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CNN lifts veil on Apple's secretive store negotiations

updated 01:00 am EST, Fri December 9, 2011

Retail executives claim furtiveness 'unjustified'

While those strongly invested in the latest Apple news are often well aware of planned Apple Store openings months before they happen, the actual preparation work for securing the sites are often veiled in Apple's notorious secrecy. On the eve of the New York City Grand Central Station opening, CNN has launched a two-part report on the sometimes preferential, sometimes deferential treatment Apple demands of its retail landlords.

The report details some of the techniques Apple uses to keep early details under wraps, such as refusing to name itself in public filings and swearing government officials to secrecy. The company makes extensive use of non-disclosure agreements with partners, contractors and employees and sometimes employs what the CNN story called "uncommon legal tactics" to keep control over exactly when and how details of upcoming stores are revealed.

Most notoriously, the Grand Central Store was the object of early speculation and buzz, as the then-proposed store was to be in one of the most conspicuous and open public spaces in New York -- a train terminal with hundreds of thousands of people passing through it daily. The Metropolitan Transportation Authority refused any and all questions about the story, demanding that news organizations fill out Freedom of Information requests to get details normally made public. The FoI requests generally take months to fulfill.

Because Grand Central Station is a national landmark, any projects must go through the New York State Historic Preservation Office. Normally MTA, as the landlord, would handle this process, but Apple instead requested that its own architects deal directly with the office. The intense desirability of landing an Apple retail store -- many of which are noted for their architectural finesse and in some cases their ability to blend into the surrounding location -- means city government officials will retreat from their normally promotional postures to allow Apple to coordinate publicity for maximum effect.

In fact, the sudden silence on city and mall officials' parts has often proved to be a sure sign of development. When officials in Berkeley, California started referring questions on Apple Store rumors to the city's public-records division, reporters eventually uncovered documents showing the company was planning a store there. Now the sudden silence is beginning to indicate that Apple may be planning to move its Bellevue, Washington store -- across from which Microsoft opened one of their copycat stores -- one floor higher, into a significantly larger space and with a balcony so that customers can look down on the Microsoft shop, located not far from the Windows maker's Redmond headquarters.

When architect Peter Bohlin spoke with The New York Times and mentioned that he was planning to work on more stores that would follow the Upper West Side design, which features a tall glass frontage with an all-glass cathedral roof, his office thereafter refused further interviews, citing Apple's request.

Not only are many Apple stores architecturally significant, they are also immensely profitable. Its stores generate the most money per square foot in the entire US retail industry (over $5,600 on average). The company plans to invest more than $900 million in new and renovated stores over the course of 2012.

Because of this, the company has often managed to secure longer-term or more-favorable leases (which often preclude any percentage of revenue-sharing, a standard stipulation in retail arrangements), and has used its influence to shorten the sometimes-lengthy approval process. The skirting of normal procedures may have helped trigger the New York State Comptroller's investigation into whether MTA was too generous with the terms of its lease for Apple. Though the cash-strapped MTA normally requires revenue-sharing, it negotiated that away in exchange for Apple's willingness to buy out the previous occupant's $5 million lease, along with a promise not to significantly modify the station's historic architecture. The MTA has said that it welcomes the State Comptroller's investigation.

The other businesses in Grand Central, well aware of the attraction Apple Stores have in drawing customers, have thus far failed to complain about the "sweetheart" deal, presumably feeling that the extra traffic that comes in for the Apple Store will also increase business at the other shops and the MTA itself. On a reporter's tour of the new store, which will employ 315 people, the goals of both Apple and the MTA appear to have been met, with the store offering some special features (including an earlier opening time and shorter, 15-minute express classes).

The Grand Central Store is set to open tomorrow morning at 7 a.m. CNN will be publishing the second half of their report sometime Friday. [via CNN]

(image via jennydeluxe)

by MacNN Staff



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