In 2022, most of Apple’s sales (62%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by many people). In comparison, the direct channel represented 38% of the total revenues. Stores are critical for customer experience, enabling the service business and branding at scale.
Breaking down Apple’s distribution strategy
When you walk through the urban streets of cities around the world in crowded and selected locations, you’ll find an Apple Store.
From Piazza Liberty in Milan, Cotai Central in Macau, and Grand Central Terminal in New York, the Apple brand leaves a strong impression in the mind of its consumers.
Those impressions might also create a cognitive gap. In short, people might assume that those Apple Stores are also the primary driver of Apple’s revenues.
While Apple Stores are a crucial driver of its revenues, they are not a primary driver. Yet, why, then the company keeps such expensive stores? And what’s their primary function?
Apple’s distribution strategy in a nutshell
When it comes to distribution channels, companies usually use a direct or indirect approach.
A mixture of direct and indirect channels makes more sense in many cases.
For instance, the Apple business model leverages both direct and indirect channels. Apple sells its products directly via its Apple Stores.
Now, when you look at Apple’s business model, its main product is still the iPhone.
This means that when Apple makes a judgment call for its business strategy, it does that through the lenses of its iPhone sales.
And there is no better place to showcase Apple’s technology than its owned stores.
Apple’s direct distribution strategy explained
Those are critical to Apple’s success as they enable Apple to deliver a high-quality buying experience for its products in which service and education are emphasized.
With this approach, Apple can employ experienced and knowledgeable personnel to offer a wide selection of third-party hardware, software, and other accessories that complement Apple’s products.
Thus, Apple’s store and direct channel play a key role for the following reasons:
- Brand exposure at scale, as the owned Apple stores are placed in the most iconic locations across the world and often showcasing also incredible architecture, in line with the fact that Apple considers itself a design/UX company.
- Development of the service business. As consumers can be educated in the stores, pre and post-sales support can be provided.
- Ability to sell on a B2B basis (business and enterprise customers might want
Indeed, you can see how a good chunk of Apple’s revenues also comprise services and other products.
This means that Apple stores are an essential driver of sales.
And it makes sense, given how much the company spends on running them.
In context, in the next ten years, Apple will spend over ten billion dollars in operating leases, as reported on its financial statements.
Yet if Apple were relying solely on its retail operations, this would be too risky.
Indeed, those retail stores are subject to financial risks, and if sales were to rely exclusively on them when slowing down, it would easily create trouble for Apple’s long-term business success.
Apple’s indirect distribution strategy explained
At the same time, Apple Stores have a high impact on the company’s brand.
Indeed they create visibility for the brand and the company’s products. How? Let’s do this simple exercise.
if I were to ask you, “where do you think Apple sells most of its products?” I’d bet you would probably answer via its Apple Stores.
However, if I were to ask you, “where did you buy your iPhone?” (which is the primary driver of Apple sales), chances are you’ll answer, “not at the Apple Store!”
Not by chance, Apple’s retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts. The aim is to create as much visibility independently from sales.
I’m not saying sales are not significant. The main point is that Apple can leverage its stores to have control of its branding strategy. Thus, the way consumers perceive the overall company.
Yet that is not where most of the sales happen! In short, the Apple Store isn’t just a retail store. As highlighted, an Apple Store is a branding and marketing effort to create a controlled experience and imagination in the mind of its consumers.
If it is easy to assume that most of Apple’s revenues are coming from its direct channels, Apple employs a variety of indirect distribution channels that comprise:
- Third-party cellular network carriers.
- wholesalers, retailers.
- and resellers.
Besides the Apple Store, you will find Apple products also at Best Buy, Walmart, Target, Radio Shack, and Sam’s. And chances are you bought an Apple product there.
In 2022, Apple’s net sales through its direct channels accounted for 38% of its revenues. Compared to 62% of net sales coming from its indirect distribution channels.
Over time, as Apple tests new products, we might see increased sales from direct channels. Yet, at this stage, indirect channels have helped Apple scale.
Stores as Marketing and cognitive gaps
The main takeaway is that companies often engage in direct distribution strategies, which are quite expensive and not necessarily tied to just revenue generation.
A store where Apple can sell its products directly to consumers has a massive branding advantage.
Apple can open up those stores in high-traffic locations in urban areas.
Those stores often are architectural masterpieces that want to capture the collective imagination of people worldwide, even though most of its sales happen via indirect distribution channels.
What’s next? Apple’s push toward direct distribution!
Indeed, whereas in 2018, indirect distribution contributed to 71% of the sales, by 2022, that number decreased to 62%.
And on the other hand, Apple’s direct distribution sales contribution moved from 29% in 2018 to 38% in 2022!
- Apple’s Distribution Channels:
- Apple’s Direct Distribution Strategy:
- Importance of Apple Stores:
- Branding and Marketing Impact:
- Apple Stores create a strong brand presence and visibility in high-traffic areas.
- They contribute to consumers’ perception of the company and its products.
- Indirect Distribution Channels:
- Indirect channels include third-party cellular networks, wholesalers, retailers, and resellers.
- These channels have played a significant role in Apple’s scaling process.
- Shift Toward Direct Distribution:
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