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Needham: Apple stores to continue slow, steady growth

updated 10:35 pm EST, Fri November 9, 2012

Points-of-sale expansion cuts into store sales increases

Analyst Charlie Wolf from Needham & Company has told his clients in a new report that Apple Store revenues have not kept pace with the growth in Apple's overall business, but that this is because the company is continuing to expand its range of points-of-sale rather than any flaw in the management of the stores. With ever more places to buy Apple products, the need to specifically visit an Apple Store for purchases has been diminished. Nonetheless, the retail stores continue to show strong growth even in a dour economy.

Over the past 10 years, Apple retail stores have grown sales at an average annual rate of 18 percent -- a figure nearly any other retailer would envy, particularly since the end of 2007 when the global economy took a sharp nosedive, led by the US financial meltdown. Non-Mac sales have been up an average of 25.5 percent per year over the last decade, reflecting the changing emphasis on Apple's iOS products, particularly in the past six years.

Even so, Mac sales have managed an average of 12.2 percent annual growth, about half as much as the iOS family of products. Much of that growth can be credited to a "halo effect" of influence from customers happy with their iPhones, iPods or iPads and willing to give a new OS a try (in some cases due to dissatisfaction with their present or imminent future options on their present platform).

Wolf notes that same-store sales grew 5.4 percent in the most recent reported (fiscal fourth) quarter, which was up from 3.2 percent in the June quarter despite some turbulence around retail chief John Browett, who was recently pushed out of the job despite being one of CEO Tim Cook's first independent hires. Non-Mac same-store revenues increased to 13.1 percent in the same period, up from 10.8 percent in June. Mac sales themselves were down nearly 10 percent in September, down from an 8.8 percent decline in June.

Both the number of Apple Stores and the number of other outlets where buyers can get Apple products is increasing rapidly, Wolf notes, meaning that Apple retail stores can't keep pace with the growth of Apple's revenue overall. Apple is addressing the issue by building more stores abroad with 36 percent of all Apple retail stores (as of the end of September) now outside the US. International sales account for 60 percent of Apple's revenues, led by the iPhone and to a lesser extent the Mac portable lineup. Even in the US, iPhone sales grew share to 35.5 percent in June, an increase of 13.7 percent from a year ago.

Wolf also observed that Apple retail stores continue to offer many indirect or non-sales services, including warranty repair intake, free classes, paid assisted and targeted sessions, "event" celebrations and more. He identifies this as part of the reason for the continued growth of the stores even in "down" economic quarters, with the stores becoming "magnets" in attracting Windows users to the Mac platform.

Wolf reminded his clients that "switchers" continue to account for about half of the 1.1 million Macs sold quarterly at the stores, and added that this figure represents 28 percent of the total number of switchers, meaning Apple is picking up about two users who are new to the platform every quarter. Overall, store visitors have increased at a 15 percent annual rate.

By Electronista Staff
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  1. jpadhiyar

    Fresh-Faced Recruit

    Joined: 10-16-12

    Well, this could probably be one of those rare analyst reports that don't go on mindless speculations and stuff. A very balanced report that has targeted the retail side of Apple well.

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