Bloomberg News

Apple Thriving in Spain Where Pain Rages From Debt Crisis: Tech

February 21, 2012

Feb. 9 (Bloomberg) -- As Spain enters its second recession in as many years, Apple Inc. is flourishing.

Renovation on a 19th-century, seven-floor building with more than 6,000 square meters (64,600 square feet) of floor space on Madrid’s central Puerta del Sol square is under way to house Apple’s new Spanish flagship store, according to the city mayor’s office. Apple is in talks with the building’s owner to use three floors as an outlet, said a person with knowledge of the matter, asking not to be named because the discussions are confidential.

The lure of Apple’s products and retail stores helped the world’s largest technology company by market value win consumers even in markets where spending power is declining. With almost half of young people out of work and 18 months of falling retail sales, Apple sold more than 800,000 iPhones in Spain in the first nine months of 2011, up 60 percent from a year earlier, according to researcher Gartner Inc.

“The Apple evangelists will buy these products, with or without an economic crisis,” said Victor Conde, a marketing professor at Universidad Nebrija in Madrid. “They may get by without dining out much or going to the theater for a play as long as they’re able to have the latest iPhone.”

Apple’s Spanish expansion is catching up with other European markets. Its current five stores in Spain compare with 33 in the U.K., nine each in France and Italy, and eight in Germany.

European Push

Apple, based in Cupertino, California, is planning a flagship store in Amsterdam, said Tanya Ridd, a London-based spokeswoman. It’s also considering its first flagship in Berlin, said two people with knowledge of the matter. Ridd declined to comment on Apple’s German plans.

Underlining its intent to boost sales in markets outside the U.S., Apple on Jan. 31 appointed 48-year-old John Browett from the largest U.K. consumer-electronics retailer, Dixons Retail Plc, to lead its 361-store business.

As chief executive officer of Dixons, which is similar to U.S. retailer Best Buy Co., Browett forged a close relationship with Apple, including striking a deal to be able to sell the iPad ahead of rival electronics retailers in the U.K. He also implemented store formats and added service areas similar to the Genius Bar at Apple stores to provide technical support and help with repairs and upgrades.

Out of Apple’s 40 new locations this year, 30 will be abroad, the company said in October. The location of its flagship stores in the best retail spots is critical to their success, said Alfredo Arahuetes, dean of Comillas Pontifical University’s business school in Madrid.

‘Trend-Setter’

“They open stores in landmarks because they want to improve their visibility and access for customers,” Arahuetes said. “That type of store in Madrid will allow Apple to strengthen its position as a trend-setter.”

The downtown building, nicknamed Tio Pepe after a brand of sherry that has for decades advertised on top of the structure, is being developed for use by Apple, according to a Dec. 29 statement by the Madrid mayor’s office.

The office has to give permission for the renovation because the construction is a historic building in the downtown area, said Maria Antonia Landero, a spokeswoman for the office.

After the basic renovation, scheduled to finish in April, work on the interior design will start and Apple and the building’s owner, real estate company Ana Maria Sol SL, are in talks about the details, said the person with knowledge of the matter.

Apple spokesman Paco Lara declined to comment on the company’s plans in Spain, saying “it’s logical to think there will be store openings this year as we had two openings in 2010 and three last year.” Ana Maria Sol also declined to comment.

Buzzing Store

“I’m very excited about the possibility of having an Apple store in the downtown area,” Ignacio Galaso, a 26-year-old intern at Gas Natural SDG SA, said at the Apple outlet in the Parquesur shopping mall 15 kilometers (9.3 miles) south of city center, where he spent 90 euros ($118) on an AirPort Express to strengthen wireless signals at home. “I haven’t bought the new iPhone yet. If I had 600 euros, I would buy it right away.

The Apple store inside the Parquesur shopping mall was buzzing with people on Jan. 31 while the local Burger King and Zara clothing store were almost empty. Roberto Martinez, a 38- year-old interior designer looking for a device to charge his iPhone in his BMW 5-Series car, said he doesn’t like visiting a mall on the city’s outskirts.

“Even as I live close to this shopping mall, it would be better to have one closer to Madrid’s downtown,” he said.

Too Expensive

Apple opened its first Spanish outlet in Barcelona, in the La Maquinista shopping mall, on Sept. 4, 2010. The same month, Spain’s Aaa credit rating was cut by Moody’s Investors Service and the country’s workers disrupted transport and television broadcasts in the first general strike in eight years to protest cuts in government spending.

Apple’s new store might struggle as the “economy in Spain is certainly not ideal,” said Carolina Milanesi, a research vice president at Stamford, Connecticut-based Gartner. “It’s not a question of getting revenue from the store from day one. But Apple always invests in stores for the long term.”

Spain fell back into a recession in the last quarter of 2011, its second since the end of 2009, and may contract 1.5 percent this year as the government accelerates spending cuts, the Bank of Spain estimates. Spain’s unemployment rate rose to 22.9 percent, the highest in 15 years, in the fourth quarter from 21.5 percent in the previous three months.

Jonathan Munoz, a 22-year-old engineering student, is an example of why Apple’s investments in Spain may take time to pay off. Speaking from his iPhone, he said he might sell his iPad as the 260 euros a month he earns by selling pizza three hours a day isn’t enough to pay for his tuition and transport expenses.

“I would love to buy even more Apple products if they were less expensive,” he said. “But I doubt that will be the case in the future.”

--With assistance from Jonathan Browning in London, Ragnhild Kjetland in Frankfurt, Emma Ross-Thomas in Madrid and Adam Satariano in San Francisco. Editors: Simon Thiel, Kenneth Wong.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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