Exploring Apple’s Retail Strategy That Fueled Its $3 Trillion Valuation

  • Apple’s strategy is to use D2C retail operations to drive customers into its walled-garden ecosystem.

  • Apple’s negative cash conversion cycle is one of Tim Cook’s greatest achievements—making it one of the rare companies that requires zero capital to grow.

  • Angela Ahrendts led the successful turnaround of Apple’s retail operations while new initiatives by Deirdre O’Brien are expected to drive future growth.

  • A pioneer in omnichannel commerce, Apple intends to invest more into D2C retail operations to seamlessly integrate Apple’s sales channels.

This article is part of Commerce 4.0, a series about the next frontier of e-commerce along with the strategies and tactics used by iconic brands to transform how we discover, select, and purchase products.

When it comes to global leaders in retail operations, no conversation is complete without talking about what is arguably the most profitable and most valuable business this world has ever seen: Apple Inc.

With over two billion iPhones sold and over 1.8 billion devices in active use overall, Apple has become the driving force in the highly-competitive tech hardware industry. Today, its product lineup includes the Mac line of personal computers based on its macOS operating system, the iPad line of multipurpose tablets based on its iPadOS operating system, and a range of wearables, home products, and accessories including AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other accessories.

But as dominant and ubiquitous as its hardware is, Apple’s rapidly growing service offerings are no slouch either. These include advertising services, cloud services (iCloud), digital content (App Store), subscriptions (Apple Arcade, Apple Music, Apple TV+, Apple News+, Apple Fitness+), and payment services (Apple Card, Apple Pay).

Combined together, these products and services have propelled the company’s financial performance to new heights. Sales of Apple hardware surged to a record $297.4 billion in 2021, which made up over 81% of the company’s total revenue of $365.8 billion. Apple services generated record sales of $68.4 billion in 2021, up 27% and 47% from 2020 and 2019, respectively. The company also made $94.7 billion in net income, far surpassing the record $57.4 billion generated the year before.

The company’s unrivaled financial performance has pushed its valuation higher. In 2018, the Cupertino-based tech giant became the first publicly traded U.S. company to be valued at over $1 trillion. Two years later, it became the first company valued at over $2 trillion. And in January 2022, it set another record by reaching a scorching valuation of over $3 trillion.


Although the markets have since experienced a correction, the rise of its stock price has been nothing short of spectacular. Yet it may not be surprising when you consider the company’s mastery of supply chain management and its direct-to-consumer (D2C) retail operations.

In this Commerce 4.0 profile, we’ll explore Apple’s retail growth strategy and how it ties in with the company’s master plan. We’ll also explore the tactics Apple implemented to drive growth through D2C initiatives and to get its hardware products into the hands of billions of customers around the globe.

Apple’s Retail Growth Strategy

To gain an understanding of Apple’s retail strategy, it first helps to understand the company’s overarching plan.

In the highly competitive world of tech, there are many companies that sell hardware, software, and services like Apple. Among these are Google, Samsung, Microsoft, Amazon, Sony, and Huawei. However, no company on earth has been able to master the tech ecosystem quite like Apple has. The relationships between each of its products and how they fit together into a cohesive user experience is what separates it from the rest of its competition.

The Apple ecosystem

In typical Apple fashion, Apple’s products and software only work best when paired with Apple’s services. In order to unlock all of the “wonder and magic” of the company’s carefully constructed ecosystem, users are required to purchase the full lineup of devices the company produces.

But for every device that Apple sells, this also creates a steady and growing stream of recurring e-commerce revenue through the purchase of apps, the use of payment services, and the purchase of subscription services like iCloud, Apple Music, Apple TV+, and more.

apple-retail-strategy-quarterly-revenue[Source and p.21]

The result is Apple’s notorious walled garden that has become one of the company’s strongest economic moats. Even though competitors arguably produce better products (like the Samsung Galaxy or Google Pixel) and offer better services (like Spotify or Dropbox), the perceived switching costs are so high that users remain locked into the Apple brand and find it increasingly difficult to escape. As the lifetime value of each customer goes up, Apple’s business grows.

Therefore, the company’s not-so-secret master plan is to get people into its ecosystem—preferably customers that are willing to shell out thousands for premium phones, tablets, computers, watches, or other products, and be willing to pay for additional services on an ongoing basis.

As such, every other competitor is vying for these same customers. But that’s where Apple’s retail division comes in.

Apple’s D2C retail strategy

Although Apple’s fast-growing retail operations are one of the brightest spots within the company today, this wasn’t the case just a few years ago. The incredible story of Apple’s retail journey is full of ups and downs, but it finally took a turn for the better once someone outside of tech—a career fashion executive by the name of Angela Ahrendts—was hired to lead the turnaround.

But before we take a deep dive into all the moves Apple made to save its retail operations, it first helps to gain an understanding about its overall D2C retail strategy.

Apple’s customers include consumers, small- and mid-sized businesses, and also customers in the education, enterprise, and government markets. To sell its products to these users, the company uses:

  1. Indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers, and resellers.
  2. Direct-to-consumer sales through company-owned retail stores, online stores, and through its direct sales force.

However, although prices remain consistent across all distribution channels, the buying experience varies depending on where the customer purchases an Apple product. For example, walking into a retailer like Walmart or Costco to purchase an iPhone is very different from walking into an Apple store. Similarly, the experience of purchasing an iPad on Best Buy’s website is very different from buying an iPad from Apple.com.

It really all boils down to controlling the buyer’s journey from end-to-end. Although growing its D2C business may cannibalize some of its indirect sales, the reason Apple customers have been so fiercely loyal and committed to the brand is because Apple is known for delivering exceptional user experiences. This naturally extends to its online and retail stores.

When you visit Apple’s e-commerce website, it is undeniably “Apple”. Modern, simple, and sleek designs, rich merchandising, micro animations, and high-quality images create an elevated UX which is consistent across the entire brand.

Meanwhile, Apple’s physical retail strategy encourages customers to wander its airy stores to touch and feel its devices while learning about all the things they can do. Apple stores are often praised for their gorgeous architecture, sleek interiors, and highly customer-centric, efficient, and intuitive store experiences, which both mirror and enrich Apple’s brand promise to its customers.

Every part of the buyer’s journey is by design. By using retail operations to convey all of the benefits of using Apple’s products and services, the company develops stronger relationships with its customers than they do through indirect sales. In turn, this feeds more engaged users into its powerful ecosystem where they tend to remain locked in for a very long time.

Apple’s Retail Growth Tactics

To execute on its strategy of using retail operations to drive customers into its ecosystem, Apple invests heavily throughout its entire operation. Some of the notable growth tactics employed by the company in the past include:

  • Optimizing the supply chain
  • Hiring new leadership
  • Embracing omnichannel commerce

Below, we will explore each of these tactics to see how they contributed to the company’s growth over time.

Tactic #1: Optimizing the supply chain

Apple’s CEO Tim Cook is a supply chain management savant. Thanks to his previous experience of managing supply chains for IBM, Intelligent Electronics, and Compaq, Apple was able to achieve a negative cash conversion cycle for 23 years in a row, which helped to propel the company’s growth to dizzying heights.

From the time he joined the company in 1998, Cook set out to eliminate Apple’s inefficient manufacturing operations, which were expensive to run and a liability on the balance sheet. He closed factories and warehouses around the world and established relationships with contract manufacturers instead.

This allowed him to implement just-in-time (JIT) manufacturing, a practice that reduces flow times within a production system by matching raw orders from suppliers directly with production schedules. JIT essentially puts the right number of parts in the right plant at the right time with nothing left to spare. If done properly, it can reduce the total amount of inventory held by a business and optimize the retail model.

The negative cash conversion cycle

Using JIT, Cook drastically reduced the amount of time it took to sell its inventory from months to just days. He also reduced the time to receive payments from customers and increased the time to pay its suppliers, eventually creating what’s known in accounting as a negative cash conversion cycle (CCC).

The CCC is a metric that tracks the number of days it takes to convert inventory into cash. In the rare instance that a CCC turns negative, it means that the business sells its inventory and collects payment faster than it takes to pay its suppliers/bills.

The beauty of a negative CCC is that suppliers end up financing a company’s operations. In other words, the business requires zero capital to grow, which is practically unheard of for a company of Apple’s size.

Very few businesses achieve a negative CCC because supply chain management is notoriously difficult to master. This is the world of manufacturing, procurement, and logistics in which cash is king and any slight miscalculations can lead to insufficient inventory to meet demand or excess inventory that can’t be sold. Both of these scenarios can be detrimental for a business.

It’s also why dropshipping and third party marketplaces are gaining so much traction with retailers. Beyond increasing assortment and reducing inventory risk, businesses that employ direct ship-to-customer fulfillment models can achieve a negative CCC by collecting payment before paying suppliers, all without ever handling any inventory

Below is a comparison of cash conversion cycles for various U.S.-based companies. A retail behemoth like Nike has capital tied up in its inventory of shoes and takes an average of a hundred days to convert that inventory to cash. Apple takes an average of negative 53 days to generate cash and therefore has zero capital tied up in inventory:


The dangers of spoiled milk

For a company like Apple that needs to stay nimble in order to release multiple product refreshes each year, excess inventory can be a death knell. Cook once famously said that inventory was “fundamentally evil” because the value of technology hardware depreciates by 1-2% each week. Therefore, businesses should treat inventory like it has an expiry date, similar to the way milk spoils when it sits for too long:

“You kind of want to manage inventory like you’re in the dairy business. If it gets past its freshness date, you have a problem.”

But thanks to Cook’s operational expertise, Apple managed to build a powerful ecosystem where it exerts control over nearly every piece of the supply chain. In fact, Apple began leading Gartner’s Supply Chain Top 25 list in 2008, was inducted into the Masters category in 2015, and has remained firmly entrenched as a global leader in supply chain management ever since.

More importantly, without the need for capital to fund its global operations, Apple generates enormous amounts of excess cash. This has been used to fund hundreds of billions in share repurchases and hundreds of billions in capital expenditures to grow business operations. One area where Apple has invested heavily is in expanding its retail operations.

Tactic #2: Hiring new leadership to shake up retail

Today, Apple’s retail operations are firing on all cylinders. With one of the world’s biggest online stores and 516 brick-and-mortar retail stores across 25 countries, the company’s D2C retail operations have never been stronger and are playing an increasingly vital role in the company’s overall growth.

But while it may be difficult to see now, there was a time not long ago when Apple’s retail operations were in crisis mode.

The problems began when Ron Johnson, the mastermind credited for pioneering Apple’s successful retail store strategy, left the company in 2011. However, his replacement was fired 10 months into the job and Apple’s retail division was left leaderless for two years.

During this time, store traffic slowed, employee morale plummeted, customers complaints increased, and the retail division’s slice of Apple’s overall revenue declined. Between 2013 to 2016, the percentage of Apple’s overall revenue through direct distribution (which includes its website, physical stores, and direct sales force) declined from 30% to a low of just 25%.

Something had to be done. But Tim Cook surprised a lot of people when he turned to a career fashion executive to lead the retail division’s turnaround.

Cross-functional leadership to rescue Apple Retail

Angela Ahrendts served as Apple’s head of online retail and physical stores from 2014 to 2019. She previously made her mark as the CEO of fashion brand Burberry, where she led the British clothing company through a complete digital transformation that turned it into a technologically savvy international powerhouse.

At Apple, Ahrendts was responsible for strategy, real estate and development, and the operations of Apple’s physical stores, its online store, and contact centers. During her time, she integrated Apple’s physical and digital retail businesses, oversaw a massive Apple.com website redesign, led a plan to completely redesign the company’s retail stores into “town squares”, and introduced “Today at Apple” in-store courses.

But while some critics still question the legacy she left behind, the results can speak for themselves. As mentioned, Apple’s strategy is to feed more users into its ecosystem and Ahrendts’ massive overhaul of the company’s retail operations did exactly that.

Apple discloses the percentage of sales going through its direct distribution, which includes its website, retail stores, and direct sales force. Under Ahrendts’ leadership, annual revenues through direct distribution increased from roughly $51.2 billion in 2014 to $92.2 billion in 2019. It went on to hit $131.7 billion in 2021.

More importantly, her initiatives completely turned the retail division around. After direct distribution’s portion of Apple’s total sales fell to a low of 25% in 2016, growth eventually returned in 2017 and rose every year since—reaching 36% of total sales in 2021.


Tactic #3: Embracing omnichannel retail

After Steve Jobs saved Apple with the launch of its online store in 1997, he turned his attention to brick-and-mortar retail with the launch of the first Apple store in 2001. Critics said they were doomed to fail from the start, but the strategy immediately became a runaway success, eventually bringing in more sales per square foot than any other retailer in the world.

Part of the reason is because Apple’s retail operations have been omnichannel-aware from day one. Omnichannel commerce refers to the method of putting products and services up for sale on all channels and platforms for the purpose of increasing reach, reducing friction, and boosting sales. It requires synchronization of all components of a company’s e-commerce architecture, and it connects together brick-and-mortar stores, app-based options, online platforms, and all other channels to create a seamless experience for the customer.

Headless commerce supports omnichannel

Today, companies use headless software architecture to detach a frontend presentation layer (such as a website) from the backend commerce functionality (such as cart and checkout). This reduces friction and promotes omnichannel by creating a platform that supports in-store, digital, and any other avenue. Without this architecture, omnichannel commerce becomes multi-channel commerce, riddled with technical debt and disconnected systems. A great example of a success story is Amazon’s journey.

But, Apple utilized microservices to build a headless e-commerce platform capable of transacting hundreds of billions of dollars in sales through multiple channels well before the term “headless” even entered the general e-commerce lexicon. In fact, their website, apps, physical stores, social media profiles, and even customer support are all integrated into one cohesive experience.

For example, a customer can pre-order a new product before launch and reserve it for pickup at a local store with little to no lining up involved. Older devices can be traded-in by mail or in-store for a discount on the purchase. Classes are available to teach customers how to use the products. Genius Bar appointments can be made for repairs and additional support is provided by an expert via phone, chat, email, or even Twitter. And, if there’s something wrong, the device can be taken back for an exchange or a refund or returned through the mail.


The entire customer journey is seamlessly integrated and the experience is consistent with the Apple brand. Furthermore, the company has access to a treasure trove of consumer data, which is used to drive customer outcomes that lead to greater trust, more sales, and even deeper loyalty.

The Future of Apple Retail

“We’re offering new ways for our customers to get to know all of our products before they buy, so they can be sure to get the product that’s right for them. Whether our customers choose to connect with us in person, by phone, or online, our entire retail team is ready to deliver the world-class personalized service they’ve come to expect from Apple.”

Deirdre O’Brien, SVP Retail + People

Deirdre O’Brien was named senior vice president of retail and people following Angela Ahrendts’ departure. Under her leadership, the future of Apple’s retail operations has begun to take shape.

For example, despite strong online sales growth during the COVID-19 pandemic, the company plans to invest even more into its brick-and-mortar stores with plans to open new locations around the world. Apple will also be doubling down on its pre-pandemic strategy of in-store events and experiences beyond shopping.

The company recently launched Today at Apple Creative Studios, a new program that aims to bring arts education to students in underrepresented communities. Express counters that helped customers more efficiently pick up online orders will now become regular features of Apple’s stores as well.

The company also has a new partnership with Enjoy, the mobile retail store startup founded by former Apple SVP of retail Ron Johnson. If you’re in an eligible location and choose Delivery with Setup during checkout, an Enjoy team member will help you set up your new products at home during a free, 30-minute appointment.

For Apple’s online store, the company recently introduced a new e-commerce portal with an enhanced user experience. In fact, for almost every service available in person, Apple now offers a convenient online counterpart:


With all of these initiatives poised to drive future growth, there’s never been a better time to buy an Apple product and there’s never been a better destination than Apple Retail. According to O’Brien, “We’re looking at this moment right now as a way to really begin again, and begin again in every way.”

Topics: Commerce
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