- Despite the recent profits warning, Apple is bolstering its investment in experiential retail, with expansive flagships, and classes and workshops in every store. "When you are serving digital natives, the thing they long for more than anything is human connection."
- Big companies have created a "tragedy in retail" by becoming remote from their customers and staff.
- Ahrendts urges retailers to rethink their approach: "You can’t just look at the profitability of one store or the profitability of one app or the online business. You have to put it all together: one customer, one brand.”
Angela Ahrendts stands on the snowy steps in front of the former Carnegie Library in Washington, DC. This noble construction, built between 1901 and 1903, and once filled with books, will soon become an Apple store – and something more. Alongside $1,250 iPhones and $130 Apple Pencils, the space will play host to creative workshops, sketching tours of the neighbourhood and author readings that will be live-streamed to other stores around the world.
This is retail, but not as we know it.
As chief executive of Burberry from 2006 to 2014, Ahrendts, 58, proved that a bricks-and-mortar store could appeal to the millennial generation. On London’s Regent Street in 2012, Burberry unveiled what was then hailed as the store of the future: a 44,000-square-foot space of smart mirrors and simulated rain showers.
“We bought 10,000 iPads and put them in the stores and everyone thought that was so revolutionary,” says Ahrendts. “For us it really wasn’t rocket science, we had targeted the millennial consumer and we knew that was the best way to talk to them.” Then, five years ago, she left London for Silicon Valley – and since then has been dreaming up a new vision for retail at one of the world’s largest technology companies.
Retail has never been so in need of reinvention. Since 2017 almost 10,000 stores in the US have closed their doors. Some analysts predict that by 2022 one in four US malls could be out of business. Although 2018 showed some signs of improvement, the twin threat remains: retailers around the world need to find a way to both compete with online shopping and to attract younger, more demanding customers.
It’s easy to look at Apple’s grand new fleet of flagships and be dazzled by their surfaces: the Foster + Partners-designed Champs Élysées store boasts floor-to-ceiling glass, trees in the courtyard, and a preserved carved wooden staircase connecting hyper-modern rooms. But the real difference, Ahrendts claims, is much more fundamental. Apple stores show a vision for retail in the way they help Apple build long-term customer relationships, the way they are financially accounted for and the way they connect a network of 70,000 employees across the globe.
Since 2015, Apple has opened a series of high-profile flagships to promote its brand, each requiring, in the company’s words, “substantially” more investment than its typical stores. “We are now opening fewer, larger stores so that you can get the full experience of everything that’s Apple,” Ahrendts explains as we pick our way past Carnegie Library’s historic pillars and through concrete and rubble to where a hard-hat brigade are inserting beacons into the walls.
“We don’t talk a lot about it but there are thousands of beacons behind those walls,” she remarks. These location-aware sensors connect with the Apple Store app on iPhones, sending visitors a greeting when they arrive in store, and prompting them to skip the cash register and pay for purchases via the app as they approach the accessories area. (They must opt-in on the app to access these features.) “As we renovate every store we update all of the technology. We don’t want to be gimmicky, but stores need to become living, breathing spaces, not just two-dimensional boxes.”
That is now coming to life at Carnegie Library. “A few years ago I sent a photo to Tim [Cook, chief executive of Apple] saying there’s this library that Apple could turn into a community space,” she explains. “Carnegie envisioned it years ago when he had the reading room. For Apple, we’ll have field trips with busloads of kids; or they will be coming in learning to code every morning. It’s a different type of investment.”
It’s a continuation of founder Steve Jobs’s original vision. “Steve told the teams when he opened retail 18 years ago, ‘Your job is not to sell, your job is to enrich their lives and always through the lens of education.’”
Apple isn’t the only company trying its hand at “experiential retail”. Urban Outfitters has its three “Space” stores in Austin, Williamsburg and LA, which offer live gigs and flower-arranging workshops alongside avocado-shaped phone chargers. And at at the Réel Mall in Shanghai, you can learn carpentry, painting or silver jewellery-making between visits to the Alexander McQueen and Balenciaga stores next door. Ahrendts herself admires what Soho House and CitizenM have created: “They have filled this huge niche, a combination of experience and human connection."
But no company is doing experiential retail with the same level of scale or ambition as Apple. Its ‘Today at Apple’ programme offers classes, talks, concerts and workshops, each designed, in Ahrendts’s words, to “enrich lives”. The lineup is part whimsy and part inspiration, including events like “Drawing Treehouses with Foster + Partners”, fitness walks and “Make Your Own Emoji” sessions for kids. As always with Apple, the scale is breathtaking, with thousands of events held in 21 countries each week and imminent plans to expand.
“I think as humans we still need gathering places,” Ahrendts says. “And when you are serving digital natives, the thing they long for more than anything is human connection. Eye contact.”
“I’m only one person,” Ahrendts says when I ask her about the parallels between her earlier transformation of Burberry and now at Apple. “I just set the vision and I am the connector – I am the enabler if you will. The common denominator for me is always the people. I love the fact seven of my directors at Burberry have gone on to be CEOs. You put together an amazing group of people, you all share the same vision and mission and purpose of something you want to achieve together.”
“There’s a slight difference,” she adds with a smile. “We had about 11,000 people at Burberry and there’s about 70,000 in Apple Retail, but then you say, how much more can we do if we get everyone aligned? And then you say, well, how do you do that?”
The short answer is technology. At 506 stores around the world, Apple staff start their day with an app called Hello, which briefs them on the most important “need to knows” of the day, often featuring videos from Ahrendts and her team. A second app, Loop, functions as an internal social network where staff can share learnings with each other. “Someone might be selling more phones than anybody else and we ask them to share that on a 20-second video on Loop,” Ahrendts explains. “We use auto-translate and everybody in the world can see what Tom in Regent Street is doing. It’s a huge unlock, just getting all the stores to talk to one another.”
This approach to internal communication – using human-touch internal video conferences – helped employees buy into Ahrendts’s vision at Burberry.
The same formula appears to be working at Apple. “Many retailers have become so big they’re removed from their own employees. They are lucky if they keep more than 20 per cent every year. We keep nearly 90 per cent of our full-time employees. We moved 20 per cent of the people in retail last year – they got promoted, took on new positions.”
“The tragedy in retail is that it has become about numbers,” Ahrendts continues. “It’s about cost-cutting the way to prosperity instead of investing in your people, and in that environment, big isn’t always good.”
In spite of all the admiration heaped on Apple, it is not immune to the winds of change. In January, Cook sent out a profit warning citing an unexpected downturn in China towards the end of year, which briefly sent the share price tumbling. The company will release its fourth-quarter earnings forecast after the market close on Tuesday the 29th.
When asked about the warning, Ahrendts points out that Apple is primarily a phone company. The iPhone generated 62 per cent of its $266 billion in sales last year, while retail accounts for about a quarter of revenue, according to Erwan Rambourg, managing director at HSBC. “In retail, the phone is not our largest category,” says Ahrendts. “We are actually number one in the company for Mac.”
Contrary to the rest of the retail sector, Ahrendts is more concerned with the effect Apple’s stores have on its brand than how many sales they generate each day.
“From a financial perspective we look at [our stores] differently. We look at Los Angeles and say, what do we want to achieve there? Now, my big flagship may not make as much money as my store over in Century City, but I’m looking at all the customers in LA from all these different touch points. What’s the profitability for those customers in LA?
“It’s a very different way from traditional retailers, who think door by door by door,” she continues. “Who think, ‘I’m going to close that door because it wasn’t profitable.’
“One of the things we’ve had to do at Apple is to stop looking at everything on a linear basis,” she adds. “You can’t just look at the profitability of one store or the profitability of one app or the online business. You have to put it all together: one customer, one brand.
“No matter how that customer comes in and buys, you have to look at it as one P&L. This is the issue, companies try and make these stores work on a standalone basis. When someone buys online and picks up in-store the revenue goes to online and not the store, but you are doing all the work in the store. They need to look at it differently.”
Apple sends a survey to everyone who attends one of its “Today at Apple” sessions. “In this data-driven world we need to define what ‘enriching lives’ means, and then we need to measure that,” Ahrendts says. “Did we inspire you to learn something new? Did we help to unlock your creativity?” The response rate is 96 per cent. “Since we put that out there, we now have hard data. It’s quite fascinating what customers are telling us.”
It’s a long way from Burberry. I look at her tailored outfit by Ralph Lauren (she is on the company’s board) and the high-heeled boots she’s worn to the building site and ask if she misses fashion.
After a pause, she replies: “You know, I loved fashion for 40 years. It is wonderful when you know everything there is to know about the industry because you grew up in it. There are things about the fashion industry that I miss, but I went to Apple because I felt it was a calling to one of the greatest companies on the planet. I felt we could even do a little of what we did at Burberry: uniting people to do incredible things.”
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