“The success of Apple’s retail stores has been one of the most surprising chapters in the feel-good story of the Think Different company’s comeback. When the retail outlets were launched in 2001, analysts howled that CEO Steve Jobs was pouring money into a black hole. Now, one-time doubter and Apple bear Steve Milunovich of Merrill Lynch says the retail risk has passed. According to Apple, the chain has been profitable for two consecutive quarters, and it expects to see margins rise from 2% to 5% as customer traffic continues to increase,” Alex Salkever writes for BusinessWeek.
“Not everyone is smiling, however. Tony Verga, who owns CDS Group, a certified Apple dealer and consultant in Phoenix, has been selling Macs and providing Mac-centric consulting services for nine years. When Apple opened two stores in the Phoenix area in 2002, Verga saw an immediate impact on his business. Apple had previously referred service calls to CDS. But increasingly, Apple refers service customers to its own retail operations, claims Verga. ‘My guess is that they want to do it all,’ he says, estimating that his business is down by at least 10% since those stores opened,” Salkever writes.
“What should Jobs & Co. do,” Salkever asks? “Apple must craft a plan to rebuild and reinvent its ties with small resellers. First, it needs to be honest and admit that Apple stores are hurting the resellers’ business and that not all of them will survive. Second, Apple has to treat those that do hang on as integral parts of its organization and sales effort. Finally — and most crucial — Apple needs to ease the pain by coming up with programs to encourage these longtime partners to help it accomplish goals it can’t achieve on its own.”
“Of course, Apple can’t and shouldn’t pretend to guarantee the survival of all small resellers. Many will get out of the business — and they should. Viewed as a whole, small resellers have failed to build Apple’s market share and its brand. But throwing out the good resellers with the bad would cost Apple a huge amount of customer goodwill,” Salkever writes. “Unless Jobs & Co. think through the logical next step of their retail strategy and figure out a way to keep those small, valuable resellers in the fold, Apple could lose leverage in some of its most lucrative markets — and seriously damage the company’s overall ecosystem.”
Full article here.