Can Samsung compete with Apple's retail stores?
The brick and mortar retail business is expensive and risky, but the reward is great.
By Aaron Pragnell
Samsung recently announced that it will open retail stores in Canada. Although Samsung has not announced an aggressive retail strategy yet, this is a sign that they are testing the markets to see if it is a viable option. Samsung expects the location in Burnaby, British Columbia, to offer hands-on training with products and demonstrations of product features. With the huge success of the Apple (AAPL) stores across the world, it appears Samsung is gearing up to take a piece of the pie. However, with competitors like Best Buy (BBY) struggling against becoming showrooms for online retailers such as Amazon (AMZN), is it a wise decision for Samsung to venture into the brick and mortar business?
Apple's Retail Store Success
Apple stores were launched in May 2001; the stores were not initially a huge success, and were losing money until the fourth quarter of 2003. The stores have since revolutionized the retail sector. By 2009, when the retail sector was down roughly 2.4% for the first time in decades, Apple's retail stores were up around 7%, according to retail consultancy Customer Growth Partners. In 2011, Apple's retail stores had net sales over $14 billion, a 44% increase over 2010. From 2009 to 2011 Apple's retail stores more than doubled net sales and, if you have been by any Apple store recently, this should come as no surprise. At the end of 2011, Apple had 357 stores worldwide (245 U.S. and 112 international) compared to 273 in 2009.
Broken down, this means that Apple's retail stores have risen from roughly $24 million in net sales per store/per year to over $39 million per store/per year from 2009 to 2011, representing an approximate $15 million increase per retail store. This means that in 2011, each Apple retail store made approximately $108,000 per day. This clearly shows that, although some Apple analysts thought entering into the retail sector was a death wish, the right business model can be successful in a challenging retail space.
Research in Motion Failed in North America
Brick and mortar is a challenging expansion. With high initial costs to enter and continuously high overhead costs, retail stores can quickly eat cash. In 2007, just six months after Apple launched the first iPhone, RIM (RIMM), the juggernaut in the industry at the time, opened its first stand-alone retail store in North America. The initial plan was to open around 100 stores throughout the U.S. and Canada, but it failed to rollout any others, due to loss of market share from competitors like Apple and Google.
Although RIM did halt the North American retail strategy for the time being, it has recently opened retail stores on the other side of the globe. In 2012, RIM opened its flagship store in Dubai and has since opened stores in India, as well. RIM recently announced it would open roughly 15 stores in India by the end of the year, and has plans to have around 4,000 store-in-store kiosks and flagship stores throughout Indonesia and Thailand.
Although RIM has fallen to seventh place for global market share, it still holds the second place spot in Southeast Asia. RIM definitely has its focus in the proper markets, and with the release of the Blackberry 10 expected later this year, RIM could gain back some ground from competitors.
The Bottom Line
Samsung has proven that, combined with the Android operating system, it is a dominant force in the smartphone industry. Android currently holds the number one spot in global market share, grabbing roughly 20% more and ending with 50.9% in the fourth quarter of 2011. With Samsung phones being a major contributor to the increase in global market share, Apple trails behind with less than half of the market share (23.8%).
Getting into the brick and mortar retail business is an expensive initiative, but if successful, the plan can really help improve brand loyalty. Samsung, without question, has the quality products to feature and if it duplicates some of the successful attributes from Apple's retail stores, such as the genius bar and product workshops, the retail business could propel Samsung to the next level, and to the top of the list of well-established brands worth billions.
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