Company documents obtained by Think Secret, indicate that Apple has privately planned to target the business of its existing channel of resellers, and then shift that business to direct sales through its own retail stores; the documents explicitly describe plans to divert sales away from the current channel to its stores. In addition, the company's own numbers show that it has been successful in doing this.
One confidential worldwide briefing held in 2000 -- prior to the launch of the first Apple store -- laid out what the company expected to be the results of its retail initiative. The share of sales held by Apple retail stores, online stores, corporate direct sales, and resellers with company-badged Apple Solutions Consultants, or ASCs, would increase, the briefing documents projected. The share held by Value Added Resellers, or VARs -- stores which target specific markets or customers that the Apple stores would not otherwise reach -- would also increase. For Apple Specialist dealers, direct marketers, regional retail stores, and national chains without ASCs, Apple projected that opening its retail stores would cause their shares to decrease.
The briefing documents recommended that Apple "produce further channel shifts" through its actions and "close channels as they become risky," while re-evaluating its progress on a regular basis.
A different Apple document says that part of the company's growth strategy would be to "shift customers from channel," referring to the existing channel of resellers. Apple would do this through an "exclusive value proposition" that would include special service products -- such as the recently-announced ProCare -- as well as competitive repair prices, Apple-branded goods, rewards for loyal customers, and a "better" value for build-to-order hardware.
Another part of Apple's growth strategy for the stores would be to use telephone sales to "hunt" for customers, generating leads, using "available leads" and internal lists, and taking advantage of external lists to focus on educational institutions and small business customers. Apple's alleged attempts to obtain information about resellers' customers so that the company can sell directly to them has been one issue dealers have raised; for example, a customer of one independent dealer signed up for an AppleCare extended warranty -- thus providing his contact information to Apple -- and was subsequently contacted by Apple about a "special discount offer" if he bought peripherals from the Apple Store just miles away from the reseller. Apple's latest revised contract for dealers states that the company "maintains customer information independently derived from numerous sources," including "product registration" and the "use of Apple's websites by customers and prospective customers." The contract says that the customer information "may be identical" to dealers' customer data and that Apple "has a proprietary interest" in the information.
Apple's own numbers indicate that the company has experienced success in shifting sales from the channel to its stores. At a recent private company meeting, Apple revealed that in markets that lack a retail store, independent resellers have grown 8%, but in markets with an Apple store, they have declined 16%. Catalog and Web sales have decreased as well, by Apple's numbers, making CompUSA the only non-Apple winner: Apple representatives are reportedly instructed to refer customers to a CompUSA store if there is no Apple retail store in the area (Apple Specialists are recommended if no CompUSA or Apple store is nearby). At the very same meeting, though, Apple characterized channel performance in markets with and without Apple stores as comparable.
In Apple's SEC filings, it says that its "customers in areas where the Retail segment has opened stores may elect to purchase from the Retail segment stores rather than the Company's preexisting sales channels," but that it believes that "a substantial portion of the Retail segment's net sales is incremental to the Company's total net sales." At the above retail meeting, about 50% of volume was estimated to be incremental; in the past, CFO Fred Anderson has estimated that between a third and a half of the sales are incremental. When Apple launched its stores in 2001, the company publicly said that its goal would be to increase market share with an "ambush" on the other 95% of computer users.
Many dealers, believing that the "ambush" has instead been on their own stores, have been fighting back. Several resellers last year filed a lawsuit against Apple that accused the company of breach of contract, fraud, trade libel, unfair competition, false advertising, misappropriation of trade secrets, intentional interference with prospective economic advantage, and violation of the Song-Beverly Consumer Warranty Act, among other charges. The dealers picketed Apple's shareholders meeting in April and maintain a Web site called TellOnApple.org which summarizes news on the litigation and attempts to "uncover any skeletons that exist at Apple." The dealers also allege that Apple is defrauding shareholders and misleading the public by misrepresenting the profitability of its stores, substantiating their claim with thousands of product invoices that were examined first-hand by Think Secret and raise questions about Apple's accounting practices. Another hot-button issue has been uneven product allocation; many dealers have found themselves losing business because they can't get sufficient quantities of products from Apple. While Apple has asserted that dealers are on a level playing field with the company's own stores, many resellers have found that they have had difficulty getting the new products they were promised by Apple, while nearby Apple retail stores have had significantly greater quantities in stock. Apple's latest dealer contracts state that the uneven product allocation is allowable under the revised terms of the agreement.
At the shareholders meeting, sales chief Tim Cook said that "the indirect channel is very important to us and I don't see that changing." Still, the company's own plans show a clear desire to shift channel business to direct sales, and then close "risky" channels. While the news may not come as a surprise to independent resellers in markets where Apple has opened a store of its own, these early documents paint a different picture for customers and shareholders who have been considering Apple's public statements that it has no intention of going after dealers' business.