The Apple Store is More Than a Store

Two weeks ago I went in to the Apple Store to do what else – check out the iPad.  It was crazy.  The place was mobbed.  I had to wait 20 minutes to touch the magical tablet.  Today, I was back there again.  Just as packed as the last time.  To my surprise no wait for the iPad.  Had interest already waned?  No. Apple had expanded its demo area and added more iPads.  I simply smiled and showed my wife my next Apple gadget.

I have been checking out the Apple Store for years. Recession or not the place is always buzzing.  I have always understood that the stores were more than simply an outlet for Apple products.  However, its true power didn’t hit me until this weekend while reading something completely unrelated to Apple.

Each week I receive the Weekly Investor Alert from US Global Investors.  Some weeks I read it.  Some weeks I don’t get to it.  This week the lead story grabbed my attention “China Imports Success.”  The following got my motors rolling:

Rapidly rising incomes in China are making its consumers look more and more like those in the developed world. They want nice clothes and the latest high-tech gadgets, and their desire for more spacious homes outfitted with modern conveniences…..

The gadget thing perked up my ears, but it gets better.

Another point worth mentioning—Beijing and Shanghai may be China’s most important cities, but the country and its economy is so much more, just as New York and Washington, D.C. don’t represent the entire United States. The central government is clearly serious about spreading the wealth now concentrated on China’s eastern coast deep into the nation’s interior.

Income levels drop off as you move inland in China, but there’s a growing market in those areas for luxury goods. We pointed out a few weeks ago that high-end retailers like Gucci and Louis Vuitton are opening shops in the back country, which is a testament to increasing wealth levels.

Apple opened its first China store in Beijing in August 2008.  Since then it has been perfecting its strategy and now plans to open 25 stores in China over the next two years.  Per the Weekly Investor Alert, the pump is primed and the world’s most populous nation is prepared to consume.

Architectural Rendition of Shanghai Apple Store

In Apple’s most recent conference call, the company gave some insight into what’s happening in China.  The following is a exchange between Barclay’s Ben Reitzes and Apple’s COO Tim Cook:

Reitzes:
Did China meet your expectations?

Cook:
China has been interesting. If you look at greater China which we define as mainland China, Hong Kong and Taiwan, the iPhone units were up year-over-year over 9 times. We added another 800 points of distribution in China. The revenue, we have never released this number before but I will do this in this particular case, through the first half of the fiscal year that we just completed for the six month period our revenue from greater China was almost $1.3 billion and this is up over 200% year-over-year. So we are well pleased with how the company is positioned to take advantage of the growth in greater China. (Transcript: Seeking Alpha)

“Well pleased with how the company is positioned to take advantage of the growth in greater China.”  Cook had to say that to tamp down expectations.  I’m sorry, but this is huge.  Apple stores generated $6.6B of Apple’s $29.9B in revenue in 2009.  Some 170 million visitors entered one in the same period ( WSJ). Just think about the increased revenue when those 25 Chinese stores are opened.

This is yet another example of why Apple Execs are the sharpest tools in the shed. They are simply playing a different game.  Their competitors are trying to compete by touting faster/bigger this or that, but they fail to understand a core marketing concept that Apple has mastered.  “Products don’t sell.  People do.”

As you walk in to the Apple Store, you are being invited to experience the Apple lifestyle.  The buzz is intoxicating.  You may not buy a product at the moment, but the seed has been planted.  Soon millions  in China will experience an Apple Store for the first time.

Disclosure:  I’m long Apple stock and will be getting longer…

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