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Apple Retail’s Mission: Embodied Values

Apple Retail’s Mission: Embodied Values

  • We’ve recently studied Apple retail and believe it is an underappreciated competitive advantage.
  • No other tech company has Apple’s base of 65,000 retail employees delivering face to face advice, support, and experiences. Microsoft comes in second with about 6,000 retail employees.
  • Apple stores are a channel through which Apple expresses its values of quality, design, experience, inspiration, ease of use, and privacy.
  • These values are delivered through the Genius Bar, Today at Apple, employee checkout, in-store pickup, curated third-party products, and a consistent online and in-store experience.

The Start

Ron Johnson founded Apple retail in 2001. At the time, Gateway retail, the only computer manufacturer with brick and mortar stores, was struggling. Gateway closed the last of its 277 stores in 2004.

Johnson had three insights about retail and computing:

  1. Make it easy to experience Apple products (notably the iPod in 2001).
  2. Staff the store with experts that can simplify tech.
  3. Provide in-store support while you wait at the Genius Bar.

Until then, computer maintenance involved shipping your computer to the manufacturer or dropping it off at Best Buy for two weeks. The combination worked, and Johnson grew Apple retail to 357 stores by the time he left Apple in 2011. Today, Apple has 511 stores.

The Evolution

In 2014, Angela Ahrendts left Burberry to lead Apple retail. We attribute two contributions to Ahrendts. First, while Apple stores offered in-store classes, elementary school field trips, and music events to build community, Ahrendts expanded the classes and community theme with Today at Apple. The company describes Today at Apple: “Do more of what you love with inspiring programs happening every day at Apple.”  Separately, Ahrendts made the online and offline experiences (including recommendations) consistent and launched an Apple Store app. The formula seems to be working, one recent Loup Ventures observation in Uptown Minneapolis: we counted 93 Apple store visits on a Wednesday from 1-2pm. North Face (located two doors down from Apple) had 9 visits over the same time period.

Five Layers

To get a better sense of what’s at play, it’s helpful to peel back the layers of an Apple store visit.

  • Layer one: Aesthetics. Apple obsesses over the physical store design. All stores have glass doors, symmetrical design, no clutter (it’s difficult to see power cables). They are well lit (natural and white), clean (often a full-time position filled by a 3rd party), and consistent (uniforms with Apple-branded shirts). Embodied values: quality, design.
  • Layer two: Greeting and checkout. You’re greeted by an employee with “what can I help you with?” The goal is two-fold; make customers feel welcome, and quickly point them to a person who can help. The triage method seems to work. We observed an average visit time of 15 minutes at 5 different Apple stores (keep in mind, we estimate about a quarter of the visits were for repair). Separately, every employee can check a customer out and customers can use self-checkout on certain accessories, reducing wait times. Embodied value: ease of use.
  • Layer three: Advice. Apple’s employees do not earn commissions. One manager we talked to said that store managers’ key metric is customer satisfaction (that email you get after a store visit). Revenue per employee is less important. For example, Apple employees will remind a shopper that a similar power cable is available on Amazon for cheaper. One Loup employee visited an Apple store for a screen replacement on an old iPhone. Instead of replacing the screen, the Apple employee recommended using clear packing tape as a cover for the cracked screen (which works really well!). Embodied values: experiences, ease of use.
  • Layer four: Support. While you have to make a reservation and may have to wait a few days to get in, Apple’s Genius Bar is the most efficient way to get tech support. We estimate that 75% of all Genius Bar issues can be solved in a single visit. Recently, a Loup employee had an issue with a MacBook Pro graphics card that needed to be “sent in.” Apple estimated a turnaround time of 5 business days, which turned out to be 2 days. And even though Geniuses are often privy to sensitive data on an iPhone or a Mac, privacy is central to the interaction. Embodied values: ease of use, privacy.
  • Layer five: Inspiration. “Today at Apple” best exemplifies how Apple uses its retail stores to inspire customers. Through these experiences, Apple teaches unique ways to use Apple products to unlock creativity. Photo Walks, Kids Hour, and Music Lab are just a few examples. Today at Apple also builds community. Embodied value: inspiration.

The Next Phase

Growth in new Apple stores will continue. We expect Apple’s store count to reach 600 locations in 2023, up from 511 today. The two biggest growth regions will be China (50 stores today) and India (likely announced within the next six months). This suggests that total retail employees will reach 80,000 in the next five years.

Observations From Other Retailers

For the sake of comparison, we visited 10 retailers in Minneapolis and asked about their strategy when approaching customers to get a sense of the similarities and differences in the retail experience. Below are some notes on our findings:

  • Running Room: “We’re personable. Gauge why they are coming in and if there is anything we can help them with. We ask if there is anything they are looking for and then go through our options.” Very easy to talk to and answered every question.
  • AT&T: Took 5 minutes to be greeted by two workers in the shop. They have no scripted welcome but said they like to keep the customer first, ask their name, be personable, then try to push their marquee products
  • Urban Outfitters: Employees try to welcome guests (wasn’t welcomed) then leave it up to the customer to look. If they have any questions associates assist the customer but they leave the approach to the discretion of the associate.
  • H&M: “No strategy really”— and this was pretty evident. No employee made an attempt to provide assistance. Employees ask if a customer has any specific questions; if they do, they’ll help out. One employee mentioned that they can use their app for all tasks such as finding a price on an item.
  • North Face: One associate noted that they have “confidential information on our strategy.” The same employee said that the customer is always evolving so they try and gauge the reason for why someone is coming in. He opened with the question of “is there anything I can help you with?”
  • Columbia: Employees make an attempt to greet the customer. They have a “buying strategy” — employees try to gauge why a customer is coming in and then figure out ways they can assist them. They leave it up to the customer to show interest and then they share their options.
  • Arcteryx: Employees are asked to stand up when a customer enters, ask how they are doing and ask if they have any questions. If a customer has no questions, employees give them space and don’t harass them. If a customer touches something and an associate senses interest, they try to assist them in any way. Arcteryx uses “Merecat” as an onboarding system that details how to interact with customers.
  • McDonald’s: Employees stand behind cash registers and indicate that they are ready to help anyone that is ready to order. Employees ask, “what can I get for you?” and then take an order.
  • CB2: Employees welcome guests saying, “welcome in” (was said immediately), then ask if they have any questions and then mention any promotions they may have going on.
  • Magers & Quinn Bookstore: No distinguishable strategy. Employees are asked to say “Hi” and welcome customers (but neither happened in our case). They let customers roam. We asked if that’s because customers know what they want. The worker agreed and said that’s why they let them roam.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Apple, Retail
5 min. read Show less
Investing in Skupos

Investing in Skupos

We’re investing in Skupos as a play on our vision of the future of retail. Skupos’ real-time inventory data fundamentally changes the game for convenience stores (c-stores), distributors, and brands. Automated retail and same day delivery are the future of commerce, and Skupos enables its customers to benefit from these shifts.

Skupos leverages scan data from c-store transactions that, in our view, will play a crucial role in the emergence of cashier-less commerce and same day delivery from c-stores.

The $50B Automated Retail Opportunity

In 2016 there were 3.5 million cashiers in the U.S., according to the Department of Labor, with an average salary of $13,574 (Data USA). That represents a nearly $50 billion opportunity in cashier-less retail. Of those 3.5 million cashiers, 323,000 are convenience store or gas station employees, 9% of the cashier workforce.

Same Day Delivery Isn’t Solved Yet

Just 12% of Americans live within 5 miles of one of Amazon’s 194 fulfillment centers, according to data from Piper Jaffray. Including the 427 Whole Foods Market stores as “Amazon fulfillment centers” increases that number to 30%; expanding the distance to 20 miles increases the number of Americans that live near an Amazon fulfillment center or Whole Foods to 63%.

Amazon’s network is impressive, but not good enough. It’s why we still see $35 minimums and $5 on-demand delivery fees.

By contrast, 93% of Americans live within 1 mile of one of the 155,000 convenience stores in the U.S., according to the NACS.

93% of Americans live within 1 mile of a convenience store.

Imagine the power of leveraging convenience stores as nodes on a same-day-delivery distribution network. Suddenly, it’s feasible to deliver a can of Coke and a Snickers bar instead of 6 twelve packs of Coke and a dozen Snickers bars, just to meet a minimum. Skupos’ real-time inventory data will enable convenience stores to join the same day delivery distribution network.

The Value of C-store Scan Data Today

C-store scan data is also incredibly valuable today. Skupos gives retailers, distributors, and brands real-time insights into sales and product velocity. Since launching in 2016, the company now tracks and analyzes over 2 billion c-store transactions per year for over 2,000 customers.

We’re proud to partner with Jake, Mike, Linh, and the rest of the Skupos team to help build the future of retail.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make. 

Amazon, Portfolio Company, Retail, Startup
2 min. read Show less
Musk Fills in the Blanks and Addresses Funding Questions

Musk Fills in the Blanks and Addresses Funding Questions

Elon Musk wrote a blog post titled Update on Taking Tesla Private addressing the most common questions following last weeks going private circus. We still believe there is a greater than 50% chance Tesla is private in a year, and the blog post slightly increased those odds. We see 5 key takeaways from the update.

  1. Funding secured. The “funding secured” comment was driven by previous conversations with the Saudi Sovereign Wealth Fund that expressed interest in providing the funding to take Tesla Private. Bloomberg has reported that the Saudi government plans to turn the private investment fund into a $2T vehicle which would have ample funds to be an anchor investor in a private Tesla, so the question, “where would the money come from?” has been answered.
  2. Investor concentration. If Musk can help it, we believe he will limit additional investors to 20% equity (he owns 22%), which implies the Saudi fund could only invest $16B. If he’s unable to build a syndicate for the other $10B (which gets us to $26B), he will likely accept the Saudi’s at greater than 20% ownership.
  3. Legal risk. We do not believe Elon Musk is at legal risk with his use of the term “funding secured.” Today’s blog post argued it was Musk’s interpretation that the funding was secured. While we are not securities law experts, our interpretation is the previous meetings with the Saudis created enough grey area to dismiss stock manipulation legal risk from the SEC. That said there are at least two class action lawsuits underway which may take months to settle.
  4. Funds needed. Musk suggested two-thirds of shares owned by existing investors would roll over into a private Tesla, implying a $25-$30B funding requirement.
  5. Next steps. Next steps will take several months to play out. First, Tesla needs to build a syndicate. Second, a vehicle must be created for existing shareholders to roll their public investment into a private one. Lastly, regulatory approvals will need to be obtained and the plan will be taken to a shareholder vote. Our best guess is this will take 3-9 months.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Tesla
2 min. read Show less