Tuesday, October 15, 2013

The Burberrying of Apple Stores: Is Apple Aiming for Too High A Market Niche?

Credit Tim Cook and the Apple brass for thinking outside of the glass box when it hired Burberry's CEO Angela Ahrendts as their new SVP of retail operations. Ahrendts comes with a strong dossier of senior positions in successful upscale retail operations, and oversaw a tripling of Burberry's stock value under her leadership. That bodes well in certain ways for Apple's iconic stores, which have served Apple well in helping to create the aura of a brand that superior both in technology and social status. Ahrendts will bring with her a deep understanding of how to keep a premium brand seeming magical long after its core assets have become familiar to the public. She will also bring insights into how to make a brand that is actually fairly masculine in its core appeal a strong draw for upscale women, also.

All good stuff. However, once you get beyond those key strong points in Ahrendts' selection, things get a bit more worrisome. Apple has the strongest brand in the world right now, according to recent research, built on the aura of attainable luxury. While an iPhone or an iPad is not a trivial purchase for most folks, in spite of the temple-like atmosphere engineered by Apple for its stores in prestigious locations, ultimately you're slapping down just a few hundred bucks - if that - to get that Apple social aura. That's the sort of money that someone pays for a good but not amazing watch these days - techno-jewelry accessorizing for the socially minded striver, if you will. By contrast, the lobby of the old General Motors building in New York City behind Apple's storefront in midtown Manhattan used to show Cadillacs and the like that were worth thousands even decades ago. Apple's attainable luxury is popular, but, ultimately, built on very small sales units.

With that in mind, it's not clear that Apple has the ability to create products that can fit with the expectations of both a mass market and an upscale market on product platforms that have a lifecycle moving towards mere months of relevance. Burberry's iconic cross-hatched fabric patterns need only twitch this way and that in the hands of tailors to invent new ways of making their products appear to be fresh. For Apple, those few hundreds that they make on each unit come at the expense of massive investments in technology which is obsolete about the time that the products themselves hit the shelves in their stores. One could say that their technology is no more long-lasting than the typical fashion statement, which plays to the Burberry concept, to be sure, but Burberry's fate is not tied to armies of tech reviewers picking apart every component of a new smart phone or tablet meticulously even before it's been announced officially.

So the idea of having a Burberry-like approach to retailing and merchandizing Apple products is sound in many ways, but much more fragile than the typical Burberry worsteds. There is a razor-thin line to be walked between "predictable, but fresh" and "fresh, but predictable." In other words, You can do great merchandizing in Apple stores all you want, but the slightest shift towards seeming more like your father's Oldsmobile than the latest BMW can spell retail disaster for Apple. So they may have the right person on the case, but it may not be a problem that's really solvable any more at the retail level.

Put simply, if your kid's souped-up Chevy Corvette is blowing away your Bimmer every time on the road or in the media, you begin to have an image problem that marketing alone may not solve. The Corvette in this instance is mobile devices using Google's Android operating system, which as with the many cars of General Motors, can power just about anything from phones for people in Africa and China to top-of-the line units from Samsung, LG, HTC, Motorola and more. We're right around the corner from the introduction of Google's new Nexus phone from LG, a pure-Android phone which, by most early accounts, will equal or exceed the capabilities of the latest iPhones from Apple.

Like GM's Corvettes, Google's Nexus phones are not meant to be huge money-makers - they're image flagships sold for relatively low prices that draw people in to their brands. This is where the core strategy for Google and Apple diverge significantly. For Apple their brand is built primarily around their hardware and their in-store experience. For Google, their brand is built largely around its software and services. Apple tries to build out its services, but since they are more into seasonal launches of a handful of iconic products, it's harder for the services offerings to keep pace with Google's constant rollout of new software and cloud features. The salesroom for Google, you might say, is every device's keyboard and touch screen - including, increasingly, those found on Apple and Microsoft's devices.

So Apple may have the right strategy for marketing attainable luxury, but it's not clear that their product lifecycle matches how their competition attacks the same markets. Be it BMW or Burberry, most consumer markets work on the same calendars. For both autos and clothing, there are spring and fall introductions, and all of your competitors will be in the same mix. For technology, especially services oriented technology, you're in a 24/7/365 introduction cycle. So whatever Apple introduces has to be so worth it that your customers are willing to wait for your traditional-cycle introductions tied heavily to retail operations. And increasingly, the only thing that will make people wait is that they're loyal to the brand and its aura. That's sensible enough for many, perhaps, but for a small-unit brand based on perishable and finicky cutting-edge technology, a big gamble.

Worst of all, Apple doesn't have a lot of wiggle room on pricing. Apple CEO Tim Cook states emphatically that Apple will never make a "cheap" iPhone, but that doesn't mean that he's looking to make one that's two or three times what people pay for them today, either. So he cannot move Apple upscale into, say, a tech "Rolls Royce" territory, and slap a sign on the specifications saying "adequate," a la traditional Rolls sales methods. He has to stick on the lower end of a BMW-style image brand, yet survive when competition rolls out new models in the same general price range all year long.

Arguably Google is in an even longer lifecycle for its Nexus-branded Android devices, but it has the advantage of much more frequent software updates for those units and lots of third parties supporting the Android brand throughout the year. So not only does Google get Chevy Corvettes, they get Ford Mustangs, Toyota's Lexuses and so on - all of them equipped with constantly refreshed Google software and services. All of these third party brands have independence on their own product releases - including LG, Google's current Nexus phone partner, and even its own Motorola phone unit - and can build their own upscale strategy stories at will.

Apple may yet be able to pull all of this off as a branding and retailing play, but the combination of product lifecycles and diffuse competitors all linked by Google services will make it harder for Apple to maintain this formula. Apple's best hope in this mix is that some of Google's major Android partners are getting fidgety about having their fates tied so closely to Google's Android software. Samsung is notably trying to push its own interfaces and features aggressively, and even pushing for its own apps and operating system for its mobile devices. This sort of fragmentation is likely to play into both Apple's and Google's hands, though, as it's hard to withdraw valuable services from customers and expect to compete on hardware and software alone. So Samsung may wind up empowering Apple as a brand that never "compromised," even as Google builds up partnerships that are built around encouraging better value via Google software and services.

So there are some key opportunities for Ahrendt as she takes on her new position at Apple, but also several key challenges that may be beyond her control. She can hope that Samsung stumbles on its way to meeting Apple on its own turf, and hope that Google's Nexus brand has a harder time establishing itself as a performance value leader than Google would like. And in the short run, she may just luck out pretty well. Although the iPhone 5c is struggling in sales, the new 5s model is selling briskly, with the jewery-like allure of its new gold and silver-like finishes very popular amongst fashion-conscious Apple customers. As long as Apple is the accessory of choice amongst strivers looking to put some affordable social distance between them and its competitors, they will chug on for a good long time as a brand. But fashion comes and fashion goes, so in the long run, I would not be quite so optimistic about their products playing well as iconic retail gizmos.
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