Vindication for Apple's Retail Vision

When the first two Apple Stores launched in 2001, Apple's ads said, "5 Down, 95 To Go." Apple proposed to double its 5 percent market share to 10 percent by showing people how to use its products to do insanely great things like posting photos to the Web.

At the time, skeptics like analyst David Goldstein told Business Week there was no way Apple could compete with Gateway's Country Stores. "I give them two years before they're turning out the lights on a very painful and expensive mistake."

Fast forward seven years. Apple's 208 stores sold $1.45 billion in the most recent quarter, according to the company's April 23 earnings call, and 53 percent of the 458,000 CPUs sold there went to new Mac customers. Not iPods, not iPhones. CPUs.

Store revenue grew 74 percent year-over-year. Traffic was up 57 percent to 33.7 million visitors. Sanford C. Bernstein says that sales per square foot at Apple stores average $4,032, four times the take of Best Buy, the highest-performing electronics chain. As for share, Macs now hold 21 percent of the U.S. consumer market, IDC recently estimated.

Why did the retail gambit work? Because from the outset, Apple stores were designed to convert Windows users. "They don't think they want a Mac. They will not take the risk of a 20-minute drive in case they don't like it," CEO Steve Jobs told Fortune last year. "But if we put our store in a mall or on a street that they're walking by, and we reduce that risk from a 20-minute drive to 20 footsteps, then they're more likely to go in because there's really no risk."

Lehman Bros. analyst Ben Reitzes says the retail chain allows Apple to beat competitors to market with its highest-growth products. "Apple's vertically integrated model has 'trapped' in the wallets of consumers better than any business model we have seen in years," Reitzes wrote. "For example, we estimate that Apple's Mac units will grow about 33 percent this year and about 20 percent next vs. only about 10-12 percent growth for the global PC market."

Now we're hearing rumors of Microsoft stores. Tipsters told Fudzilla.com's Fuad Abazovic that Microsoft wants to open storefronts staffed with "skilled people [who] will be able to show the true Microsoft experience." One can only imagine.