iPhone Rumors Confirmed: Coming to a Wal-Mart Near You

As predicted, the iPhone is coming to Wal-Mart (WMT). The retailer announced yesterday morning that starting on Sunday, the iPhone 3G will be available at 2500 stores nationwide.

Also as predicted — at least by those who knew anything at all about Apple Inc. — the phone is being offered at the same price as everyone else, less the $2 Wal-Mart discount (to $197 for 8mb and $297 for 16mb models). The phones will be sold at special kiosks within the stores, which explains why there were so many leaks so early for the new distribution channel.

I still think Target (TGT) would have been a better fit to the brand, but since Apple hasn’t made an official comment, we can only guess as to its motives.

My guess is that Wal-Mart was chosen not for the number of stores (Target has 1500 US stores) but their fit to Apple’s existing geographic coverage. Wal-Mart began life as the discounter to rural America, whereas the suburban Target locations heavily overlap the existing Apple Retail Store and BestBuy (BBY) locations.

Wal-Mart already sells the full range of iPod players, including the iPod Touch. The existing prices seem to be about $1.12-$1.18 below the corresponding Apple price, so the $2 discount is a big improvement.

From a practical standpoint, Wal-Mart has indicated it will be a price follower, with local stores allowed to match competitor’s prices, e.g. Best Buy’s $9 discount off of list.

Comments

[Timeline St...:]

Honestly, Dr. West, the strategy here is not that complicated.

To paraphrase Fake Steve, and Wayne Gretzky, selling iPhone at Target would be skating to where the puck is, instead of to where it's going. I would guess that Target customers have iPhone at 6-8X the rate of WalMart customers.

Rather than looking at Venn Diagrams of customer characteristics, I'm sure Apple instead focused market research to find the best untapped reservoir of potential smartphone customers in the United States and Canada, and this research pointed to WalMart. By selling at WalMart, they put iPhone in front of 100 million people per week and hit demographics that they would have no possibility to reach with their other retail outlets. Some of these people will practically think that this device was brought here in a time machine.

To further the point, what's close to the Best Buy in most big box retail parks? Target. And what point would that make? WalMart and Sam's Club have made a point of setting up on separate parcels, and many store locations serve rural or suburban areas that have few other big retailers.

This move makes perfect sense to me. Apple has created a reputation - largely undeserved because it was never their plan - of being elite or aspirational. They make you pay a rational sum for the value provided by their products, but Apple never wanted to be a niche player. What better way to build market share by introducing a gateway product to the masses? iPhone is a miniature Mac, and although it's profitable in and of itself, the real plan is converting customers to Mac OS in several different forms.

We'll see how it goes but I bet that it will be a great way to build market share. Plus, don't neglect the point that WalMart gets to bask in reflected glory as well. This has value for WalMart as well.

2008 Dec 27 01:49 PM

[GloomBoom.com:]

"Some people will think the iphone was brought here in a time machine." That is hilarious and true. Good one!

2008 Dec 27 03:20 PM

[beertje:]

Should it have been 8GB or 16GB rather than 8MB or 16MB?
What should you put on a 8MB or 16MB version? Just joking!

2008 Dec 27 04:22 PM

[Donald Johnson:]

Having just bought two iPhones and another MacBook Pro, I think analysts are missing a key point, the same point they often miss when they complain Mac prices are higher than the prices of other computers.

That is, the apps available for free and nominal prices on iPhones and the software that comes with Macs makes the Apple products cheaper than any of their competitors. And they work. They're slick and fun to use. A friend just bought a competing product and is having problems with it. I just traded up from a brand new Treo from Sprint, which I got for free when an older one failed. (Sprint mishandled a refund problem. So I owe them nothing.) I've used Treos since they were first introduced.

So Apple need not give price concessions.

As for WMT vs Best Buy, maybe WMT did little time and productivity study at the Apple store and an AT&T outlet. What they probably found is that it takes a knowledgeable person to activate an iPhone buyer who's new to both the phone and AT&T. It took an Apple store guy an hour to activate us and sell some accessories.

Walmart's hours are long. How many employes will each of its stores need to train to sell and activate the iPhone. What will it pay these employes? How long will they be on duty? (Will you buy iPones at Walmart between 2 and 6 on Saturdays?) How will WMT keep tits iPhoners from going to the competition?

To me, it appears WMT's competitive advantage will be that it will be more convenient to go to one of its stores than to competitors' stores. It will serve a different demographic than its competitors. And it intends to make money selling iPhones.

Question: Will WMT's iPhone customers get better deals from AT&T?

2008 Dec 27 04:25 PM

[Hayweed:]

I think AT&T wanted the phones at Walmart since they are an authorized AT&T reseller and I assume a rather large one. Walmart already sells all the ipods. As for macs don't expect them at walmart but I could be wrong. Best Buy is selling macs but the salespeople (pc term) at Best Buy are not apple caliber geniuses. For Apple, Best Buy gives them a special display area which sets Apple apart from the rest of the pcs. Walmart will do the same for Apple on the iphone, lots of show for little to no cost to Apple.

It almost seems like Apple is picking winners and losers in consumer electronics by selling macs at Best Buy but not at Circuit City. Now Circuit is in bankruptcy. They pick Walmart over Target, is that a warning to Targets consumer electronics department. We will see

2008 Dec 27 06:45 PM

[Anthony Dad...:]

Great move by apple to increase its store count with a reputable retailer like walmart. Many phones will be sold to first time apple customers. Opens up a whole new market. Rural America.

Welcome to the world of apple. First Iphone then macs.

Once you go mac, you never go back !

2008 Dec 28 10:02 AM

[mollytjm:]

Yes, Apple is smart, once again. Going to Wal-marts is a great idea...those stores are often in the middle of nothing much but with a large customer base. Targets are nearly always in metroplex type situations with a Best Buy. It's true that the tech people at these other places aren't usually up to Genius Bar levels but if ATT can manage to activate an iPhone, they can learn too. I'd think that most Wal-Mart customers will be first time smartphone buyers...so nothing too complicated (like transfers). Apple will do it all...the stores can send it out to them.
a note: a friend of mine bought a Touch at Best Buy for $229. if you spent over $200 there, they gave you a $50 gift card and a deal on Touch accessories. That sounds like a better deal than $2 off at Wal-Mart...and she bought it online.

2008 Dec 28 11:27 AM