How Apple Stores Beat Tiffany (Go figure!)

Readers of this blog know we’re not big fans of Jobs and Co, but heck, even we have to give credit where credit is due. Apple Computer has shown people will gladly part with money at its candy stores for geeks. But here’s a little-known fact: Apple’s chic stores don’t just sell more per square foot than even Best Buy, they beat some of the best in the luxury retail world silly, according to a report released Tuesday by Bernstein Research analyst Toni Sacconaghi.

Apple’s stores have hauled in annual sales per square foot of $4,032, compared with Best Buy’s $930, Neiman Marcus’ $611, and luxury store Tiffany & Co.’s $2,666, according to Bernstein. It’s a wild contrast to the failure of Apple rivals such as Gateway to break into the retail market.

Apple’s recipe works like crack. Apple gives customers instant gratification by keeping inventory in stores, unlike its rivals. Apple has opened its stores slowly, building up anticipation for its stores. Finally, those stores are some of the toniest in retail—encouraging customers to drop far more money than they might in a dusty computer shop or utilitarian web site.

“This may be as much an indicator that Apple’s store placement is better than Tiffany’s,” Enderle Group analyst Rob Enderle said.

Apple’s success comes despite Gateway’s retail disaster. When Apple pushed into retail in 2001 Gateway had just shut down 10 percent of its Gateway Country Stores. Gateway closed the last of its stores in 2004. By contrast, Apple, known for its premium products, has successfully pushed a higher-margin business while other computer makers have duked it out over razor-thin margins. Apple stores, on average under 6,000 square feet, each bring in more than $23 million in annual sales, according to the Bernstein report. That compares with annual sales per store of $38 million at Best Buy, which has stores about seven times larger.

“If you’re measuring a store in terms of production per store, that’s pretty impressive,” Mr. Enderle said. “That should be a wakeup for Best Buy.”

Apple’s stellar store sales are also in sharp contrast to Circuit City Stores, which reported a loss Tuesday, and Best Buy, which last week reported profit weaker than expected. It might not come as much of a surprise that Best Buy’s sales team of blue shirts is moving significantly lower sales per square foot than Apple’s salespeople. Plus, it certainly can’t hurt to have stores such as its Fifth Avenue Gallery store in New York City look more like a small museum designed in the form of a glass box. That attracts people alone.

Indeed, Mr. Sacconaghi said that Apple’s retail stores have played a significant part in Apple’s success over the past five years. The analyst said Apple retail stores also had an influence on brand awareness. That brand awareness is equivalent to $60 million spent on advertising, he noted.

Apple has 170 retail locations in four countries. The Mac maker has about 150 U.S. locations. In fiscal 2006, Apple’s retail operations kicked in $200 million in operating profit, as well as $663 million in manufacturing product linked to Apple products sold.

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