Apple is King

As some of you Apple enthusiasts may know, the Apple Watch is coming out in precisely one month. When you head to the Apple store to check out the watch, it could be interesting to also observe the store location and the crowd it draws and their shopping bags. I frequent the Cherry Hill Mall where there is an Apple store. In the article I read, the Apple stores being so popular have the power to “negotiate lower terms for rent [because they] increase overall mall traffic and sales”. People can purchase Apple products online, but who doesn’t love to check out and play with expensive toys first and, of course, chat up the Genius folks.

The downside to this is for smaller retailers who often have to pay higher rent even though they do not benefit from Apple’s traffic. The terms in the lease for stores in malls consists of the size of the space and the expected sales. I learned that big department stores do not pay rent (if they did not already own the space) because they bring in a lot of traffic; they only have to pay a fee to maintain the space. Because Apple stores are able to attract a lot of shoppers, Apple have the “bargaining power to pay no more than 2% of its sales a square foot in rent,” and they do not have to pay extra rent if sales exceed expected sales unlike other small stores.

We can look at this as a network of landlord and tenants, small retailers as a node, landlord as another node, and the Apple store as the most powerful node. As people continue to shop more online, mall owners need stores like Apple to not only draw in customers but give them leverage when negotiating lease terms with other retailers. Likewise, smaller retailers do benefit from Apple stores because they can expect more traffic than if they were to open shop in a mall without an Apple store. Apple is independent; it can basically choose any location and loyal fans will find them.

http://www.wsj.com/articles/apple-gets-sweet-deals-from-mall-operators-1426007804

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2 thoughts on “Apple is King”

  1. This is a great article about connectivity and readability in a real world example. This article also illustrates how powerful nodes can influence a network. The powerful nodes in this example increase traffic and benefit other nodes in the network. This a very interesting article which excellently depicts principle from chapter 13.

  2. The power of the apple store to decide their rent payments is very interesting. They could be seen as a trader of traffic linking buyers to sellers in terms of the number of people they can bring to a mall. They certainly are going to decide almost any terms of rental contract because of the popularity of their products. It would be interesting to compare rent for a lesser tech company in the same mall then we could see the direct results of competition of power in a real world example.

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