and feel the latest technology and learn first-hand from Gateway's trained technicians...is something that no other technology partner can bring to the table," Gateway president Jeff Weitzen said during a conference call last month.

Apple has taken notice, analysts said.

"They've been curious about [retail] and have been watching Gateway's success with interest," said Lou Mazzuchelli, analyst with Gerard Klauer Mattison.

Mazzuchelli thinks that there would be many benefits to having retail distribution, pluses that outweigh the cost of opening stores up. Those benefits include greater control over product display and an increased brand visibility in areas where there aren't any Apple resellers.

The biggest benefit, of course, is that like its own online store, the revenue for systems sold goes straight to Apple, giving the company a chance to boost profit margins at a time when PC makers are facing pressure on profits.

There are numerous surveys indicating that first-time buyers--the kind Apple is targeting with its iMac--want to buy in retail stores, Hambrecht & Quist's Winnitzki said. Opening its own stores could help drive new business for Apple and give the company a controlled environment in which to interact with customers, Winnitzki said.

Proceeding with caution
Opening retail stores is only one avenue Apple might take, however. Another scenario, analysts said, is for Apple to partner with current retail partners such as CompUSA or Sears to open up retail centers, a move that would limit Apple's financial risk.

In fact, during a recent conference call with analysts, CompUSA's merchandising chief reportedly told analysts that the company had spoken to Apple about boutique stores, but declined to comment further, according to those who were listening to the call.

Another possibility: Apple could team with clothing retailer Gap to demonstrate and even sell products in Gap stores. At the very least, Apple has been looking to tap Gap chief Millard Drexler's retail experience by adding him to Apple's board of directors earlier this year. Steve Jobs, Apple's interim CEO, is also on Gap's board.

While harnessing the expertise of retail industry veterans such as Moyer and Drexler could mitigate any problems, observers note that plenty of other PC companies have tried similar strategies before and failed.

Moreover, many say Apple has a fragile relationship with its retail partners and has to be mindful of those relationships.

"Apple's got to be very careful. They've alienated most of the retail community at one time or another [and] can't afford to continue to alienate retailers with such a small market share," said David Goldstein, president of Channel Marketing, a retail consultancy.

Goldstein noted that he has just returned from Australia, where Compaq Computer has opened its own retail stores. The company's largest retail reseller of Compaq products--sales last year reached $100 million--just stopped selling those products because of the perceived competition from the manufacturer. To boot, it didn't seem like many people were rushing in to the Compaq stores to see products, he said.

 

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