My husband loves Apple. In fact, I cannot remember one single trip to Mall of Louisiana (Baton Rouge) that hasn’t included a stop-in at the Apple store. There, he plays with the gadgets -- iPhones, iPads, MacBooks, iMacs, iPods -- and wanders the store, as content to browse the high-tech aisles as I am to shop the designer shoe department at Dillard’s.
And when he points out that I already have more than 50 pairs of designer shoes in my closet, I am quick to remind him that he owns most of Apple’s products as well. That doesn’t make looking any less fun.
Mall owners are rapidly realizing that Apple is pulling in as much traffic, or more, than department store anchors. In fact, a recent article in Wall Street Journal went as far as to say that Apple is “challenging the dominance of department stores,” expanding its presence in malls around the country and, say some, likely to start asking landlords to strike the kinds of rent deals currently reserved for anchor status.
When you look at per-sq.-ft. sales, Apple is indeed challenging the department store anchors. Apple generated $34.1 million in sales per retail store in its most recent annual reportings. By comparison, Macy’s per-store average was $29 million last year and J.C. Penney’s was $16.1 million. Think of the size difference between Apple and these two anchor giants!
But, while Macy’s and Penney, along with their department store peers, pay peanuts per sq. ft. as part of an accepted, and expected, landlord practice of securing that all-important mall anchor tenant, Apple -- according to ISI Group estimates -- pays $50 to $80 a sq. ft. in annual retail rent.
But, counter other experts, the tech retailer is making more real estate inroads than many might think.
“From day one, Apple has been incredibly savvy with their lease terms,” Mitchel S. Friedman, senior VP of NYC-based RCS Real Estate Advisors, told me. “They’re actually getting a better deal than the department stores in some cases. With most leases, the retailer pays a base rent plus a percentage of sales above an agreed-upon amount. Apple doesn’t give landlords a percentage of their sales. For example, if Apple is paying $100 per square foot for a 5,000-sq.-ft. store, their rent is $500,000. If their average sales are $34 million per store, that $500,000 is only 1.5% of their sales. Most department stores are paying, on average, 3%-4% of their sales.
“I heard that Apple is actually looking to increase their store size and if that happens, they will continue to get good deals because landlords will likely be willing to negotiate below market rents for the traffic Apple can bring in,” said Friedman.
In other words, the phenomenon that is Apple still has more fruits to enjoy ahead.