Fifth Avenue: Huge Investment

May 23, 2006

The big grand opening party is over for the Fifth Avenue (NYC) Apple store, but it’s clear that the company’s financial and administrative commitment to the store has been huge, and will continue to be so. Almost every aspect of the store is off the charts, both architecturally and financially, and it provides a hint of how far Apple is willing to take its five year-old retail initiative.

Based on construction photos taken by the GM Building owners, construction of the Apple store was expensive. Like some other high-profile stores, Apple’s approach was to demolish the existing structure and build anew. Workers tore out the existing plaza that covered retail space, and then removed the existing steel structure. Entirely new steel was then erected within the two-story space to create a tall retail floor and a shorter mechanical and storage floor. The plaza was then completely replaced, the front sidewalk re-done, and the glass cube erected over a spiral glass staircase and cylindrical glass elevator. The cube reportedly cost $9 million to design and build, which could put the price tag for building the store at nearly $20 million.

But even then, Apple will continue to pay over the years, both for the real estate and operation of the store. First, this area of Fifth Avenue is some of the priciest in the city. Nearby tenants are top-end retailers and include Bergdorf Goodman, DeBeers, Cartier and Trump Tower. Although building owner Harry Macklowe himself reportedly solicited Steve Jobs to locate a store there, and gave him a good price on a lease, on a per-square-foot basis Apple is still no doubt paying a high price for the location.

Operation of the store will also be expensive, since its 24-hour operation puts a strain on staffing, maintenance and even utilities. V-P Retail Ron Johnson has noted that SoHo is already open from 6 a.m. to midnight, and that the extra six hours was not much of an extension. But hiring, retaining and scheduling any 24-hour operation is always a challenge. There is probably an assistant manager who deals with nothing but staffing assignments and issues at the store.

Beyond the store’s sales staff, Apple is providing a support team of security personnel, especially for the overnight hours, and cleaning and maintenance personnel, who will have to work around customers who find themselves in the store at 3 a.m. There might even be a special cleaning team for the cube, to clean up the nose-prints that are bound to form on the sides as people gawk inside the store, and to keep the leaves picked out of the two plaza fountains,. The future expenses might also extend to damage suffered by the cube in the normal course of its exposure to Mother Nature.

With these costs all tallied, the extra cost of lighting the store 24-hours a day and the cube at night might seem trivial, but it’s still an added expense.

It all adds up to a significant investment in time and money, all weighed against the exposure the Apple brand is receiving, and the huge number of buying visitors who will come through the store. Regent Street (London) became the largest revenue store within 30 days of its opening. The new Fifth Avenue store should break that record easily.

[photo by Richard Aguilar]

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