Apple 2.0

Covering the business that Steve Jobs built

Report traces Apple Store turmoil all the way to Tim Cook

August 29, 2012: 6:24 AM ET

The shift in emphasis from service to profits comes from the top, say insiders

CEO Cook and retail chief Browett

FORTUNE -- After Apple (AAPL) public relations released a statement calling staffing cutbacks at its Apple Stores a "mistake" that was being reversed, many thought that John Browett's days at the company might be numbered.

Browett is the Wharton MBA who was brought in from the giant British electronics chain Dixons to run Apple's retail operations after their creator -- Ron Johnson -- left to run J.C. Penney (JCP).

Johnson had famously emphasized service over profitability, an approach that helped burnish Apple's reputation and make its high-profile stores magnets for PC-weary consumers.

Browett, by contrast, was quoted in Gary Allen's ifoAppleStore as complaining that the stores were "too bloated" with employees. He was determined, according to insiders, to make them run "leaner."

"This has the stench," wrote The Loop's Jim Dalrymple last week, "of a man looking to make a name for himself."

But Browett is still running the shops, and a new report suggests that he was just following orders -- orders that came all the way from the top.

Once again, ifoAppleStore's Allen has the scoop:

Johnson was champion of customer satisfaction, designing and staffing the stores to provide a superior experience for visitors and buyers alike. He was able to win over Steve Jobs with the concept that revenue and profit should be a secondary goal of Apple's retail stores.

But in 2009, Jobs took six months of medical leave and put Tim Cook in charge of the company, including the retail stores. Cook is primarily an "operations guy," sources explain, and his natural focus is revenues and profits, not customers. While Jobs was away, Cook and chief financial officer Peter Oppenheimer began to confront Johnson on his customer-centric retail philosophy—both felt the stores didn't generate enough revenues to justify operating expenses.

According to accounts, Cook pushed Johnson "quite hard" about how other channels were selling more Mac's per-capita than the retail stores. Without Jobs' support, Johnson found it was nearly impossible to keep Cook and Oppenheimer from switching the chain's primary purpose from a superior experience to revenues.

Last year when Cook became the permanent CEO, he hired Browett from UK-based Dixons to head the retail chain. Cook was apparently attracted by Browett's like-minded focus on the more traditional concepts of retailing—logic and process leading to revenues and profits. With his new position as CEO and staffed with a revenue-focused Sr. VP, Cook naturally moved the retail operation in different directions, the sources say, resulting in last month's staffing changes.

You can read the full report here.

UPDATE: In his quarterly report on Apple Store economics, Needham's Charlie Wolf notes that same-store sales grew just 3.2% in the June quarter, down from 23.3% in March. "Despite a continuing expansion of the Apple Store footprint," he writes, "store revenues have not kept pace with the growth in Apple's revenues because of the rapid expansion of the company's iPhone and iPad distribution network. We expect this trend to continue."

But, he adds...

"The Apple Stores continue to play a vital role in building the Apple brand. Indeed, they are the "face" of Apple. Through their array of post-sale services, the stores have become a magnet in attracting Windows users to the Mac platform. In the June quarter, Windows switchers purchased about half of the 791,000 Macs sold in the stores. This represented 30% of the estimated number of Windows users who switched to the Mac during the quarter...¬†What Windows visitors quickly appreciated is that Mac owners received professional post-sale support thrown in for free—a non-existent resource in the Windows world."

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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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