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Apple Retail: Going for the Money

NEW YORK ( TheStreet) -- Brooklyn Borough President Marty Markowitz caused a stir recently by making a public plea for an Apple (AAPL - Get Report) store to be built in Brooklyn as part of a downtown revitalization effort. He was shut down repeatedly.

How could Brooklyn -- a cultural hub filled with musicians, artists and entrepreneurs -- not be a good match for Apple, whose products are used widely and prized by creative types, Markowitz wondered.

The answer lies within Apple's core retail strategy: capitalize on already well-trafficked, well-to-do areas that don't need help gentrifying. In other words, go where the money's at.

"For Apple it has to be the right place, the right time and the right corner," said Faith Hope Consolo, chairman of retail leasing and sales division at Prudential Douglas Elliman, who has consulted for Apple in the past. "Unlike other retailers they aren't swayed by emotion ... it's all very well thought out."

Even as its stores have become somewhat ubiquitous -- the company is preparing to add 40 outlets globally this year to bring its total tally to 360 -- Apple, which could not be reached for comment for this story, is still expected to continue its practice of meticulously evaluating its real estate properties.

While most of Apple's success comes from demand for its products, its stores have become a key part of its branding strategy, and also give the company tighter control around how its electronics are perceived and sold.

More than 73.7 million customers visited Apple retail outlets during the quarter, an increase of 22%. On average, Apple stores generate sales of $5,626 per square foot, more than any other U.S. retailer -- including jewelry brand Tiffany & Co. (TIF) ($2,974) and luxury accessories company Coach (COH) ($1,820), according to research firm RetailSales.

"Apple has created a retail system that is unbeatable," said Jay Elliot, a former senior vice president at Apple who now runs software company Nuvel. "I don't see any of the other consumer electronics companies like HP (HPQ), Dell (DELL) and Microsoft (MSFT) competing."

Lessons in What Not to Do

When Apple retail chief Ron Johnson joined the company in 2000, Apple's competition wasn't exactly making a killing via the retail scene. Cheap real estate seemed to trump analysis of traffic and location; computer makers like Gateway tended to place their stores in out-of-the way areas that weren't easily discoverable by potential customers.

Gateway also didn't stock its stores with products, a minus for nurturing a lasting in-store experience. After consulting with salespeople, customers merely ordered their computer, paid for shipping and waited a week or so for delivery.

This strategy ultimately failed as consumers instead chose to shop at big-box stores like OfficeMax (OMX) or Best Buy (BBY), where they could also purchase a wider range of electronics and take them home right away.

Apple, in turn, focused on placing its stores in highly dense retail corridors where shoppers were already present, including its first in Tyson's Corner, Va. in 2001.

"Apple put its stores next to a Victoria's Secret or an Abercrombie & Fitch (ANF)," said Gary Allen, a blogger who runs ifoAppleStore, a Web site that tracks Apple's store openings. "They were willing to spend the money to locate where people were already walking ... instead of driving five miles they'd walk 10 additional feet to get to the Apple store."

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