• We’ve recently studied Apple retail and believe it is an underappreciated competitive advantage.
• No other tech company has Apple’s base of 65,000 retail employees delivering face to face advice, support, and experiences. Microsoft comes in second with about 6,000 retail employees.
• Apple stores are a channel through which Apple expresses its values of quality, design, experience, inspiration, ease of use, and privacy.
• These values are delivered through the Genius Bar, Today at Apple, employee checkout, in-store pickup, curated third-party products, and a consistent online and in-store experience.

The Start

Ron Johnson founded Apple retail in 2001. At the time, Gateway retail, the only computer manufacturer with brick and mortar stores, was struggling. Gateway closed the last of its 277 stores in 2004.

Johnson had three insights about retail and computing:

1. Make it easy to experience Apple products (notably the iPod in 2001).
2. Staff the store with experts that can simplify tech.
3. Provide in-store support while you wait at the Genius Bar.

Until then, computer maintenance involved shipping your computer to the manufacturer or dropping it off at Best Buy for two weeks. The combination worked, and Johnson grew Apple retail to 357 stores by the time he left Apple in 2011. Today, Apple has 511 stores.

The Evolution

In 2014, Angela Ahrendts left Burberry to lead Apple retail. We attribute two contributions to Ahrendts. First, while Apple stores offered in-store classes, elementary school field trips, and music events to build community, Ahrendts expanded the classes and community theme with Today at Apple. The company describes Today at Apple: “Do more of what you love with inspiring programs happening every day at Apple.”  Separately, Ahrendts made the online and offline experiences (including recommendations) consistent and launched an Apple Store app. The formula seems to be working, one recent Loup Ventures observation in Uptown Minneapolis: we counted 93 Apple store visits on a Wednesday from 1-2pm. North Face (located two doors down from Apple) had 9 visits over the same time period.

Five Layers

To get a better sense of what’s at play, it’s helpful to peel back the layers of an Apple store visit.

• Layer one: Aesthetics. Apple obsesses over the physical store design. All stores have glass doors, symmetrical design, no clutter (it’s difficult to see power cables). They are well lit (natural and white), clean (often a full-time position filled by a 3rd party), and consistent (uniforms with Apple-branded shirts). Embodied values: quality, design.
• Layer two: Greeting and checkout. You’re greeted by an employee with “what can I help you with?” The goal is two-fold; make customers feel welcome, and quickly point them to a person who can help. The triage method seems to work. We observed an average visit time of 15 minutes at 5 different Apple stores (keep in mind, we estimate about a quarter of the visits were for repair). Separately, every employee can check a customer out and customers can use self-checkout on certain accessories, reducing wait times. Embodied value: ease of use.
• Layer three: Advice. Apple’s employees do not earn commissions. One manager we talked to said that store managers’ key metric is customer satisfaction (that email you get after a store visit). Revenue per employee is less important. For example, Apple employees will remind a shopper that a similar power cable is available on Amazon for cheaper. One Loup employee visited an Apple store for a screen replacement on an old iPhone. Instead of replacing the screen, the Apple employee recommended using clear packing tape as a cover for the cracked screen (which works really well!). Embodied values: experiences, ease of use.
• Layer four: Support. While you have to make a reservation and may have to wait a few days to get in, Apple’s Genius Bar is the most efficient way to get tech support. We estimate that 75% of all Genius Bar issues can be solved in a single visit. Recently, a Loup employee had an issue with a MacBook Pro graphics card that needed to be “sent in.” Apple estimated a turnaround time of 5 business days, which turned out to be 2 days. And even though Geniuses are often privy to sensitive data on an iPhone or a Mac, privacy is central to the interaction. Embodied values: ease of use, privacy.
• Layer five: Inspiration. “Today at Apple” best exemplifies how Apple uses its retail stores to inspire customers. Through these experiences, Apple teaches unique ways to use Apple products to unlock creativity. Photo Walks, Kids Hour, and Music Lab are just a few examples. Today at Apple also builds community. Embodied value: inspiration.

The Next Phase

Growth in new Apple stores will continue. We expect Apple’s store count to reach 600 locations in 2023, up from 511 today. The two biggest growth regions will be China (50 stores today) and India (likely announced within the next six months). This suggests that total retail employees will reach 80,000 in the next five years.

Observations From Other Retailers

For the sake of comparison, we visited 10 retailers in Minneapolis and asked about their strategy when approaching customers to get a sense of the similarities and differences in the retail experience. Below are some notes on our findings:

• Running Room: “We’re personable. Gauge why they are coming in and if there is anything we can help them with. We ask if there is anything they are looking for and then go through our options.” Very easy to talk to and answered every question.
• AT&T: Took 5 minutes to be greeted by two workers in the shop. They have no scripted welcome but said they like to keep the customer first, ask their name, be personable, then try to push their marquee products
• Urban Outfitters: Employees try to welcome guests (wasn’t welcomed) then leave it up to the customer to look. If they have any questions associates assist the customer but they leave the approach to the discretion of the associate.
• H&M: “No strategy really”— and this was pretty evident. No employee made an attempt to provide assistance. Employees ask if a customer has any specific questions; if they do, they’ll help out. One employee mentioned that they can use their app for all tasks such as finding a price on an item.
• North Face: One associate noted that they have “confidential information on our strategy.” The same employee said that the customer is always evolving so they try and gauge the reason for why someone is coming in. He opened with the question of “is there anything I can help you with?”
• Columbia: Employees make an attempt to greet the customer. They have a “buying strategy” — employees try to gauge why a customer is coming in and then figure out ways they can assist them. They leave it up to the customer to show interest and then they share their options.
• Arcteryx: Employees are asked to stand up when a customer enters, ask how they are doing and ask if they have any questions. If a customer has no questions, employees give them space and don’t harass them. If a customer touches something and an associate senses interest, they try to assist them in any way. Arcteryx uses “Merecat” as an onboarding system that details how to interact with customers.
• McDonald’s: Employees stand behind cash registers and indicate that they are ready to help anyone that is ready to order. Employees ask, “what can I get for you?” and then take an order.
• CB2: Employees welcome guests saying, “welcome in” (was said immediately), then ask if they have any questions and then mention any promotions they may have going on.
• Magers & Quinn Bookstore: No distinguishable strategy. Employees are asked to say “Hi” and welcome customers (but neither happened in our case). They let customers roam. We asked if that’s because customers know what they want. The worker agreed and said that’s why they let them roam.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.