In its annual report filed with the Securities and Exchange Commission (SEC), Apple revealed that it now expects its new retail stores to suffer a small loss for the first quarter of 2002 and for all of fiscal 2002 – due to the “continued deterioration of the US economy and the after effects of the events of September 11, 2001”.
Since May of 2001, Apple opened 27 retail stores in the US. The company revealed that it anticipates opening additional stores in 2002.
Apple originally expected the retail segment to break-even in the first quarter of 2002, and generate a slight profit for all of 2002. However, given the “continued deterioration of the US economy and the after effects of the events of September 11, 2001”, Apple now expects its retail segment to suffer a small loss for the first quarter of 2002 and for all of fiscal 2002.
Long-lease risks According to Apple, its retail initiative has required “substantial investment in equipment and leasehold improvements, information systems, inventory, and personnel”. The company has also entered into substantial operating leases commitments for retail space with lease terms ranging from 5 to 12 years. Apple would incur substantial costs should it choose to terminate this initiative or close individual stores.
In its yearly financial report Apple admitted that “potential risks and uncertainties unique to retail operations” that could have an adverse impact on the retail segment include: macro-economic factors that have a negative impact on general retail activity; inability to manage costs associated with store construction and operation; lack of consumer acceptance of the company's retail approach; failure to attract new users to the Macintosh platform; inability to sell third-party hardware and software products at adequate margins; failure to manage relationships with existing retail channel partners; lack of experience in managing retail operations; costs associated with unanticipated fluctuations in the value of Apple-branded and third-party retail inventory; and inability to obtain quality retail locations at reasonable cost.