“The latest threat to the shopping-mall hierarchy is an unlikely one. But Apple is challenging the dominance of department stores,” John Jannarone reports for The Wall Street Journal. “The technology giant isn’t branching into clothing or furniture. It is, however, expanding its presence in malls. That is a territory where department stores have long been treated better than other tenants because they attract shoppers. Often, such so-called anchor tenants pay little or no rent.”
“But Apple has arguably become an equally important attraction, thanks to a consistent string of blockbuster products. Indeed, Apple stores have overtaken many traditional anchors by revenue [$34.1 million per retail store vs. Macy’s $29 million via much larger stores and J.C. Penney’s $16.1 million, estimates Michael Exstein of Credit Suisse.]”
Jannarone reports, “And yet, Apple isn’t getting anchor privileges. Steve Sakwa of ISI Group estimates Apple pays $50 to $80 a square foot in annual retail rent… As Apple’s benefits become clearer, landlords likely will need to make a sacrifice to enjoy the fruit.”
Read more in the full article here.
MacDailyNews Take: There’s only one store that regularly generates lines out into the parking lot, wrapped around the mall, and it isn’t Macy’s or J.C. Penny or any other store in the place not named Apple.
While there is no doubt that Apple generates more revenue than J.C. Penney, Macy’s or similar, it is unlikely that the volume of foot traffic is as great. Keep in mind, these stores sell plenty of underwear and similar stuff that goes for less than $10. An average retail transaction in an Apple store is many times higher than one at a department store, so the total number of people visiting Apple likely doesn’t go as high as the other guys. For a mall operator, foot traffic is what promises revenue; not all stores sell $2000 Mac Book Pros…
Apple stores generate a lot of foot traffic from people who don’t buy anything at all. I worked at an Apple store in a high end mall and it was the biggest draw period in the whole mall. Lots of people would just come in to check their email or Facebook. Or to look at a machine they were saving up for.
Ha. Or to charge their iPhones.
So if they get anchor tenant status in Cupertino, they’ll be able to put in an Apple Store in their home town.
The only “mall” (that’s not a strip mall) in Cupertino is Vallco. The last time I was there, it looked like it was dying (lots of vacant space). And a few miles down the same road (Stevens Creek Blvd.) is the Santa Clara Apple Store in Valley Fair Mall.
A smaller stand-alone store, like the one in Palo Alto or Burlingame, would be more appropriate, but unfortunately, Cupertino does not have a central “downtown” area. Maybe Apple should work with Cupertino and use a small portion of that new land (near the highway 280 border) to build a trendy tree-filled shopping venue, and put an Apple Store there.
Steve Jobs was asked by the council if Apple would consider building an Apple store in Cupertino, but Steve said there would be insufficient traffic through the store to make it worthwhile.
Worth watching the video of the presentation.
I already watched… The reason there is “insufficient traffic” in Cupertino is because Cupertino does not have a central “gathering place” (a trendy “downtown” area like in Palo Alto).
If Apple worked with Cupertino to create a small but desirable commercial area (perhaps in exchange for some tax-related consideration), then I think it may be a different story. That new campus location, being next to I-280 and some major cross streets, is very accessibility. But Apple probably does not want that many “tourists” gathering near is new “mothership.”
Ha!
The locals in cities surrounding Cupertino now call it “CuperChina” due to the large Asian population. Vallco Mall is nearly dead but at the nearby Vallco Village (right across from the Spaceship Campus, you have to be able to read Chinese to figure out what the stores provide. Every last one of them have few if any western letters on the storefront. It’s creepy going into a shop and having everyone turn and look at you like you’re an aboriginal from some outback somewhere.
Its likely Apple signs long term leases at favorable rates. The build-out cost of an Apple Store is large enough that Apple would go moving them around willy-nilly.
Huh?
It’s probably a combination of both. And while JC Penny’s might attract someone to buy a $10 item, Apple attracts buyers who typically will spend more which tends to benefit other stores as well.
And typically, you have to walk past these anchor stores to get to an Apple store.
the lines (MDN take) are there indeed. But the problem with the lines is, they don’t generate sales in my shop. If anything, they are just annoying because they keep the people away from my shop.
Don’t you have anything better to do Mr. Ballmer than write whiney posts on the internet!?
Too funny!
My local mall Apple Store is next to a Coach store. Coach has a mostly white decor, and sometimes when I’m not paying attention I almost enter the store. Then I realize there is no crowd so it obviously isn’t the Apple store.
Dear WSJ.com advertisers,
Normally, I would visit a website, read an interesting article, and view your ads. Perhaps, even click on an intriguing ad that resides next to the article. In this case, the WSJ wants me to subscribe to view the article in question, so I immediately close the window and leave the site. Your loss. Think about that when the WSJ sells you advertising.
“MacDailyNews Take: There’s only one store that regularly generates lines out into the parking lot, wrapped around the mall”
That’s not true. Others including the department stores and the Microsoft stores generate lines like that every December 26th,
the return line.
…regularly….
I guess “every” Dec 26th would count as regularly?
Where does the craziness end?!?
This is why the rich keep getting richer, and the poor, poorer. Just because Apple puts up some astounding retail sales numbers, doesn’t give them the right to demand space for free. If I owned a mall, I’d love to have Apple put a store in it, but I would never allow myself to be blackmailed into cutting my own throat to do so. Taken to the extreme, should I just give all my successful retailers free rent, you know, ’cause they are successful?
In reality, the more traffic a store generates, the more it costs me to maintain the property. Why would I agree to such a stupid, idiotic arrangement?
When America wakes up and realizes who screwed up our whole economic system is, then and only then will we be able to fix our economy.
Re-read the post, and ease off the rant. The point wasn’t that Apple should demand free rent, but that Apple should be treated like an “anchor tenant” (department store) that usually isn’t charged rent.
However, the REASON anchor tenants aren’t usually charged rent is that they generally build and own their own buildings, as opposed to being part of the “mall.” They don’t pay rent to the mall since they technically aren’t part of the central mall, but connect to the mall as a “service” to the mall’s customers.
Since I doubt that’s part of Apple’s strategy, I doubt Apple will be expecting to go the rent-free route any time soon. Besides, at average mall rentals, the Apple Store makes out just fine.
good post
When Apple selects a retail site the site selection factors near or at the top of the list are regional demographics and foot traffic. The look at the foot traffic generated by the retailing activity of the adjoining stores. Other retailers often do not benefit from that generated by Apple. In one upscale Southern California mall during this economic downturn, several upscale, major brand’s stores nearby are almost empty and envying the crowds Apple attracts.
The Talbot’s and J.Jill stores across the street have been gutted so that Apple can increase floor space sixfold. That store will be jammed, too, in a year or two.
Does Apple really care if they have to pay $80/ft./ann. for a location that generates more than $4000/ft./ann.?
Apple is now giving the retail rights to stores in different geographic areas including Pakistan & this site is one of the best Apple Retail Stores in Lahore, Pakistan