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Apple Store Success Rankles Some Resellers

Apple Computer's (AAPL - Get Report) retail stores have been a boon to its overall business, but that may mean bust for some of its key partners.

A growing portion of Apple's sales have been coming through its expanding network of company-owned retail outlets. But some of the company's resellers -- independent retailers and businesses that sell Apple products -- complain that a portion of those sales are being taken from their businesses.

Sales through Apple's stores or Web site bring in higher profit margins for the company than those through third parties. But the company has a fine line to walk between pursuing these high-margin sales and nurturing its network of resellers, which still represent a huge portion of Apple's overall business.

Apple and its resellers have had a "love-hate relationship for a long time," says Van Baker, an analyst at industry research firm Gartner. Apple's stores have helped to antagonize that relationship in some cases, because sales through them are "clearly business that didn't take place in the distribution channels," he says.

In a statement, an Apple representative said that the company "values its reseller partnerships as integral to the growth of Apple."

Apple, however, is clearly aware of that fine line.

"The company's business and financial results could be adversely affected if expansion of its direct sales to end-users causes some or all of its resellers to cease or limit distribution of the company's products," Apple said in its annual report last year.

Apple now has about 120 stores, up from 86 at the end of September last year and just 65 in September 2003. The stores are mostly located in affluent, urban and suburban shopping areas in the U.S., although the company has recently opened a series of stores in Japan, Canada and the U.K.
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