When it comes to its own products, Apple is taking a bigger bite of its own apple, much to the detriment of retailers like Best Buy Co. Inc.
While the consumer electronics retailer is one of the world's largest sellers of iPhones and iPads, it doesn't always seem that way, given the near jubilation of customers swarming to buy the iPhone 5 at Apple stores Friday morning. Analysts expect Apple to sell as many as 10 million iPhone 5s over the weekend, after already getting 2 million pre-orders for the popular device.
"Apple has an aura that's difficult to replicate," said Laura Kennedy, an analyst with Kantar Retail consulting firm outside Boston. Retailers like Best Buy don't create that excitement unless it's Black Friday, she added.
But Apple's dominance over its product line goes beyond perception. Over the years, the company has been generating a growing percentage of its sales from its own website and the 326 stores it operates around the world. In fiscal 2011, Apple said sales from its retail business jumped 44 percent to $4.3 billion as it opened 40 more stores.
While $4.3 billion is a small percentage of Best Buy's $50 billion in annual sales, the Richfield-based retailer has struggled to grow sales at stores open for at least a year. Best Buy needs a hot product like the iPhone 5 to drive people to its stores where they will presumably buy other products.
But that's hard to do when people are flocking to Apple stores or pre-ordering the iPhone at Apple.com. New Best Buy CEO Hubert Joly said the company must look for ways to collaborate with suppliers to create value and excitement at its big box stores.
"As a major retailer, we are very important" to vendors like Apple and Microsoft, Joly told the Star Tribune during a recent interview. "There has to got to be things that we can do for their benefit and our benefit. Ralph Lauren has its own retail business but also partners with Macy's. There are lot of partnership opportunities. Is it exclusive products? Or other things?"
Best Buy spokesman Jeff Haydock declined to disclose sales numbers for the iPhone 5 but said the company is selling plenty of the devices in stores as well as filling pre-orders from its website.
Still, if Apple stores didn't exist, "people would be buying them at a Best Buy store," Kennedy noted.
Meanwhile, the smartphone market in the United States is slowing down, analysts say. That means the more iPhones Apple sells, the less Best Buy presumably will sell.
Apple's success is another example of how the lines have blurred between manufacturers and retailers. In the past, the model was simpler: Shoppers would line up outside a Best Buy for the latest gadget that was built by someone else.
Not anymore. In addition to Apple, Microsoft is stretching its retail muscles. The company reportedly will debut its Surface tablets this fall at roughly two dozen Microsoft stores it operates in the United States. And borrowing a page from Target Corp., Microsoft will also open 32 "pop-up" stores at malls and shopping centers this holiday shopping season.
Even Amazon, Best Buy's online nemesis, plans to open physical stores.
"Best Buy and other brick-and-mortar consumer electronics retailers have been relegated to providing shelf-space instead of actual consumer education," said Jonathan Gaw, an analyst with IDC.
Thomas Lee • 612-673-4113
