Apple reveals direct threat

Apple reveals direct threat

Apple has announced the rollout of 25 direct retail stores in the US to be completed by the end of 2001. The first two stores opened on May 19 in Virginia and California.

A statement released by Apple chief executive officer Steve Jobs suggested customers at the new retail stores will be provided with an "experience" of Apple computing, rather than be swamped with technical detail. The stores will include "solution sections" for grouping products to user profiles, a "genius bar" for onsite technical help, a selection of relevant software and peripherals, and a 10-foot screen displaying Apple technology. The stores will carry Apple's entire range, as well as third-party software titles for Apple products.

Apple Australia spokesperson Myrna Van Pelt said Apple Australia was "committed to its current channel strategy" but is also "continuing to review it's channel strategy". She was not prepared to comment on whether similar direct stores would be opened in Australia.

When asked whether a "commitment to the current channel strategy" involved a commitment to Apple resellers, Van Pelt could not comment.

Apple's channel strategy has been under scrutiny of late, with the appointment of administrators to its merged reseller group Buzzle. Speculation over a direct retail strategy has been circulating for many months, but the US announcement confirms the worrying trend for Apple resellers.

One Apple reseller, that preferred not to be named, told ARN that he was not surprised by the decision. He said he also wouldn't be surprised if Apple purchased one of the failed Buzzle stores to use as a pilot for the direct model.

"Their biggest problem is that for the last 20 years Apple has had every dealer by the balls," he said. "They controlled the dealers to such a degree, pushing gear at them and pulling out margins. The resellers never had the opportunity to re-engineer themselves into services businesses. So your average Apple dealer is probably a good three or four years behind the Wintel dealers."

The reseller also expressed concerns that Apple was selling large volumes of product direct through its Internet site, while pushing retailers into ill-prepared business arrangements. "They never took any responsibility for caring for the dealer," he said. "You cannot expect the customer to just walk in the door. You have to drive them into the shop. The dealers never had the resources to do that."

Steve Donnellan, proprietor of Apple reseller Staldone Computers, said any attempts to bring about a direct model in Australia would be very upsetting to Apple dealers.

"It's not a good idea to have a supplier as a competitor," he said. "[Apple] would naturally skew the playing field in their direction."

Donnellan said the situation would be even worse for Apple dealers than for any other vendor. He cited the example of Harvey Norman axing its Compaq range when the vendor established the Connect retail stores, a move that didn't hit Harvey Norman's bottom line in a significant way because it could easily pick up a new line of product from the likes of IBM. But for an Apple dealer, their supplier holds somewhat of a monopoly over them. If Apple opened direct retail outlets, it would be difficult for them to turn to other vendors, because their focus and brand is inherently related to Apple.

"If anything the channel works in Apple's favour," he said. "With a direct model, Apple has to pay the salaries of a manager to run the stores, but the manager is not at great personal risk if the business fails. With a dealer, the person who is responsible for running the business is the guy who wins or loses on the success of the business."

A salesperson for one Apple dealer suggested a foray into direct selling might provide Apple with a much-needed education on retail. "I hope they do [go direct]," he said. "It will force them to learn how to do retail, and force dealers to re-engineer their business and concentrate on proper account management."

The salesperson described the back-end systems of Apple as "appalling" and Apple's reporting structures as "beyond belief". Nevertheless, he sees big opportunities for any reseller willing to buy one of the Apple dealers in administration, providing the vendor works on its channel strategy.

"What we have is a niche market with incredibly loyal customers, especially in the creative market," he said. "It staggers me how loyal [users] are. If some solid business people get involved with the dealers, there is an opportunity there to make an awful lot of money."

"Apple products are exceptionally good," he said. "This is a great opportunity for the entire Apple camp to put a broom through the place. If we clean up our act as dealers and, more importantly, if Apple cleans up its act, I truly believe there is a huge window of opportunity in the Apple dealer channel," he said.

However, another source suggested there would be little opportunity for fresh ideas in the Apple channel, as the majority of the Buzzle stores were being bought back by their previous management. These proprietors either survived bankruptcy by placing the assets in the name of family members, or have organised to purchase the business from the administrators in the names of loyal staff members.Photograph: Steve Jobs, Apple CEO

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