Apple 2.0

Covering the business that Steve Jobs built

Apple Stores: The big chill

April 24, 2009: 8:48 AM ET

Fifth Ave store

Is there an Apple Store near you? Count yourself lucky, because the days of Apple's (AAPL) aggressive expansion into the branded retail space are over -- at least for now.

After opening more than 250 company-owned stores in eight years -- an average of nearly 8 per quarter and a total of 46 in 2008 alone -- Apple in the last quarter opened just one.

The building slowdown is one of several moves that Apple has made in response to what COO Tim Cook this week called a "horrendous economy."

Although Apple's revenues grew more than 8% year over year in its second fiscal quarter, the average take per store took a 17% hit, falling to $5.9 million from $7.1 million in 2008.

So Apple has been cutting back. According to its latest SEC 10-Q filing, the company has slashed the ranks of its retail employees -- from the equivalent of 15,600 full-time workers at the end of its December quarter to 14,000 in March, a net loss of 1,600 jobs.

It has also been closing stores -- temporarily, for renovations -- at a stepped up pace. IFOAppleStore, the definitive source for news of Apple Store openings, has been reporting round after round of retrofits. The latest cycle calls for stores to be temporarily closed in Tigard, Ore., Woodland, Mich., and White Plains, N.Y.

As its SEC filing notes, Apple-owned stores requires a "substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. ... The Company would incur substantial costs if it were to close multiple retail stores."

That doesn't necessarily mean Apple plans to shutter a lot of stores, but it could signal a major reassessment of its retail strategy.

"I believe Apple is at a dangerous crossroads with retail and must make very careful decisions here," writes a retail management expert who posts on Investor Village's AAPL Sanity board under the handle nontekkie. Although he believes Apple is doing the right thing, he also sounds a warning:

"And as sales drop, expenses must be cut. So Apple faces the conundrum of cutting payroll and risking the service part of their reputation because they have sent the sales portion of their product to Best Buy, Wal Mart, AT&T, etc etc. The product gains wider distribution, the customer gains convenience, but Apple risks running stores in the red or losing their service strength.

"Apple retail stores... are not meant to saturate a market, they need to be a destination." (link)

During Wednesday's conference call, CFO Peter Oppenheimer said the company was still on track to open 25 stores in fiscal 2009. But he added that about half of those stores are overseas. If he's counting the 6 U.S. stores that have opened since Sept. 27, 2008, Apple could be planning to open as few as 6 new domestic branches before the end of fiscal 2009.

To get a feel for what it means to Apple's customers for the company to open a new store in their city -- and what a loss it would be for them if Apple's expansion were to slow or stop --  check these out:

UPDATE: MacWorld's Dan Moran shed some light on the full-time equivalent numbers in an article posted Monday. Among other things, he tracks the number of Apple retail employees going back to Q1 2006. Here's his chart:

Retail employee fever chart

Bottom line: Apple may not have laid off 10% of its retail workforce, as Moran initially reported, but it has definitely cut back the hours they work.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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