Apple's largest U.S. store highlights growth strategy

italics- highlighted, in red- comments

BOSTON, US - Apple Inc unveiled its largest U.S. store on Wednesday, a glass-facade building sheathed in steel that a senior company official said reflects Apple's plans to expand retail ventures at home and abroad.

Sandwiched between aging brick buildings, the minimalist 20,000-square-foot store stands out on Boston's historic Boylston Street, featuring a ground floor with more than 100 Mac laptops and computers, a second level for iPod music players and iPhones, and a third entirely for service.

*Ease of accumulating stocks
The easier the stock accumulation, the more price elastic the supply is. Hence, since it is easy to store unsold stocks at low cost, the Apple firm will be able to meet sudden increase in demand by running down stocks. Likewise, they can respond to a sudden fall in demand and price by taking supply off the market and by diverting production into stock accumulation. Therefore supply of Apple goods is very price-elastic.

Apple's second-largest store globally after London's Regent Street offers a vivid glimpse into the latest retail thinking at the Cupertino, California-based company as it prepares to expand internationally with a new store in Beijing this summer.

"Concierges" stand at attention in orange shirts bearing the slogan "I know people" -- part of changes made in recent weeks to more thoroughly identify roles played by employees with the color of their shirts worn in Apple stores.

A sales force of "specialists" wear aqua blue and technicians are each dubbed "genius" as they work the third floor wearing dark blue -- all projecting a trademark retail image that has helped drive sales growth.

"These stores have served them very, very well and really raised the bar in terms of technology customer service," said Michael Gartenberg, an analyst at Jupiter Research, a technology consulting firm.

In its latest financial quarter to March 29, Apple's store sales leapt 74 percent in dollar terms to nearly US$1.5 billion.

Great increase in supernormal profit earned. This could be partly due to high quality of service provided by the firm to its customers as mentioned above.

Average revenue per store in the quarter reached US$7.1 million, up 48 percent from US$4.8 million a year earlier. Meanwhile, operating profits at the stores more than doubled, to US$334 million in the quarter.

INTERNATIONAL PUSH

Ron Johnson, the senior vice president who leads Apple's retail strategy, told Reuters on the sidelines of a news briefing that international retail presence would be an important driver of future sales.

"Today, Apple is about 50 percent international revenue and about 50 percent in the U.S.," he said, standing next to a large Apple icon hanging in the storefront that glows at night. "We increasingly want to get our retail presence out in the other countries."

Apple's latest filings with the U.S. Securities and Exchange Commission show they operated 208 stores at the end of the second quarter to March 29, compared to 177 a year earlier. Of these, nine were considered "high profile" in high-traffic neighborhoods (these locations will place them in a very favorable position, since there is high human traffic and thus leading to higher sales volume) with extensive amenities and products.

Increase in the number of retail outlets both locally (U.S) and internationally allows the firm to expand its plant size, and hence, be able to reap internal economies of scale. When the firm reaps internal economies of scale, its unit cost of production will fall when the firm increases output by expanding its scale of production.

The various types of internal economies of scale that can be applied here includes:

- marketing economies
-  bulk purchase of raw materials such as machinery parts for gadgets,
at a lower price
-  bulk distribution will be more cost-efficient for the firm
-  Large scale advertising: although the advertising expenditure may be
substantial, the advertising cost per unit may be lower than that for a
smaller firm because of larger output level.

- Risk-bearing economies
-  Able to predict demand more accurately, since they will have a larger
share of the market. Therefore they will bear lower risks and potential
losses and thus lead to cost savings (which they can in turn use it for
research and development to further improve their goods and services)
-  diversification, such as production of ipod, mac, itunes etc

- Financial economies
-  Being a large firm, Apple will have higher sales volume and more assets to
offer as collateral, and is deemed by lenders to be more credit-worthy
compared to a small firm. Hence banking and financial institutions are
more willing to offer loans or extend credit to them.

- Technical economies
-  Division of labour: greater scope of specialization of man and machines,
thereby increasing efficiency and productivity, and lowering unit cost of
production.The Boston store, which formally opens Thursday, also features
a glass spiral staircase leading from the first floor to the third, where
Apple technicians field questions at a "genius bar" that can serve 1,000
people a day.


Source: http://digital.asiaone.com/Digital/News/Story/A1Story20080515-65283.html


love,
Zijia