Although the holiday season is more commonly associated with family, friends, and general merriment, this all-important earnings quarter is no laughing matter to retailers of all sizes as they fight tooth-and-nail to grab their share of our seasonal spending.
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One of the keys to holiday success for retail giants Wal-Mart and Amazon.comis to highlight the "must-have" products in any given year, the so-called "top 100." These are the items that consumers seek out en masse and that retailers shamelessly discount and promote in hopes of landing the bulk of our gift-giving greenbacks.
This year, Apple's iPhone 6 and iPhone 6 Plus are sure to be at the top of many wishlists. Recently, Wal-Mart turned heads with a significant change in its iPhone strategy that both consumers and investors will want to watch.
Wal-Mart "rolls back" the iPhone 6
In sticking with its famous "low, low prices" strategy, Wal-Mart last week announced it would drop the price for the 16 GB version of the iPhone 6 to $129 with a two-year contract from AT&T, Verizon, or Sprint. This is among the cheapest prices for the new device and a brilliant move for Wal-Mart. Here's why . . .
Holiday spending accounts for a disproportionate amount of total retail sales. According to the National Retail Federation, the holiday shopping period, defined here as the months of November and December, accounted for 19.2% of all U.S. retail sales last year.
|Holiday Sales as Percentage of Annual Sales|
Charts from the National Retail Foundation's Retail Insight Center. To access this data and more research please visit the Retail Insight Center.
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Similarly, the fourth quarter represented 34.4% and 27.2% of Amazon and Wal-Mart's respective annual sales in 2013. It's an absolutely critical time of year that can make or break a company's entire fiscal year. As such, retailers must leverage any available tactic to snare as much of that spending for themselves and their shareholders -- that's exactly what we're seeing with the iPhone tactic from Wal-Mart.
It isn't entirely clear just how broadly Wal-Mart is offering this deal. A quick scan of its website only shows the iPhone 6 and 6 Plus at unlocked retail prices, suggesting the company is only offering this deal in-store. This makes perfect sense here, as Wal-Mart would want to leverage rock-bottom pricing on one of this season's most sought-after items to drive increased foot traffic into its stores.This appears to be a classic "loss leader" play, one that should help counter some of the aggressive pricing we've seen from Amazon and otherWal-Mart rivals.
Apple wins no matter what
Apple has largely been absent from the discussion, and for good reason. This is much more a story about Wal-Mart's savvy use of a key holiday item against its encroaching online competition, rather than one that will meaningfully impact Apple's own financial performance. You can rest assured that the tech giant isn't sacrificing its own gross margin as part of Wal-Mart's promotion.
However, it does again highlight the commercial power of the iPhone 6 and 6 Plus. The fact that Wal-Mart is willing to lose as much as $50 on every iPhone 6 it sells just to get consumers into its stores speaks volumes about the devices'massive appeal. This appeal will help the iPhone 6 and 6 Plus form the cornerstone of what is widely expected to be a record-setting performance for Apple's current quarter.
The iPhone 6 is possibly the most important device out there this holiday season, and Wal-Mart has reaffirmed thatwith its recent promotion. While this story will certainly impact Wal-Mart's shareholders more than Apple's, Apple investors should not overlook the indirect compliment the big-box retaileris paying to their company. At the end of the day, this move is just another reason that both Apple and Wal-Mart investors should be thankful this holiday season.
The article Wal-Mart Slashes Apple iPhone 6 Prices originally appeared on Fool.com.
Andrew Tonner owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Verizon Communications. The Motley Fool owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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