While many consider Wal-Mart (WMT +0.37%) the "evil empire" when it comes to a host of issues, very few dispute its record of helping its customers save money. Wal-Mart essentially pioneered the everyday-low-price strategy when other retailers continued to rely on sales and high-low pricing strategies to move product.
By seeking to offer the lowest price always, and not just on sale items, the company continues to save customers time and has created brand loyalty. Although Wal-Mart has struggled in the past year while other retailers have mitigated its huge scale advantages and pricing strategy, the company is still looking to save customers money. And if a recent report from BestBlackFriday is to be believed, the company's Sam's Club warehouse line is looking to make Apple's iPhone cheaper.
iPhone 6 on contract for $100 off?
According to BGR, the 16GB iPhone 6 price on contract would be $99 with the 64GB and 128GB priced at $199 and $299, respectively, amounting to a $100 price cut for all storage points. And while Wal-Mart has dropped prices for the iPhone before, it's shocking to see this happen so quickly after a new release.
The purchase agreement between Wal-Mart and Apple isn't public, so we don't know who's eating this price cut, but I'd say Apple had the stronger negotiating hand here, through mere brand cachet. Essentially, this deal comes across as if Wal-Mart is treating the iconic phone as a loss leader to reverse decreased foot traffic. The company's Sam's Club warehouse has struggled against rival Costco recently and needs a way to compete this holiday season.
And considering the deal appears only to be available for Sam's Club fee-paying members, this could be a play for new membership fees that tend to be "sticky," even after the initial purchase.
An iPhone as a loss leader?
This is big news for Apple fans and investors. If true, it will be hard for other retailers to ignore Wal-Mart's low upfront cost for the new phone. To compete for holiday traffic -- and dollars -- it's entirely possible that other retailers could match this price, again essentially treating the iPhone as a loss leader.
Sam's Club wants the iPhone to boost holiday traffic. Source: Apple.
For investors, it gets even better. If Apple's iPhone 6 is "cheaper" than Samsung's Galaxy line, it could build on Apple's penchant for converting high-end Android users to iOS. Last year, a CIRP study found that 20% of Apple's customers have converted from Android, whereas only 7% of gold-standard Android handmaker Samsung's customers come from Apple's iOS. Essentially, Apple could monetize its brand value in a way that could further harm Samsung and other Android-based handset makers.
Wal-Mart is in desperate need of positive momentum. After revealing that it grew revenue only 1.6% year over year, the company has continued to disappoint investors. Over the past five years, the company has provided investors a return of only 52% versus the greater S&P 500 return of 94%, and that includes nearly $15 billion of share buybacks over the past two years. And while buybacks are great for investors, at some point they need to see improved operational performance.
As far as Apple is concerned, investors should be elated. It isn't every day that the world's largest retailer uses your product to boost foot traffic. And if it causes more retailers to lower the price of Apple's iPhone to compete, Apple's next quarterly report could be an absolute blowout.
