Everyone Said the Apple Store Would Fail. It Became the Most Productive Retail on Earth.
In 2001, the experts agreed: a computer company opening its own glass-walled stores in expensive malls was a vanity project destined to fail. Apple did it anyway - because the real goal was never retail. It was taking back control of how its products met the world.
On May 19, 2001, Apple opened its first two retail stores, in a Virginia mall and a California one, led by an executive it had poached from Target named Ron Johnson.4 Two days later, BusinessWeek published a commentary with a headline that has aged into a monument to expert overconfidence: 'Sorry, Steve: Here's Why Apple Stores Won't Work.'1 The consensus was nearly unanimous. A struggling computer company was leasing pricey mall real estate to sell a handful of products at the moment established electronics chains were dying. One retail consultant predicted Apple would 'turn the lights off' within two years.2 They were not just wrong; they were wrong about the most productive stores in the history of American retail. The reason they missed it is that they thought Apple was getting into the retail business. It wasn't. It was staging a rebellion against its own distribution.
What a distribution rebellion is
A distribution rebellion is when a company decides the middlemen who connect it to customers are doing the job so badly that it's worth the enormous cost and conflict of going direct. Through the 1990s, Apple sold its computers the conventional way - through Sears, CompUSA, and big-box electronics floors. And on those floors, the products died. They sat under fluorescent light among a dozen beige competitors, sold by commissioned staff with no reason to favor a Mac, in an environment that communicated nothing of what made the product different. For a company whose entire premise was that its products were better, a sales channel that made them look identical to everything else wasn't a neutral inconvenience. It was an existential misrepresentation. The rebellion's logic was simple: if the channel can't or won't show the product properly, the channel has to go.
“Sorry, Steve: Here's Why Apple Stores Won't Work.”1
The mechanism: control the last six feet, control everything
The strategic insight was that the final stretch between product and customer - the last six feet, where someone picks up a device and decides how they feel about it - is too important to rent to an indifferent third party. By owning the store, Apple controlled every variable the resellers had botched: the lighting, the layout, the unhurried tables where you could actually use the products, the staff who were paid to help rather than to close, and the Genius Bar that turned post-purchase support from a phone-tree ordeal into a reason to walk back in. None of that was possible through a reseller, because a reseller optimizes for its own economics, not Apple's brand. Going direct also captured two things Apple had been handing away: the retail margin, and the customer relationship itself - the data, the loyalty, the upgrade path. The experts priced the stores as a cost center and ran the math on rent. Apple was buying control of its own meaning.
The numbers eventually buried the skeptics. By 2017, Apple was generating roughly $5,546 per square foot - the highest of any retailer in the United States, about double its closest competitor, Tiffany & Co.3 The stores that 'wouldn't work' became, by the industry's own core productivity metric, the best-performing retail real estate in the country. But sales per square foot understates the win, because the stores' real output wasn't measured at the register. They were the physical embodiment of the brand, the place where Apple taught the public what 'premium' felt like, and the reason a customer who walked in for a repair walked out having seen the entire ecosystem laid out like a gallery.
| Through resellers (the old way) | Apple's own stores (the rebellion) | |
|---|---|---|
| Who controls the experience | The reseller | Apple |
| How the product is shown | Buried among competitors | Staged to highlight the difference |
| Who earns the retail margin | The reseller | Apple |
| Who owns the customer relationship | The reseller | Apple |
| After-sale support | Generic / outsourced | The Genius Bar, in-store |
The counter-argument the experts got half-right
It's worth granting that the skeptics weren't fools - they were applying a real rule and missing a real exception. Their objection had two solid parts. First, channel conflict: when you open stores that compete with the retailers who carry you, you damage those relationships, and Apple did exactly that, with partners cooling on the brand. Second, the economics: computer retailing ran on thin gross margins, so on paper the stores needed implausible per-location sales to justify expensive mall leases. Both points were correct on their own terms. What they missed is that Apple wasn't a normal computer company selling on thin margins - its products carried premium margins and inspired genuine devotion, which meant the store could be a brand-and-margin engine rather than a break-even necessity. The experts ran the right calculation on the wrong company. The rebellion worked not because the conventional wisdom was stupid, but because Apple was an exception the conventional wisdom didn't know how to price.
Going direct is costly and picks a fight with the partners who carry you - so it's only worth it when the channel actively destroys value you could capture yourself. The test: is your distribution misrepresenting what makes you different, and do you have enough brand strength and margin to stand alone? If your product is a commodity sold on price, stay in the channel. If your product's whole value is an experience the channel flattens - as Apple's was - then the middleman isn't saving you cost, he's stealing your meaning.
The lasting irony is that within a decade, the same retailers and rivals who'd written the obituary were copying the store - the open tables, the help-don't-sell staff, the support counter. Apple's distribution rebellion didn't just succeed; it became the template the whole industry rebelled toward. The headline should have read: sorry, everyone - here's why you'll all be building Apple Stores soon.
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Sources
Where this comes from — the filings, records, and reporting behind it.
- 1BusinessWeek published a commentary headlined 'Sorry, Steve: Here's Why Apple Stores Won't Work' (Cliff Edwards) on May 21, 2001.
- 2Retail consultant David Goldstein, quoted in that same 2001 BusinessWeek piece, predicted Apple would 'turn out the lights' on its stores within about two years - a line famously re-cited in Fortune's 2007 retrospective.
- 3Apple led U.S. retailers in sales per square foot at about $5,546/sq ft in 2017 - roughly twice Tiffany & Co. ($2,951). The company rankings were compiled by eMarketer; CoStar supplied the related industry-average context.
- 4The first Apple Store opened at Tysons Corner, Virginia on May 19, 2001, with a second in Glendale, California the same day; retail was led by Ron Johnson, hired from Target.