Earlier this month, Apple opened its 507th retail store in the old Carnegie Library in Washington, D.C. Restoring the site cost over $30 million dollars, Apple’s most extensive retail renovation to date. Looking at the last 18 years, Apple’s retail footprint has come a long way. But today, Apple Stores and Apple’s business more broadly are facing their biggest test for relevance. To understand why, it’s important to go back to the beginning.

Going direct-to-consumer

At the end of the 20th century, Apple’s third-party-only retail strategy was faltering; Circuit City, Office Max, and Sears, which sold its products, treated them like any other item on the shelf. Steve Jobs believed he needed a direct relationship with his customer to control the presentation and education of his products (sound familiar?). Mickey Drexler joined Apple’s board in the late 1990s and the company started focusing on shop-in-shop concepts, pulling back its distribution from other third-party retailers in 1997 to focus on CompUSA for the next three years.

But that wasn’t enough for what Jobs was after. In 2001, he hired Ron Johnson to lead Apple’s push into owned retail, along with a team from The Walt Disney Company, building prototypes in a secret warehouse near Apple HQ. In the spring of 2001, store number one opened at Tysons Corner in Virginia and store number two opened at the Glendale Galleria in California on the same day. More than 7,000 people showed up to these first stores, which sold almost $600,000 in product. In fact, 500 people lined up at the Tysons store waiting to get in before opening—a scene that would become a familiar mark of Apple’s retail footprint in the years to come.

Apple Stores didn’t take off right away since Apple didn’t have a killer product yet, but the foundation was there for when it did. The same year Apple launched owned retail, it introduced the iPod, followed by the iPod Shuffle in 2003, which led to Apple’s first breakout device category. In turn, Apple Stores came into their own, providing a luxurious gateway—an invitation—for people to touch and feel Apple’s products. As a product-driven company, Apple had a good sense that if shoppers could just try its products out, they would convert into customers—and they did.

Problem-solving

What made Apple Stores successful? Most importantly, they solved a problem: Apple’s competition and previous retail strategy left an immense amount to be desired for the in-person buying experience, given the sleepiness of selling computers and electronics at big-box stores (most competitors had their products locked in glass cases). Apple elevated the operation and made it elegant—a far superior experience that allowed customers to feel a product before purchasing, while also improving the purchase, education and repair process (Genius Bars were actually for education and geeking out early on, not repairs). It also spent an immense amount of money designing the stores and selecting prominent real estate—additional moves that set it apart from competitors and enabled millions of shoppers to either stumble upon or seek out the stores. This turned them into a destination, making Apple products even more accessible while simultaneously giving the company the feel of a luxury brand. In 2007, Jobs said, “People haven’t been willing to invest this much time and money or engineering in a store before… It’s not important if the customer knows that. They just feel it. They feel something’s a little different.” Apple Stores were sales machines first, marketing vehicles second, repair centers third, and education venues fourth—all bundled into one.

Apple retail soon took off, hitting $1 billion in sales after just three years—the fastest retailer to hit the milestone. In turn, Apple also assumed the position of anchor tenant in many of the malls and shopping districts where it opened stores. It consistently outperformed competitors across industries, especially on a sales-per-square-foot basis. The release of the iPhone in 2007 further propelled its entire business, and of course its retail stores; product launch day lines continued to swell and the company opened hundreds more stores and hired tens of thousands of employees to support the traffic. In the years that passed, the company continued investing in more locations, better design and better in-store experiences to optimize its retail fleet while still working to imbue local flavor into many locations.

In 2011, however, Ron Johnson left Apple for a soon-to-be failed run as the CEO of JCPenney, leaving Apple retail effectively leaderless until the end of 2013. Right around this time, Apple’s quarterly growth began to slow as it started saturating its audience in the Western world with the existing product lineup. By 2015, the size of the launch day lines were decreasing; part of this was because Apple’s systems improved, but this decreased the hype around each launch with the absence of worldwide lines. The company’s growth rate has never returned to the days of peak iPhone sales.

While there were surely plenty of small- and medium-sized optimizations, Apple’s retail experience at this time remained unchanged at the high level. The company probably didn’t feel the need to alter the strategy since sales had previously been growing rapidly and Apple had successfully changed customer expectations for retail in the same vein that Amazon has conditioned shoppers to expect two-day—and soon one-day—delivery. Defining the next wave once is hard enough, but doing it twice is even harder. Can Apple revolutionize retail again?

Phase II

At the end of 2013, Apple hired Angela Ahrendts away from Burberry to run both the online and offline retail business. After three years of planning, she unveiled the “town square” concept, which prioritizes programming and other services over selling devices. The hope was that this strategy would support the creative community and ideally sell Apple products along the way. Apple planned to roll out the concept across the entire fleet.

But in February 2019, Apple announced that Ahrendts was leaving the company, effective in April. Her exit drew attention to the lack of evolution in Apple’s retail strategy despite its grand visions. It is now clear that under Ahrendts’ guidance, Apple ended up spending more money while only incrementally impacting the experience, compared to spending less and doing more back when it unveiled its initial retail concept in 2001. With the opening of the Carnegie Library store, Apple also said that its newest location will be one of only 13 stores using the “town square” concept—a drastic reduction from the full rollout planned only three years earlier.

What went wrong? In the overall state of Apple’s business, there is absolutely a correlation between the effectiveness and usefulness of Apple’s retail. As a product-driven company, Apple’s products were the main reason people flocked to the stores in the first place. The locations and beautiful design made the trip easier to justify and more enjoyable, but consumers were still there for the products. But this also means that Apple’s product lineup needs to be constantly evolving and growing stronger. Apple Retail 1.0 elevated the company’s retail experience to match the quality of its products. But as Apple searches for its next iPhone-like product—if such a thing exists—it lacks both a reason and a direction to continue pushing the Apple Stores beyond their current state.

Today, there is less of a reason to visit an Apple Store today, especially to buy new products. The Genius Bar remains a reason to visit, but that’s only when something goes wrong—and neither consumers nor Apple wants that to be a frequent occurrence. Even education—one of the tentpoles of Ahrendts’ concept—sounds good in theory, but with Google and YouTube at one’s fingertips, there are few reasons to go into a store given the wealth of educational materials available online.

Where to now?

All told, Apple Stores today don’t—and don’t really need to—solve a problem on the scale that they did back in 2001. Apple should definitely operate stores as they are instrumental to its strategy, especially in new markets. But in existing and saturated ones, Apple either needs to stop investing in multi-million dollar overhauls and improve incrementally, or truly overhaul everything it does—which will likely require a new flagship product. More than ten years ago, Steve Jobs said that Apple customers could “feel” the stores were special, and Apple’s special products were a big part of this. Looking into the next ten years, Apple needs to give customers something new to “feel” again.