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The “Apple Store Index” says it’s not yet time to reopen the economy

You’ve probably heard of the Waffle House Index — an informal FEMA method for telling how bad a disaster is (“If you get there and the Waffle House is closed? That’s really bad.”) Well, with states like Georgia and Tennessee are getting ready to reopen for business, we’re looking at an alternate informal index from one of world’s biggest companies, Apple, and it’s still flashing red.

The company made the decision on March 13, 2020 to close all of its stores outside of China, due to the threat of the coronavirus. There was no known governmental pressure or regulation that made Apple do that. It was purely Apple’s decision, as CEO Tim Cook explained:

One of those lessons is that the most effective way to minimize risk of the virus’s transmission is to reduce density and maximize social distance. As rates of new infections continue to grow in other places, we’re taking additional steps to protect our team members and customers.

Apple had originally planned to keep stores closed until March 27, 2020 but they have since been closed indefinitely. An internal memo mentioned an early May re-opening, but that’s far from official.

It’s hard to overemphasize what a drastic action this was by Apple to protect employees and customers. The Apple Store is king of the much-coveted revenue per square foot metric, bringing in about $5,500 of revenue per square foot per year. That’s more than Murphy USA, which brings in about $3,700 per square foot, and Tiffany & Co., which brings in about $2,900 per square foot. Apple’s 2019 10-K filing stated that the Apple Store brought in about 31% of Apple’s revenue in 2019, however that metric also included Apple’s online store.

How much do all the physical Apple Stores haul in every year? Let’s do some ballpark math:

510 stores X 8400 square feet makes for 4,284,000 square feet of Apple Store in the world. Using the $3,700 per square foot rule, that means physical Apple Stores outside of China bring in $15,850,800,000 per year. Divide by 12 and you get 1,320,900,000, or in a more human-readable figure: $1.3 billion.

So it’s reasonable to assume that Apple has lost over a billion dollars in revenue in its already month-long Apple Store shutdown. Not to mention all the money that goes into rent, insurance, and other expenses that’s basically vanishing into thin air at the moment.

Granted, much of Apple Store sales likely come between September and December, when new iPhones are launched and people are shopping for the holidays, so splitting by 12 isn’t entirely accurate, but given that Apple doesn’t split out physical store revenue in its quarterly financial statements, it’s a best guess. Needless to say: Apple is throwing a lot of money away for the greater good.

One objection to this line of reasoning is that customers can simply buy items from Apple’s online store. That’s true, and I’ll bet there has been an uptick in orders to offset some of the losses, but Apple doesn’t keep physical retail stores around as a hobby. It’s a business that entails serious risks. As Apple’s 2019 10-K form states:

The Company’s retail stores have required substantial investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has entered into substantial lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high cost structure associated with the Company’s retail stores, a decline in sales or the closure or poor performance of an individual store or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and severance costs.

The Company’s retail operations are subject to many factors that pose risks and uncertainties and could adversely impact the Company’s financial condition and operating results, including macro-economic factors that could have an adverse effect on general retail activity. Other factors include, but are not limited to, the Company’s ability to: manage costs associated with retail store construction and operation; manage relationships with existing retail partners; manage costs associated with fluctuations in the value of retail inventory; and obtain and renew leases in quality retail locations at a reasonable cost.

In plain English: physical Apple Stores are an expensive pain in the neck, and potentially a huge liability to the company. Apple keeps them around because they make money and represent the brand in a way that a webpage can’t.

You might think Apple doesn’t care about money. This is the company that just released a $300 iPad keyboard, a $1000 monitor stand for a $5000 monitor, and $700 wheels for a $6000 computer. They clearly like money in Cupertino.

Of course, Apple isn’t the only company in the world that’s hurt its bottom line in an effort to stem the tide of COVID-19, but what makes Apple particularly interesting is its enormous cash stockpile: $207.6 billion as of Q1 2020.

What that pile of cash means is that Apple isn’t desperate. Unlike say, a restaurant with deep debt and thin margins, or a hair salon with the rent coming due and no income, Apple isn’t forced to risk spreading a plague to keep the doors open. It has the enviable position to hold off until it’s safe for both its employees and customers.

And Apple is choosing to burn millions, possibly billions of dollars in cash to keep people safe. Because as much as closing its stores is costing the company, a pile of dead employees and customers will cost even more. And Apple, being a wildly successful business even in the worst economic conditions, can withstand a lot more pressure to re-open than any politician. While many governors are having their arms figuratively twisted by President Trump and angry protestors, no one will be calling for Tim Cook’s head until at least Apple’s Q2 earnings report, due on April 30, 2020. Even then, years of strong performance under Cook and his prior experience in dealing with shareholder uprisings will insulate him for a long time.

So for that reason, no matter what my governor says, I won’t consider stepping into a crowd until Apple gives the all-clear.


  • 2 Comments

    • HunterGreen

      Well-researched article, and a great case that — at least according to one company’s directors — the global economy isn’t ready to reopen.

      PS: I thought I’d point out that you used the Murphy USA square footage revenue in your calculation, instead of the Apple Store revenue, so the actual numbers of their losses are nearly twice as high as what you calculated.

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    • Walter Rawdanik

      A pile of dead employees or customers… that statement sounds pretty ridiculous a month later given what we know now who is likely to end up being a victim of this virus – the only way Apple was going to see a pile of dead customers/employees would be if some sick idiot with a gun decided to make one of Apple stores into his final stop on his quest to fame.

      Apple and many others were closing their stores due mostly to legal liability reasons – for every person dead or hospitalized , we are going to see hundreds and thousands of baseless lawsuits – a legal orgy that will last for years …

      Apple will hurt and hurt badly but not because of closing of their stores … but let you figure that one out on your own  ( it has to do with +-40 million people being unemployed and having hard time paying their rent let alone purchasing $300 keyboards )

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