Inside Steve's Brain (22 page)

Meanwhile, Apple hadn’t yet shown much sign of a turnaround. The Internet bubble was bursting, the NASDAQ was in the tank, and Dell, which seemed to have the perfect business model for computers—sell direct over the Internet—was crushing all comers. Apple’s revenues had shrunk from $12 billion to $5 billion, and it was only just posting a profit. The iPod wouldn’t be launched for another six months (and when it did, no one had any idea of the smash hit it would become). It seemed like the worst possible time for a struggling company to embark on an expensive, unproven experiment in retail.

“I give them two years before they’re turning out the lights on a very painful and expensive mistake,” retail expert David A. Goldstein told
Business Week
, echoing a sentiment widely held at the time. Not one industry watcher, Wall Street analyst, or journalist went on record to say it was a good idea. “Few outsiders think new stores, no matter how well-conceived, will get Apple back on the hot-growth path,”
Business Week
said.
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Until the 1990s, most stores sold goods from a variety of manufacturers, the department store model. But in the late 1980s, The Gap revolutionized retail by dropping other brands and concentrating on its own line of clothing. Peddling mountains of stylish but affordable “casual basics,” The Gap took off like a rocket. It went from $480 million in revenues in 1983 to $13.7 billion in 2000 and entered the history books as the fastest growing retail chain. (It went sideways after that, but that’s a different story.) Now The Gap’s model has been emulated by dozens of retailers, especially in apparel, but also by tech firms like Sony, Nokia, and Samsung. Even Dell, the perennial web-only retailer in the boom years of the nineties, is opening booths at malls and selling computers through Wal-Mart, Costco, and the French Carrefour supermarket chain in Europe.

Most retailers are interested only in selling as much merchandise as possible. Gateway called it “moving metal.” This philosophy led Gateway to certain inevitable conclusions: be low cost, compete on price, and put stores where real estate is cheap, like out-of-the-way parking lots. But all these decisions turned out to be disastrous.

The biggest problem: no one visited Gateway’s stores. Most people buy a new computer every two or three years. To shop at a Gateway store, customers had to go out of their way. The store wasn’t located where they did their shopping—in the mall. The store was in a remote parking lot. At the height of Gateway’s retail operation, when the company owned nearly 200 stores employing about 2,500 people, traffic was 250 people a week. That’s right: 250 visitors
a week.
In April 2004, after several years of spotty sales, Gateway shuttered all its stores—a very painful and expensive mistake.

On the other hand, Jobs wanted to bring customers into the store. He wanted a “lifestyle” store where customers could get a taste of the Apple digital lifestyle—and hopefully leave with a machine.

One of the key early decisions was to locate the stores in high-traffic areas. This first decision proved to be the breakthrough but was initially universally criticized, because popular locations would be expensive.

Apple chose high-end malls and trendy shopping districts, not low-rent strip malls on the edge of town. The idea was to get foot traffic, to build the kind of store where the curious could drop in and learn what it’s like on the other side, the Mac side. If most computer shoppers didn’t even consider Apple when buying a new computer, they certainly weren’t going to drive twenty minutes to a remote store in a remote parking lot. “The real estate was a lot more expensive,” Jobs told
Fortune
. But people “didn’t have to gamble with 20 minutes of their time. They only had to gamble with 20 footsteps of their time.”
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It’s the old real-estate mantra—location, location, location.

Apple planned the locations very carefully using census data and information about its registered customers. Apple has never revealed the criteria it uses for choosing store locations, but Gary Allen, a close watcher of Apple’s retail strategy who runs ifoAppleStore.com., a website devoted to the chain, has pieced together some of the company’s process. According to Allen, it’s a combination of the number of registered Apple customers in the area, certain demographics, particularly age and average household income, and proximity to major schools and universities, and—cleverly—major interstate highways. The biggest problem Apple faced was finding a space in suitable malls. Apple waited three years for a good location in San Francisco, the company’s hometown.

In an early strategy meeting with Jobs, Ron Johnson was presented with Apple’s entire product line: two portable computers and two desktop computers. This was before the launch of the iPod. Johnson was faced with the prospect of filling 6,000-square-foot stores with just four products. “And that was a challenge,” Johnson recalled. “But it ended up being the ultimate opportunity, because we said, ‘because we don’t have enough products to fill a store that size, let’s fill it with the ownership experience.’ ”
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When Jobs and Johnson started thinking about the stores, they started with an unusual vision—to “enrich lives,” Johnson said. “When we envisioned Apple’s retail model, we said it’s got to connect with Apple. Very easy . . . enrich lives. Enriching lives. That’s what Apple has been doing for 30-plus years.”
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The goal to enrich lives led to two clear objectives: to design the stores around the customer experience, and to be aware of the ownership experience for the lifetime of the product.

First, designing the store around the customer experience is not the same as designing around the retail experience. Most retailers concentrate on how customers find and select items in the store, and then get them to spend as much as possible. But Jobs and Johnson asked themselves how the products would fit into the context of customers’ lives, their life experience. Johnson explained: “We didn’t think about their experience in the store. We said, ‘let’s design this store around their life experience.’ ”

Second, “We said, we want our stores to create an ownership experience for the customer,” explained Johnson. The store should be about the lifetime of the product, not the moment of the transaction. At many stores, the purchase ends the relationship with the store. At Apple stores, “We like to think that’s where it begins.”

“So first we made a list,” Johnson said. “Enrich lives—how do you do it?” They decided the store should carry only the right stuff. Too much merchandise confuses customers. Johnson learned the benefits of limiting choice at Target. Some of Target’s executives wanted to stock the shelves with as many products as possible. At one time, Target carried thirty-one toaster models. But Johnson learned that the leading retailer in kitchen supply—Williams Sonoma—stocked only two toasters. “It’s not about broad assortment,” he said. “It’s about the right assortment.”
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Jobs and Johnson also decided customers should be encouraged to test-drive all the products. At the time, most computer stores had working models on display, but customers couldn’t load up software or connect to the Net or download pictures from their digital camera. At the Apple stores, customers would be free to test all aspects of a machine before they bought it.

At first, Jobs pondered the idea of opening a few stores and seeing what happened. But on Mickey Drexler’s advice, Jobs had a secret mockup store built in a warehouse close to Apple’s Cupertino HQ. The store would be designed the same way as Apple’s products: they would build a prototype that could be refined and improved until it was perfected.

Johnson assembled a team of about twenty retail experts and store designers, and began to experiment with different store layouts. To make it friendly and approachable, the team decided to use natural materials: wood, stone, glass, and stainless steel. The palette was neutral and the stores would have very good lighting to make the products glow. Typically, there was an uncompromising attention to detail. In the early days, Jobs met with the design team for half a day each week. During one meeting, the group exhaustively evaluated three types of lighting just to make sure multicolored iMacs would shine as they do in glossy print ads, according to
Business 2.0
magazine. “Every little element in the store is designed to these very details,” Johnson said.
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In October 2000, after several months of work, the prototype store was nearly ready when Johnson had a revelation. He realized that the store didn’t reflect Apple’s digital hub philosophy, which put the computer at the heart of the digital lifestyle. The prototype store was laid out with computers in one corner and cameras in another, just like at Best Buy. Johnson realized that the store should group the computers with the cameras to show customers how they could use the Mac to actually do things, like assemble a book of digital photographs or burn a home movie to DVD.

“Steve, I think it’s wrong,” Johnson told Jobs. “I think we’re making a mistake. This is about digital future, not just about products.”
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Johnson realized that it would be more effective to show customers functioning digital hubs, with cameras, camcorders, and MP3 players attached to computers. The working machines would be arranged in “solution zones,” showing how the Mac could be used for digital photography, video editing, and making music—activities prospective customers would actually want to do.

At first, Jobs was far from happy: “Do you know what you’re saying? Do you know we have to start over?” Jobs yelled, angrily storming off to his office. But Jobs soon had a change of heart. Within the hour, Jobs returned to Johnson’s office in a brighter mood. He told Johnson that almost all of Apple’s best products had been shelved and started over, like the iMac. It was part of the process. In a later interview with
Fortune
, Jobs said his initial reaction was “Oh, God, we’re screwed!” but Johnson was right. “It cost us, I don’t know, six, nine months. But it was the right decision by a million miles,” he said.
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After the redesign, the prototype store was divided into four sections, each devoted to Johnson’s “solution zones.” One quarter at the front of the store is devoted to products, another quarter to music and photos, the third quarter to the Genius Bar and movies, and the fourth quarter to accessories and other products at the back of the store. The idea is to create a place where customers could find entire “solutions” to lifestyle problems they wanted solved—like taking and sharing digital pictures or editing and making DVDs.

The stores are designed to be a public place, like a library, and more than just a place to display products. “We don’t want the store to be about the product, but about a series of experiences that make it more than a store,” Johnson said.
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Apple makes sure the stores are always packed by giving unlimited access to Internet computers and arranging lots of in-store events. Every week, there are free workshops, classes, and—at the bigger stores—talks by creative professionals and performances by bands. During the summer, Apple Camp attracts thousands of school kids to take computer lessons during the traditionally quiet summer months.

The bigger flagship stores would have staircases made of glass, simply to encourage customers to climb to the second floor, which is traditionally lightly trafficked. (The glass staircases became major attractions and won several awards.)

The most important innovation has been offering hands-on training and support at the Genius Bar. In 2000, computer repairs could take several weeks. Customers had to phone tech support, ship the machine to the company, and wait for it to be returned. “That’s not enriching someone’s life,” Johnson said.
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Apple decided it would offer turnaround on repairs in days, rivaling service at the neighborhood dry cleaner.

The Genius Bar has become the most distinctive feature of Apple’s stores, and the most popular. Customers love that they’re able to troubleshoot problems face to face, or drop off malfunctioning equipment at the local mall rather than send it in. “Customers love our Genius Bars,” Johnson said.

Apple estimated that in 2006, more than one million people visited the Genius Bars during an average week. At the flagship stores, there are often lines of people waiting for the Genius Bar before the store has opened. They are almost too successful. Thanks to the phenomenal growth in visitors to the stores, the Genius Bars are becoming oversubscribed, and many have implemented appointment schedules to cope with the demand.

The idea of a Genius Bar came from customers. Johnson asked a focus group what was their best experience with customer service, anywhere. Most mentioned the concierge desk at hotels, which is there to help, not sell. Johnson realized it might be a good idea to install a concierge desk for computers. He thought it could be like a friendly neighborhood bar, where the bartender dispensed free advice instead of booze.

When Johnson first suggested the idea to Jobs, his boss was skeptical. Jobs liked the idea of face-to-face support, but having known a lot of geeks, Jobs was afraid they wouldn’t have the people skills to deal with the public. But Johnson persuaded him that most young people are very familiar with computers and they would have little trouble hiring personable, service-oriented staffers who were proficient with technology.

The most significant idea Johnson had about staffing was to dispense with sales commissions, which are pretty standard in consumer electronics retailing. “People thought I was crazy at Apple,” he said.
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But Johnson didn’t want the stores to become sales-driven pressure cookers. He wanted the staff in the customers’ hearts, not their wallets.

Apple staffers must gently persuade customers—many of them Windows users who are skeptical about Apple—to switch to the Mac. Johnson knew that for most potential customers, this wasn’t going to be a snap decision. They were likely to visit the store three or four times before taking the plunge, and the last thing Johnson wanted was customers worrying that the guy they started with wasn’t on duty.