Apple increasingly resembling the corporate giants it once defined itself against

4 December 2000

Published in Macworld

Apple was once high on a very short list of multinational corporations which evoked feelings of genuine warmth - to say nothing of ferocious loyalty - from millions of Western consumers.

Part of the mystique was the product: the originality of its architecture, the power of its processing, and even the humour with which it was marketed.

The other part was the quality of its customer care: Apple users were more of a community than a “client base”.

But that famous customer loyalty is in danger of turning to cynicism, some think, as Apple increasingly resembles the corporate giants it once defined itself against.

At ground zero are the Apple resellers. Apple has cut their margins so far that the smaller, independent retailers - the lifeblood of the industry in some rural and coastal areas - are hurting badly.

In some cases, profits are down to near-zero, stress levels are high, and customers who turn up wanting 1980s-style Apple service can find themselves on the receiving end of a tantrum.

“Margins are tight,” says one small reseller, who frankly explains to his customers that the “high service” days are long-gone.

Another reseller, Lightforce Computers at Byron Bay says that after a distributor has taken two to five percent, their margins are down to four to twelve percent. (And usually closer to four than twelve.)

Sagaro (he’s only got one name), owner of Lightforce, says, “The customer naturally expects service with their purchase. Back in the 1980s and early 1990s, when the mark-ups were thirty-six percent, you got free support, free lessons - it was all there. Then, by about 1994 or 1995, computer margins started to shrink. So that support became less and less.

“Now, you might make $80 out of a sale. That’s meant to cover your conversations with the client, ordering, outlaying the money, and big shipping fees.”

Sagaro says that Apple’s margin-cuts are usually accompanied by measures which supposedly “compensate” - such as a website through which resellers can track stock and parts. However nothing, in the end, can compensate for making very little money.

Apple Australia’s Channel Manager, Kevin McElduff, believes that Apple’s margins are “competitive with what’s around. If you include our rebates, it’s not four percent. And at the top end it’s well above twelve,” he says. “We’ve had a fantastic year at Apple. And channel partners have given us that growth.”

But “channel partners” deal direct with Apple. McElduff acknowledges that “margins via a distributor are smaller than those obtainable by channel partners”.

Keith Rice of KH Distribution in Brisbane believes that margins are also being reduced by better educated and therefore more demanding consumers, who bring about stiffer competition: “Then survival as a computer reseller comes down to  maintaining volumes and value adding. The former can be more difficult for a regional reseller than a big city reseller.

“Apple Computer...have done a magnificent job of driving technology through innovative products that cause the entire industry to sit up and take notice. But this very leadership is what leaves them open to  criticism.

“Apple Australia spends millions of dollars on marketing activities to help drive customers to Apple reseller stores, and the reality is that this money must come from somewhere.”

But this doesn’t help the independents out of the increasingly tight corners which Apple’s amazing shrinking margins are putting them in.

Last year a Queensland ad agency purchased $25,000 in Apple equipment and peripherals from their local independent reseller. “When there were a few glitches in the first week,” says an agency artist, “we were told by our retailer that he’d happily come and look at them at $80 an hour.”

Sagaro from Lightforce was told at an August conference by Apple Australia’s CEO Di Ryall that regional resellers would get more support. Since then, no Apple representative has showed up in his shop. Letters and phone calls drew similar promises - but no action.

“That surprises me,” says Apple’s McElduff. But he points out that it’s the distributors’ role to visit their retail clients. “We don’t visit them direct: that’s just the way the Apple industry is set up.”

Sagaro acknowledges that his distributor does visit - but believes that many of the answers still lie with Apple. His company and one other cover an area which has the highest density of Apple computers in Australia. “I have the biggest turnover of any regional reseller in NSW - for two years now. And I still can’t make any money out of it.”

The GST and recent petrol price rises (leading to increased transport fees) have compounded an already difficult situation. Recently Sagaro put off one employee and halved the hours of another.

McElduff says that the past year has seen considerable growth in the number of city-based Apple resellers.

But things are different in the regions. Tired of piling up debt, and of working long hours to take home an unreliable $250 per week - Sagaro is quietly putting the word around that he’s getting out of the Apple industry.