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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\u2019t 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.\u201d
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 \u2013 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\u2019s 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.
\u201cWe bought 10,000 iPads and put them in the stores and everyone thought that was so revolutionary,\u201d says Ahrendts. \u201cFor us it really wasn\u2019t rocket science, we had targeted the millennial consumer and we knew that was the best way to talk to them.\u201d Then, five years ago, she left London for Silicon Valley \u2013 and since then has been dreaming up a new vision for retail at one of the world\u2019s 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\u2019s easy to look at Apple\u2019s grand new fleet of flagships and be dazzled by their surfaces: the Foster + Partners-designed Champs \xc9lys\xe9es 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.
The Apple vision
Since 2015, Apple has opened a series of high-profile flagships to promote its brand, each requiring, in the company\u2019s words, \u201csubstantially\u201d more investment than its typical stores. \u201cWe are now opening fewer, larger stores so that you can get the full experience of everything that\u2019s Apple,\u201d Ahrendts explains as we pick our way past Carnegie Library\u2019s historic pillars and through concrete and rubble to where a hard-hat brigade are inserting beacons into the walls.
\u201cWe don\u2019t talk a lot about it but there are thousands of beacons behind those walls,\u201d 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.) \u201cAs we renovate every store we update all of the technology. We don\u2019t want to be gimmicky, but stores need to become living, breathing spaces, not just two-dimensional boxes.\u201d
That is now coming to life at Carnegie Library. \u201cA few years ago I sent a photo to Tim [Cook, chief executive of Apple] saying there\u2019s this library that Apple could turn into a community space,\u201d she explains. \u201cCarnegie envisioned it years ago when he had the reading room. For Apple, we\u2019ll have field trips with busloads of kids; or they will be coming in learning to code every morning. It\u2019s a different type of investment.\u201d
It\u2019s a continuation of founder Steve Jobs\u2019s original vision. \u201cSteve told the teams when he opened retail 18 years ago, \u2018Your job is not to sell, your job is to enrich their lives and always through the lens of education.\u2019\u201d
Apple isn\u2019t the only company trying its hand at \u201cexperiential retail\u201d. Urban Outfitters has its three \u201cSpace\u201d stores in Austin, Williamsburg and LA, which offer live gigs and flower-arranging workshops alongside avocado-shaped phone chargers. And at at the Re\u0301el 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: \u201cThey 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 \u2018Today at Apple\u2019 programme offers classes, talks, concerts and workshops, each designed, in Ahrendts\u2019s words, to \u201cenrich lives\u201d. The lineup is part whimsy and part inspiration, including events like \u201cDrawing Treehouses with Foster + Partners\u201d, fitness walks and \u201cMake Your Own Emoji\u201d 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.
\u201cI think as humans we still need gathering places,\u201d Ahrendts says. \u201cAnd when you are serving digital natives, the thing they long for more than anything is human connection. Eye contact.\u201d
\u201cI\u2019m only one person,\u201d Ahrendts says when I ask her about the parallels between her earlier transformation of Burberry and now at Apple. \u201cI just set the vision and I am the connector \u2013 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.\u201d
\u201cThere\u2019s a slight difference,\u201d she adds with a smile. \u201cWe had about 11,000 people at Burberry and there\u2019s 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?\u201d
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 \u201cneed to knows\u201d 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. \u201cSomeone might be selling more phones than anybody else and we ask them to share that on a 20-second video on Loop,\u201d Ahrendts explains. \u201cWe use auto-translate and everybody in the world can see what Tom in Regent Street is doing. It\u2019s a huge unlock, just getting all the stores to talk to one another.\u201d
This approach to internal communication \u2013 using human-touch internal video conferences \u2013 helped employees buy into Ahrendts\u2019s vision at Burberry.
The same formula appears to be working at Apple. \u201cMany retailers have become so big they\u2019re 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 \u2013 they got promoted, took on new positions.\u201d
\u201cThe tragedy in retail is that it has become about numbers,\u201d Ahrendts continues. \u201cIt\u2019s about cost-cutting the way to prosperity instead of investing in your people, and in that environment, big isn\u2019t always good.\u201d
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. \u201cIn retail, the phone is not our largest category,\u201d says Ahrendts. \u201cWe are actually number one in the company for Mac.\u201d
Contrary to the rest of the retail sector, Ahrendts is more concerned with the effect Apple\u2019s stores have on its brand than how many sales they generate each day.
\u201cFrom 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\u2019m looking at all the customers in LA from all these different touch points. What\u2019s the profitability for those customers in LA?
\u201cIt\u2019s a very different way from traditional retailers, who think door by door by door,\u201d she continues. \u201cWho think, \u2018I\u2019m going to close that door because it wasn\u2019t profitable.\u2019
\u201cOne of the things we\u2019ve had to do at Apple is to stop looking at everything on a linear basis,\u201d she adds. \u201cYou can\u2019t 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.
\u201cNo 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.\u201d
Apple sends a survey to everyone who attends one of its \u201cToday