Apple 2.0

Covering the business that Steve Jobs built

The magnetic draw of the Apple Store

August 7, 2010: 9:26 AM ET

London's new Covent Garden store proves once again that Apple can pull in the crowds

Source: clothheadhq via YouTube

Before we talk about numbers, you might want to check out the video at right (and on YouTube here) shot 10 minutes before Apple opened its newest and biggest store, in London's Covent Garden.

This is not London's first Apple Store. In fact, the city already had three others, including one on Regent Street that was, until Saturday, the world's largest.

Still, the opportunity to be among the first to visit the Covent Garden store filled one of London's largest and busiest shopping districts as far as the eye could see.

Apple (AAPL) opened its first retail outlet in 2000. In a note to clients issued last week, Needham's Charlie Wolf took a long look why the stores still draw huge crowds 10 years later. Among his findings:

  • Growth is unabated. Thanks in large part to the iPad, Apple Store revenue rose 72.8% year over year to $2.58 billion last quarter. Visitors per store increased 38.7% while same-store revenues rose 52.9%.
  • The stores are enormously profitable. "Annualized average store revenues of $35.9 million translated into sales of $5,980 per square foot, assuming an average 6,000-square-foot store," he writes, "undoubtedly the highest among retail chains in the country."
  • They're not just for Apple customers. Last quarter, Microsoft (MSFT) Windows users purchased half of the 677,000 Macs sold in the stores. Wolf estimates that since 2004, over 18 million Windows users have switched to a Mac, equal to over 100% of the size of the Mac platform at the beginning of this period.

The Stores have not only fulfilled their original purpose, Wolf writes, but they are key to the switching phenomenon.

"Apple's 2000 decision to open Apple-owned retail stores was motivated by the Macintosh's largely invisible presence in the U.S. retail channel," he writes. "The Mac's nominal market share did not warrant the allocation of significant sales resources on the part of resellers. And in a PC-centric world, the Mac was shortchanged even where it was sold. Apple's only recourse was to open company-owned stores, where the Mac held center stage...

"What Windows visitors quickly realized is that Mac owners received professional post- sale support thrown in for free—a virtually non-existent resource in the Windows world. Chris Anderson in his book, Free, highlighted the Genius Bar as an example of Apple' strategy of integrating a free service into the price of Macs. In the Apple Stores, Apple is building its image as the most service-oriented company in the computer and consumer electronics industries."

Below: two charts from Wolf's report, one showing the growth in quarterly visitors to Apple Stores, even as the number of stores increases, the other showing the growing number of Windows switchers.

Source: Needham

Source: Needham

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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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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