The paperback of “How NOT to Invest” drops this month; to celebrate, I present this excerpt from the book about a BW story that was published exactly 25 years ago!
This short, Apple-related excerpt from the book was a fun chapter to write… Enjoy!
“Sorry, Steve: Here’s Why Apple Stores Won’t Work”
“Few outsiders think new stores, no matter how well-conceived, will get Apple back on the hot-growth path… Maybe it’s time Steve Jobs stopped thinking quite so differently.”
—BusinessWeek, May 21, 2001
A year after Fortune’s Cisco debacle, BusinessWeek1 published a story on Apple’s foray into retail stores. Not just BusinessWeek, but many naysayers laughed off the inevitable failure of Apple’s push into retail.2 Numerous armchair pontificators freely shared their uninformed opinions as to why this concept was destined to fail. “I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake,” predicted retail consultant David Goldstein.3
After all, established consumer electronics chains were all in decline, and the writing was on the wall. Gateway would soon close its retail stores (2004), and not long after, CompUSA would shutter its physical locations (2007).
Investors should always be on the alert for structural errors in media stories: Authors operating outside of their expertise; people unaware of recent developments; extrapolators extending present trends far into the future. It is an excellent reminder of exactly the kinds of errors investors should avoid. A fallible human being publishing their uninformed opinion in print should never be the basis for making any intelligent investment decision.
There are many genuinely revolutionary products and services that when they come along, change everything. Pick your favorite: the iPod and iPhone, Tesla Model S, Netflix streaming, Amazon Prime, AI, perhaps even Bitcoin. Radical products break the mold; their difference and unfamiliarity challenge us. We (mostly) cannot foretell the impact of true innovation. Then once it’s a wild success, we have a hard time recalling how life was before that product existed.
The Apple Store was clearly one of those game-changers: By 2020, Apple had opened over 500 stores in 25 countries. They are among top-tier retailers, and the fastest ever to reach a billion dollars per year in sales. They did more in sales per square foot in 2012 than any other retailer.4 By 2017, they were generating $5,546 per square foot in revenues, twice the dollar amount of Tiffany’s, their closest competitor.5 Apple no longer breaks out the specifics of its stores in its quarterly reports, but estimates of store revenue is about $2.4 billion per month.
That guy who wrote, “Sorry, Steve: Here’s Why Apple Stores Won’t Work,” I wonder what the rest of his portfolio looks like…
Finance seems to encourage this kind of future forecasting. We are bad at this, because we often lack awareness of what we do and do not know about the limits of our expertise; we do not truly understand the present, let alone the future. We often wishfully predict what we want to be true, rather than what will come to be.
We look at the Dunning-Kruger effect later, but the key takeaway is most of us are not very good at metacognition—estimating our own skillsets.
Learning what we do and don’t know—working within our capabilities— that’s challenging enough, without other people’s bad forecasts in our heads…6
Footnotes:
1. Cliff Edwards, “Commentary: Sorry, Steve: Here’s Why Apple Stores Won’t Work,” BusinessWeek (May 21, 2001).
2. Nearly a decade and a half later, those naysayers were recounted here: Ana Swanson, “How the Apple store took over the world,” The Washington Post ( July 21, 2015).
3. Jerry Useem, “Apple: America’s best retailer,” Fortune (March 8 2007).
4. Seth Fiegerman, “Apple Has Twice the Sales Per Square Foot of Any Other U.S. Retailer,” Mashable (November 13, 2012).
5. Chance Miller, “Apple again found to be the world’s top retailer in sales per square foot,” 9TO5Mac ( July 29, 2017). See also: Marianne Wilson, “The most profitable retailers in sales per square foot are….” Chain Store Age (CSA) ( July 31, 2017).
6. If you think the Apple Store cover story was bad, just wait until you see what the media had to say about BlackBerry…
The paperback of “How NOT to Invest” is out this week at Amazon, Barnes & Noble, Books-AMillion, Bookshop, Hudson, or wherever you buy your favorite books!
If you want to learn more about how the book was made, any related media appearances or background, get unique bonus material, or just ask a question, you can sign up here: HNTI at RitholtzWealth dot com.
