Apple’s choice of Angela Ahrendts, CEO of UK fashion house Burberry, to head up its retail and online businesses was widely applauded by markets eager for some signs of new thinking at the iPhone maker. The coverage perhaps focused too much on her fashion heritage, which commentators thought could signify a serious push into wearables such as smart watches and glasses. But Ahrendts is in charge of selling goods, not designing them, and is more likely to have been selected for her experience in turning around Burberry’s retail channels and brand ‘ or perhaps, amid reports of problems for the (relatively) low cost iPhone 5c, her record in turning Burberry firmly away from the mass market and restoring it as a premium, luxury brand.
As many rush to anoint Ahrendts as CEO-in-waiting, it is important to remember the scale of the challenge awaiting her. One will be to adjust to Apple’s peculiar culture ‘ her predecessor, another UK retail chief, John Browett of Dixons, was greeted with similar fanfare, but lasted only six months, blaming the culture. Partly because of Browett’s abrupt departure, coupled with the change of CEO, Apple has been without a forward-thinking strategy for the vital retail activity for a couple of years ‘ at a time when the retailer par excellence, Amazon, has got serious about mobile devices, content and apps, and with none of its rival’s conflicts of interest about chasing the mass consumer space.
One of Apple’s key decisions ‘ in which Ahrendts, with her combined online/retail responsibility, will play a major part – will be whether to emulate Amazon or distance itself from that race. The iPhone 5c was only a halfhearted attempt to produce a low end product, and its awkward position between two stools may explain the fact that it seems to be selling far more slowly than the more expensive 5s ‘ the price difference just wasn’t big enough, especially when subsidies are considered, to create a whole new fan base for the iPhone. The hiring of executives from luxury brands ‘ Ahrendts, and also Yves Saint Laurent CEO Paul Deneve, now head of special projects at Apple ‘ suggests that CEO Tim Cook’s heart lies with the old Apple norm of sacrificing huge market share in favour of a premium brand, hefty price tag and infatuated user base. By contrast, Amazon had no qualms about shifting the price goalposts in the emerging tablet space decisively with its original $199 Kindle Fire. Only a few players can live by those Woolworths-like rules of ‘pile ’em high sell ’em cheap ‘ Apple has the scale and distribution to be one, but it goes against its culture and its strengths.
So, assuming Ahrendts’ role will not be to turn Apple’s retail operations into an Amazon-style channel for low cost iDevices, what does she bring to the firm and how will she address the recent decline in Apple’s once-legendary stores? In the third quarter this year, average store revenues were down by $1m per store, to $10.1m, while overall retail sales were down to $4.074bn from $4.084bn a year earlier. That will improve in the current quarter because of the new iPhones, but the previous year also suffered from a later launch of a new handset, making the fall-offs very worrying. The drop in Q3 retail profit is even worse – $667m in 2013 versus $868m in 2012.
Among the strengths that the new retail and online chief brings are experience of harnessing new technology to enhance store experience and brand association, as Burberry did with Instagram and others; and a deep understanding of how to make a store a compelling and luxurious experience. She also brings the lessons from Burberry’s big push into China; and a strong track record in online selling (Cook has given her a far better chance of success than her predecessor had with the simple masterstroke of combining the two main sales channels). However, Apple will need to work with her not against her.
Cook has hired someone from a different sector, presumably to inject some new thinking into a retail operation that was once outstanding but, like the products themselves, is starting to lose a little of its glitter. Apple investors are clamouring for some new ideas, even though the company continues to rack up the sales. This is a turning point for the company, when it could fall into Microsoft’s trap of clinging for far too long to past glories, or it could reinvent itself once again, as it did when it unleashed first the iMac and later the iDevices. Ahrendts is not the person who will make the most critical decisions in that regard, but she will have input and influence, and she will take responsibility for ensuring that the resulting products ‘ old or new ‘ are presented brilliantly to the buying public, in stores on online.
Apple needs to give her some good tools to work with, as her Burberry team did when they pulled back from their check pattern ‘ famous worldwide but deeply devalued ‘ and created a new brand image. The iPhone 5c is not proving to be such a tool. According to Asian reports, Apple has cut orders for the lower-cost handset by between 20% and 33%. Reuters reported that the iPhone 5c manufacturers, Pegatron and Foxconn of Taiwan, were told to reduce output for the fourth quarter by one-fifth and one-third respectively.
Analysts blame Apple’s pricing policy. They had expected a handset which could be sold as cheaply as $350 without subsidy but instead it retails for $549. Carriers are offering it for $99 subsidized, half the upfront cost of its 5s stablemate, but the unsubsidized price is the key if this device is supposed to propel Apple more deeply into the growth areas of emerging and prepaid markets. Here, budget conscious buyers may be more attracted by the older iPhone 5, which has many of the features of the 5s, including its metal cover (the 5c has a plastic one), and can be upgraded on the OS side.
Of course, Wall Street is probably engaging in its usual kneejerk response to any Apple rumors. The 5c has been the subject of a marketing blitz in selected countries and Apple said 9m iPhones sold over the new devices’ initial three-day weekend, 80% up on the previous year ‘ but did not break down how many were the cheaper model. The reports are unconfirmed, Apple’s supply chain moves are complex, and the real results will have to wait for its Q4 figures, though there may be some updates during the Q3 earnings announcement on October 28. Either way, Ahrendts is arriving at a time when she has the chance to make a real impact and help Apple change its ways ‘ but it will be down to Cook, Ive and other long-servers to give her the room to work that magic.