Best Buy deal could add $400M to Apple's top line
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.
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.
Comments
Otherwise, this is great news!
Originally posted by AppleInsider
If Apple Computer's pilot program at Best Buy retail stores proves to be a success
BIGGG IF
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!
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.
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.
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??
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.
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.
Are all of Kasper's articles this far separated from reality?
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.
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.
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!