Apple Watch will revamp the most successful store strategy in decades

Tim Cook, chief executive officer of Apple, unveils the Apple Watch during a product announcement at Flint Center in Cupertino, California, on Sept. 9, 2014. CREDIT: Bloomberg photo by David Paul Morris)

When Apple stores opened their doors nearly 15 years ago, they looked like nothing else in U.S. malls. The sleek, hardwood floors and spare design gave them an aspirational sheen, while shared tables for testing the gadgets made the experience feel communal and accessible. If you needed a reminder that Apple was foremost an innovator, you got it from the absence of traditional cash registers and checkout lines.

The hip, minimalist vibe has drawn many imitators and is lionized in the retail industry as perhaps the shrewdest brick-and-mortar strategy executed in the past two decades. Indeed, Apple stores generate more dollars per square foot than any other retailer, and by a fairly wide margin.

But with the arrival of the Apple Watch on Monday, the company is poised to revamp this successful formula. Given that some versions of the smartwatch are expected to carry four- or possibly five-figure price tags, Apple is reimagining its stores to make them attractive to the wealthiest shoppers.

Luxury marketing experts say Apple is likely considering flourishes to entice the affluent, including full-length mirrors, showcase lighting and areas private from the bustling showroom of tablets and smartphones.

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The change-up in its stores is a major gamble for Apple, which has become the world’s most valuable company by making technical devices stylish and accessible to the masses. Now it is making a foray into an upscale world, where tradition and fashion have long trumped function and cutting-edge technology.

Apple is offering a watch priced at $349 that is aimed at the shoppers who buy iPads or replace their smartphones every few years. But the company is also planning two higher-cost editions — it has kept prices secret — including one wrapped in 18-karat gold that some retail analysts have speculated could fetch a price tag of $5,000, possibly even $10,000.

To find an audience for such a product, Apple will have to do far more than demonstrate that the watch will fit into people’s lives. The company will have to prove that wearable tech can be a status symbol, even for the super-affluent — something no tech company or watchmaker has accomplished before.

“It will sort of depend on whether luxury customers see the watch as being artistic enough or having the craftsmanship,” said Charles Lawry, an assistant professor at Pace University who studies luxury marketing. “I think luxury customers may perceive it as being too geeky.”

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Like digital or calculator watches before them, modern smartwatches have fallen squarely in geeky territory. They have plenty of functionality but aren’t exactly elegant, and consumers have complained about short battery life. Plus, most smartwatches need to be paired with a smartphone to work, essentially making the devices expensive accessories.

In contrast, posh legacy brands such as Omega, Rolex and Cartier have kept up sales because their products are perceived as a badge for telegraphing one’s sense of style and deliver an aura of exclusivity.

Several luxury brands have been losing favor with affluent shoppers as their goods have become too ubiquitous — Michael Kors and Gucci today, and before them, Coach and Burberry. Since new Apple product launches are regularly met with long lines of obsessive fans camping outside stores, high-end consumers might shun the Apple Watch as too ordinary.

Experts say luxury-watch shoppers are typically looking for privacy when they make this kind of purchase — something that’s difficult to achieve in the current incarnation of the Apple store.

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“[There’s] this degree of intimacy: I don’t want six or seven people staring at me when I try this on,” said Ken Nisch, chairman of JGA, a consulting firm that specializes in retail strategy and design. “If they don’t change, it’s going to limit the consumer who wants a more intimate experience.”

The stores’ lighting concepts may have to be reconsidered, Nisch said, since the current setup has been designed to accommodate a shopper looking at a light-emitting gadget with a much larger screen.

And shoppers who are used to plunking down thousands of dollars for a watch are also accustomed to seeing how they look wearing it. This will likely push Apple to add mirrors, perhaps even full-length ones, to its stores. A recent New Yorker profile of Jonathan Ive, Apple’s design guru, noted that Ive had “overheard someone saying, ‘I’m not going to buy a watch if I can’t stand on carpet.’ ” Apple declined to comment for this article.

Still, it may not be such a huge lift for the brand to move more upmarket. Apple is considered something of a “mass-tige” brand — retail industry jargon for something that has wide exposure but also the halo of prestige of a premium brand.

It is possible that Apple could alienate some middle-income customers by adding luxury options. But analysts are largely optimistic that Apple will be able to sell between 20 million and 22 million of its watches within a year by doing what it does best: spinning a good story about why the average person would want to buy it.

“Apple’s in position to make that leap across the chasm from a tool to something that’s a lifestyle, possibly a prestige and aspirational product. That’s a different language and has a different economic value,” Asymco analyst Horace Dediu said.

Joe Jackman, a retail strategist, compared Apple’s decision to make a gold watch to the successful strategy of automaker Mercedes. Although it has some ultra-luxury models that cost six figures and are unattainable for buyers of its E-Class sedans and coupes, the pricier car looks great on the showroom floor and gives the room a luster of sophistication and quality.

“I think that the higher priced Apple products are, the more it actually feeds the lore and the status of that brand,” Jackman said.

It may take time for Apple to crack the luxury market, but it may gain traction in the watch category, thanks to the smartphone-toting millennials who have never worn a traditional timepiece but have deep affinity for the brand. The company also has put plenty of muscle behind the launch, including a 12-page advertisement in the March issue of Vogue. And it brought on executives from Burberry, Tag Heuer and Yves Saint Laurent to help it craft its pitch to luxury buyers.

“If anybody can do it, Apple can,” said Kelley Lovelace, president of Luxury Retail Consultants. “I think there’s a whole segment out there [for whom brands] like Rolex, Omega or Cartier, they’re not even on their radar.”