Best Buy deal could add $400M to Apple's top line

[AppleInsider]

If Apple Computer's pilot program at Best Buy retail stores proves to be a success, a full expansion could generate as much as $400 million in additional Mac sales for the company each year, says one Wall Street analyst.

In a research note released to clients on Thursday, Morgan Stanley analyst Rebecca Runkle compared the Cupertino, Calif.-based company's US retail store coverage to that of Best Buy's. She found that at a bare minimum, a full distribution partnership with the electronics retailer would add 100,000 new Mac sales and $160 million in annual revenue for Apple.

Runkle's analysis takes into account that some of Best Buy's 742 locations would wind up cannibalizing sales at existing Apple distribution points. On the other hand, the analyst notes that Apple has been successful in opening stores as close as a mile apart without signs of cannibalization.

"If we assume no cannibalization, Best Buy could represent roughly $400M of revenue and $0.05 earnings-per-share (EPS)," she wrote. "If successful, Apple may look to expand its market coverage at other US and international retailers (including Circuit City, which is the second largest US electronics retailer and currently does NOT carry Macs)."

Apple's Mac pilot program began this quarter in approximately six Best Buy retail stores , including four locations in Los Angeles, one in San Diego and another in Las Vegas. It employs staffers trained by Apple to sell an expanded line of Mac computers that include both Mac minis models, the low-end iMac (1.83 GHz/17-inch), all three MacBooks and the low-end MacBook Pro (15.4-inch/2.0 GHz).

According to Runkle, leveraging third party retailers will allow Apple to expand distribution beyond its 137 US retail locations and to better penetrate US consumers in middle income and lower population regions where the company is currently under-represented. In her comparison of Best Buy and Apple Retail stores, she found that 339 Best Buy locations did not overlap with an existing Apple store.

"To us, this implies any expansion of the Best Buy pilot could be highly additive to Apple’s current Mac revenue base," Runkle told clients. "Importantly, we do not assume Apple dilutes its brand by going after low-end, bargain consumers -- but rather that it extends its presence into the mainstream market by leveraging 3rd party retailers and its current product line-up."

Also in her note to clients, the analyst said she continues to expect new iPod nano and Mac Pro products this Summer, as well as a new video iPod and potentially an operating system upgrade cycle in the Fall.

"If we combine [the Best Buy opportunity] with plans for International expansion, new product pipeline and an improving competitive position (full hardware + operating system updates by year-end), Apple is well positioned to outperform our group over the next several quarters," Runkle said.

The analyst maintains an "overweight" rating on the company's shares with a price target of $90.

[ View this article at AppleInsider.com ]

[jamezog]

Let's just hope their sales reps are properly trained...



Otherwise, this is great news!

[meelash]

Originally posted by AppleInsider
If Apple Computer's pilot program at Best Buy retail stores proves to be a success

BIGGG IF

[SpamSandwich]

I think the analyst may be right about not cannibalizing sales from the Apple stores... the Best Buy shopper may not be the usual Apple Store shopper, therefore, they may pick up addtional sales from the PC buyer turned new Mac buyer.

[West]

Best buy is the worst retail chain in the country, and will fail miserably selling Macs.

[jamezog]

Originally posted by West
Best buy is the worst retail chain in the country, and will fail miserably selling Macs.

So you're saying that Best Buy will fail miserably selling Apple products when Apple products are superior to other computer lines which Best Buy sells very well?

I'll be the first to admit that Best Buy isn't a great retailer (I never shop there), but I don't see the logic in your comment. Sorry!

[theapplegenius]

Originally posted by jamezog
So you're saying that Best Buy will fail miserable selling Apple products when Apple products are superior to other computer lines which Best Buy sells very well? Yeah, that makes a lot of sense. </sarcasm>

I'll be the first to admit that Best Buy isn't a great retailer (I never shop there), but I don't see the logic in your comment. Sorry!

I walked into best buy and the guy *still* tried to convince me that Intels 3.0GHz Pentium 4 was faster then a 3700+ AMD Athlon. They're stupid.

[ChevalierMalFet]

"if we assume no cannibalism..."

Bad bad assumption. The cannibalism from Apple stores will likely be light—mostly a matter of convenience as it's much more likely you have a BB nearby than an Apple Store—but cannibalism from Apple presence within CompUSAs will be very high, considering the flyer wars these stores have on Sundays, and the fact that they are essentially next door neighbors in many places.

The type of customer Best Buy is best at attracting won't be going there to find new products, they'll be existing or already sold customers going because they think they can get a deal.

[scotty321]

People -- and especially analysts -- just don't get it. Best Buy will NOT help sell Macs at all. Customers walking into Best Buy want to find a computer for $199. These customers are NOT looking for the best computer out there, these people don't even have a significant amount of disposable income to be spending. People walking into Best Buy want DIRT CHEAP stuff and that's it. NOBODY is going to walk out of Best Buy with a $599 Mac mini + a $200 monitor + $100 keyboard/mouse. It just isn't going to happen. Especially since there is ZERO Macintosh software on the shelves at Best Buy. Plus, let us not forget that the Best Buy employees know absolutely nothing about Macs. A one-day training seminar by Apple Computer is not going to change this fact. Apple's attempts to move into Best Buy again is the stupidest decision to ever come out of Cupertino in recent years. NOT TO MENTION THE MOST IMPORTANT FACT OF ALL: BEST BUY SALESPEOPLE GET COMMISSIONS ON SELLING WINDOWS MACHINES!!! THEY WILL NOT GET ANY COMMISSION ON SELLING MACS!!! Best Buy salespeople are COMMISSIONED by the way of "SPIFFS" -- paybacks to them from the manufacturers. Apple is not giving out SPIFFS, so there will be no Apple sales made. This is a waste of time, energy, and resources by Apple Computer. Moving into Best Buy is a HORRIBLE IDEA.

[jamezog]

Originally posted by scotty321
Moving into Best Buy is a HORRIBLE IDEA.

Okay, I give in. Maybe this isn't the great news it's made out to be, but if that IS the case and it IS such a horrible idea, WHY would Apple be considering it??

[Mackilroy]

Originally posted by scotty321
People -- and especially analysts -- just don't get it. Best Buy will NOT help sell Macs at all. Customers walking into Best Buy want to find a computer for $199. These customers are NOT looking for the best computer out there, these people don't even have a significant amount of disposable income to be spending. People walking into Best Buy want DIRT CHEAP stuff and that's it. NOBODY is going to walk out of Best Buy with a $599 Mac mini + a $200 monitor + $100 keyboard/mouse. It just isn't going to happen. Especially since there is ZERO Macintosh software on the shelves at Best Buy. Plus, let us not forget that the Best Buy employees know absolutely nothing about Macs. A one-day training seminar by Apple Computer is not going to change this fact. Apple's attempts to move into Best Buy again is the stupidest decision to ever come out of Cupertino in recent years. NOT TO MENTION THE MOST IMPORTANT FACT OF ALL: BEST BUY SALESPEOPLE GET COMMISSIONS ON SELLING WINDOWS MACHINES!!! THEY WILL NOT GET ANY COMMISSION ON SELLING MACS!!! Best Buy salespeople are COMMISSIONED by the way of "SPIFFS" -- paybacks to them from the manufacturers. Apple is not giving out SPIFFS, so there will be no Apple sales made. This is a waste of time, energy, and resources by Apple Computer. Moving into Best Buy is a HORRIBLE IDEA.

Really? The local Best Buy here sells an awful lot of Macs – they've been selling MacBooks and iMacs like hotcakes ever since they came out. And zero Mac software? I'm sorry, but I also see plenty of Mac software when I go to BB. Also, the employees I speak to are generally quite knowledgeable about Macs – they know what they're offering, how it compares to the PCs they sell, and so on.

I don't know about commissions, so I can't argue about that for now, but I can say that Best Buy is selling Macs, and selling a lot of them. So, IMO, it's a great idea.

[ChevalierMalFet]

Originally posted by scotty321
People -- and especially analysts -- just don't get it. Best Buy will NOT help sell Macs at all. Customers walking into Best Buy want to find a computer for $199. These customers are NOT looking for the best computer out there, these people don't even have a significant amount of disposable income to be spending. People walking into Best Buy want DIRT CHEAP stuff and that's it[…] Best Buy salespeople are COMMISSIONED by the way of "SPIFFS" -- paybacks to them from the manufacturers. Apple is not giving out SPIFFS, so there will be no Apple sales made. This is a waste of time, energy, and resources by Apple Computer. Moving into Best Buy is a HORRIBLE IDEA.

You are to some degree over estimating the BB salesforce, and under estimating its customer base. Yes, there are a large percentage of "how can I get something for nothing" customers at the chains, but an equally large number of customers that go in, avoid the sales folks at all costs, and extract the product they knew they wanted before they entered the store.

As for the employees, yes I'm sure many bow under the pressure of the spiff, though who knows if Apple will spiff, but, again, Best Buy not being known for its sales acumen, most of its customers, even the not-tech-savvy ones, will come in to a Best Buy with a pretty strong notion of what they already want.

What Best Buy buys is distribution and retail presence, not sales.

[whoami]

ummm... don't we hear this same report every year or so and then they pull mac's out after a few months??

[amac4me]

Bring it on. I hope the Best Buy program proves to be a success. It would be a great way to get Macs into the hands of consumers who do not visit Apple stores or who have never thought of buying a Mac prior to seeing them in Best Buy.

[howyoudoin]

Best buy employees do not work on commission and do not recieve spiffs for selling a certain vendor's product. Usually hourly employees sell which product they like more then what is better, at least that's what I used to do when I worked there and sold big screen TV's (most expensive doesn't mean the best---example is sony). Also some work there just to get by but you'll always find at least a couple in each department that actually do their research on the product they are selling

[almostwise]

All I know is that the nearest Apple Store or CompUSA is an hour away, and the nearest Best Buy is 2 blocks away...

[hardeeharhar]

Let's speculate about speculative profit from an speculative extension of a speculative program of speculative success...

Are all of Kasper's articles this far separated from reality?

[NOFEER]

Originally posted by theapplegenius
I walked into best buy and the guy *still* tried to convince me that Intels 3.0GHz Pentium 4 was faster then a 3700+ AMD Athlon. They're stupid.

the problem at best buy is that the salesperson has tooooo many products to understand, and can't focus. that can't know it all, and they can't keep it straignt. also you don't know what spiffs are discussed in the back room... you know what i mean. i was in sales and let's face it manufacturers push retailers to PUSH their product. my nephew bought and returned 3 count them 3 laptops because no one knew that integrated graphics aren't the way if your customer wants a GAMING machine, not an internet, word, powerpoint, email box. they spout "stuff" that is fluff. NOW lets look at the apple store experience. they understand their product and wants to share THEIR experience, and therefore you buy into the vision. not just a "purchase". it's soooo differennt. and since most of these bestbuy guys have been suckled by windows they can't "feel" the vision of apple. they remark on the style, but don't comprehend / understand the function. apple must have high standards for anyone representing their product. and be proud to do so. that's how i would sell apple. i'd sell the apple way of life not as a sideline of life or as most of the windblows sales people fluff their stuff.

[NOFEER]

Originally posted by howyoudoin
Best buy employees do not work on commission and do not recieve spiffs for selling a certain vendor's product. Usually hourly employees sell which product they like more then what is better, at least that's what I used to do when I worked there and sold big screen TV's (most expensive doesn't mean the best---example is sony). Also some work there just to get by but you'll always find at least a couple in each department that actually do their research on the product they are selling

so give some insight, what are the best dlp and lcd tv's and which are the most reliable. not toshiba, bought at sears and replaced the unit once in three months, and the lamp (low power) after 3 ....3....3 months.

[lakingsfn]

Originally posted by SpamSandwich
I think the analyst may be right about not cannibalizing sales from the Apple stores... the Best Buy shopper may not be the usual Apple Store shopper, therefore, they may pick up addtional sales from the PC buyer turned new Mac buyer.

Boy I hope you're right!

[JTBLQ]

this is great for those of us who do not live near an urban area with an apple store...I live in Santa Fe...all we have here is a shitty Mac retailer in Baillos ( a store that sells appliances...like fridges and washers)...i welcome the fact that I may get a closer Mac connection AND buy CDs in one place...it's great

[Frank777]

Quite frankly , Canadians are the most underwhelmed by this announcement.

Best Buy has been selling Macs here for some time, and they have almost no software selection, poor presentation and uninformed staff.

They are a great place to shop if you need a VGA-DVI adapter in a pinch, or if they are closing out machines to prepare for new models.

Otherwise, they are a huge waste of everyone's time.

[melgross]

Originally posted by Frank777
Quite frankly , Canadians are the most underwhelmed by this announcement.

Best Buy has been selling Macs here for some time, and they have almost no software selection, poor presentation and uninformed staff.

They are a great place to shop if you need a VGA-DVI adapter in a pinch, or if they are closing out machines to prepare for new models.

Otherwise, they are a huge waste of everyone's time.

This is the usual situation with them. But this new push seems different. both companies have spent a lot of money on this, and it's possible that BB's management will pay attention to it this time.

It's always worth a shot.

[wilco]

Originally posted by scotty321
NOT TO MENTION THE MOST IMPORTANT FACT OF ALL: BEST BUY SALESPEOPLE GET COMMISSIONS ON SELLING WINDOWS MACHINES!!! THEY WILL NOT GET ANY COMMISSION ON SELLING MACS!!! Best Buy salespeople are COMMISSIONED by the way of "SPIFFS"

This has been determined to be untrue according to statements made by Best Buy employees on several other threads.

Originally posted by scotty321
People -- and especially analysts -- just don't get it.

[ChevalierMalFet]

At one point at least I know they got spiffed on service plans that they sell with those Windows boxes, and typically much mor so that the spiffs for other service plans. Even if that practice has stopped, job pressure is extremely high to sell these plans. And guess what? Apple's got AppleCare in place of BB's extended warranties, and it ends up stacking up against them, statistically.

[aaarrrgggh]

The analyst is projecting an average of 12 macs/store/month. With that level of "success", canibalizing sales isn't an issue. How many PCs do they move? If they are talking about getting 3% of unit sales, well... that does very little for Apple.

Personally, I think that even with bad customer service, if Best Buy wants to move Macs, they could sell 20% without any problem.

With good customer service and sales support, the Mac sales could easily be 35%. Macs primarily lose market share in business, not retail/home sales. Hope it works...

[Frank777]

A typical Best Buy customer is going to watch the three aisles of PC software and the five Mac software packages on the shelf and make their decision.

For the life of me, I can't understand what so hard in stocking three copies each of the twenty best-selling Mac titles and printing a complete catalog of Mac software available on their website.

They would make every penny back in CPU sales. So it's not the cost, it's laziness.

[JeffDM]

Originally posted by scotty321
NOT TO MENTION THE MOST IMPORTANT FACT OF ALL: BEST BUY SALESPEOPLE GET COMMISSIONS ON SELLING WINDOWS MACHINES!!! THEY WILL NOT GET ANY COMMISSION ON SELLING MACS!!! Best Buy salespeople are COMMISSIONED by the way of "SPIFFS" -- paybacks to them from the manufacturers. Apple is not giving out SPIFFS, so there will be no Apple sales made. This is a waste of time, energy, and resources by Apple Computer. Moving into Best Buy is a HORRIBLE IDEA.

Can you point to a credible source about these "SPIFFS"? Every BB person I talk to swear they aren't on commission. If what you say is true, it would fail, but not because of Best Buy, but Apple not being competitive on the retailer side.

There are unsubstantiated rumors that the retailer margin on Apple products is among the lowest in the industry, if that's true then that's asking to be uncompetitive right there. No one is going to push your product hard if you don't make it worth your time, especially if a $1000 Gateway has twice the margin of a $1000 Apple.

[blue2kdave]

Another thing to think about is that Apple may be trying to establish relationships with an electronic chain store because they are about to release more non-Mac products, like a DVR, iPhone, or vPod. Best Buy wouldn't be selling Macs, they would selling home electronics.

[ChevalierMalFet]

Originally posted by JeffDM
Can you point to a credible source about these "SPIFFS"? Every BB person I talk to swear they aren't on commission. If what you say is true, it would fail, but not because of Best Buy, but Apple not being competitive on the retailer side.

There are unsubstantiated rumors that the retailer margin on Apple products is among the lowest in the industry, if that's true then that's asking to be uncompetitive right there. No one is going to push your product hard if you don't make it worth your time, especially if a $1000 Gateway has twice the margin of a $1000 Apple.

Commission and Spiffs are two different things. Also, an item doesn't have to be directly spiffed, more often than not it's add on sales like high margin accessories and service plans to sell bundled with a product. Having worked in the past for a retailer that sold PCs as well as Macs, typically a couple years ago the Mac margins were as high or higher than comparable PCs; which is really not to say they are very good. The laptops, on the other hand, typically carried considerably higher margins, though I think Apple's iBooks had lower margins than bargain PC laptops if memory serves.

Again, it's kind of a red herring, as the managers didn't look to the boxes for the margin, they looked to the service plans, which could easily bump a 3% margin box up to 20ish%, more if you sold accessories or such (cables typically being the motherload, having up to 90% margin). The retail industry has long padded electronics margins with accessories, I guess figuring that once they've got you in the store for the low price on the big items, they can then gouge you on the nickel and dime stuff.

But yeah, the margins are still high on the AppleCare boxes but no where near as high as the store affiliated service plans.

Which can be translated as if they aren't carrying a bunch of Apple Software and Accessories, they aren't interested in making money off the Apple product, which is stupid because historically people that buy Apple machines tend to buy more in the way of software and accessories with their initial purchase.

Spiffs don't always take the form of cash either. Palm used to run programs where if you sell say 20 Palm Vx's and record the serial #'s, they'd send you one free.

[JeffDM]

Originally posted by ChevalierMalFet
Commission and Spiffs are two different things.

What is the difference? It sounds like another weasel attempt to me, so sales people can pretend they are being honest in saying that they aren't getting commissions, but still is effectively a lie because the line is generally assumed to mean that sales person doesn't get extra compensation for making a sale.

[ChevalierMalFet]

Commission sales typically implies that you get little or no base salary, but make a percentage of the sales margin on the product you sell. Spiffs are a euphemism for selective incentives for salaried (or commissioned) sales people. Generally they are not paid out by the retailer/employer, but by the manufacturer, and only on select items—usually either something they want to push into popularity or old products about to be discontinued.

They are two different things, and it can be easily argued that spiffs are a bit less honest than commissions.

An excellent example of retail spiffs are AOL disks. For some time, CompUSA was offering it's employees $5 I think for every person they convinced to sign up for AOL in store. It got pretty embarrassing for awhile what CompUSA employees would do or say to get someone to sign up for AOL.

[melgross]

Originally posted by blue2kdave
Another thing to think about is that Apple may be trying to establish relationships with an electronic chain store because they are about to release more non-Mac products, like a DVR, iPhone, or vPod. Best Buy wouldn't be selling Macs, they would selling home electronics.

That's a good point.

[melgross]

Originally posted by ChevalierMalFet
Commission sales typically implies that you get little or no base salary, but make a percentage of the sales margin on the product you sell. Spiffs are a euphemism for selective incentives for salaried (or commissioned) sales people. Generally they are not paid out by the retailer/employer, but by the manufacturer, and only on select items—usually either something they want to push into popularity or old products about to be discontinued.

They are two different things, and it can be easily argued that spiffs are a bit less honest than commissions.

An excellent example of retail spiffs are AOL disks. For some time, CompUSA was offering it's employees $5 I think for every person they convinced to sign up for AOL in store. It got pretty embarrassing for awhile what CompUSA employees would do or say to get someone to sign up for AOL.

In most states, if not all, spiffs are illegal. Over the years companies have gotten into trouble for giving them out.

I'm not saying that they don't appear every now and then, but if it is caught very large fines are levied. It's the same thing as payola in radio.

[ChevalierMalFet]

Hmm that's the first I've heard about spiff legality. When did that come about? I haven't been in retail for a few years so I admit I'm not up to date informed. But even when I was working in retail they made sure not to call the spiffs spiffs, but that's the term I use because that's essentially what they are.

[melgross]

Originally posted by ChevalierMalFet
Hmm that's the first I've heard about spiff legality. When did that come about? I haven't been in retail for a few years so I admit I'm not up to date informed. But even when I was working in retail they made sure not to call the spiffs spiffs, but that's the term I use because that's essentially what they are.

Any incentive to sell a product "under the table" is a spiff. It's considered to be a bribe. It's also considered to be unfair to the consumer, because the consumer is expecting, and has the right to expect, unbiased information from the sales personel.

While it's questionable as to how real world that may be, with the prejudices every sales person has, at least, companies are not allowed to foster it.

I was hoping to find something useful in Google, but a quick search turned up nothing of real value. Some mention, but nothing that applies to this directly.

[ChevalierMalFet]

Hah good to know, and I'm glad at least there's some action against it. All though if you saw some of the training propaganda they throw at these sales people, you'd never ask retail sales people for advice again.

[melgross]

Originally posted by ChevalierMalFet
Hah good to know, and I'm glad at least there's some action against it. All though if you saw some of the training propaganda they throw at these sales people, you'd never ask retail sales people for advice again.

I never do. It's;"Do you have this in stock?" If yes, then; "How much is it?", and if necessary; "Do you deliver, and what does that cost?"

[NOFEER]

best buy makes big $$$ on extended warranties, so do they sell their own or applecare>>>\ one thing i wish apple care did was allow you to extend the service contract like dell AND best buy or at least buy one for 4-5 years instead of 3 years.will bb have it's own apple support line....hmmmm

[ChevalierMalFet]

Well, Think Secret is saying Best Buy is gettings ASCs, so between this, and listening to the birds in the trees, I have a feeling Apple is serious about getting BB on board this time around.