Seeking Alpha
Hedge fund manager, long/short equity, value
Profile| Send Message|
( followers)  

When folks are flush, they will spend for status, but when things get tight and quality low-cost competitors enter the market, buying habit change ... fast. What is happening now at Apple (NASDAQ:AAPL) started last summer (this also has nothing to do with Steve Jobs' shareholder deception).

So, the Apple nuts will send me more hate mail and call me names. Oh well...

Remember when WholeFoods (WFMI) was the only place in town to get organic food and Starbucks (NASDAQ:SBUX) was the only place the get anything other than a standard cup of coffee? Remember? It seems like an eternity ago especially when I can get organic food at the 7-11, Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), BJ's (NYSE:BJ) and every local supermarket. And a cappuccino can be had at any one of a dozen local coffee houses, McDonalds (NYSE:MCD) and Dunkin Donuts.

Is WholeFood's $5-a-pound organic potato the best? Is Starbucks' $6 cappuccino appreciably better than an offering from anyone else at a fraction of the price? No.

Is the iPhone ($199) that much better than Research in Motion's (RIMM) Blackberry Bold or Storm that can be had for 1/2 the price ($99 through discounts)? No.

Is a Mac computer really worth 2x the amount I can get a similarly functional product from Dell (NASDAQ:DELL) or Lenova? No.

For the coffee devotee, the person searching for the "one of a kind" generic item, the computer lover who wants a top-of-the-line item or a devoted Apple user, all of the above will continue to generates sales and profits from these folks.

But for the "unwashed masses" (yours truly is one of them) who are not married to a brand or a cup, who need a computer for basic functionality and who don't need organic-hand-picked-free-trade-union-only beets, we will always drift to the lower-cost comparable item. The problem with the three brands mentioned above is that they lack an item for us.

The Blackberry Bold and the iPhone are comparable items. Both have pros and cons vs each other and both have loyal followers who will tell you theirs is better. But at 1/2 the price, the Bold has the most important advantage over the iPhone.

I am reading Howard Lindzon's upcoming book "The Wallstrip Edge. " For the record I am not a trader, but the book is very good as it does force you to look at things a different way and it challenges "common knowledge". Lindzon has been in the game for decades now, and anytime you can get insight from someone as brutally honest as Howard, that has tremendous value.

As I read it, I realized the trend in Apple, like the others, is over. Shareholders are not going to see a $180 stock price in the future and like the other two, a stable or declining price is more likely. The iPod was revolutionary and had such a lead on the competition there was no answer (the real advantage was iTunes, not the player). The iPhone is a great product but was immediately matched by competitors that offer some things it doesn't at a far lower price point. Unlike the iPod, there is no iTunes for the phone that makes using a competitor's product impossible. Cell networks are as interchangeable as toilet paper, so the advantage the iPod has is not found on the iPhone. Now price rules.

With US sales down 24% in Q4, Apple is left with only more price cuts to stimulate sales. That will cut into margins and profits.

Are any of the three "name" companies going away? No. Are they in danger of losing money? Apple no, the others, for a while, yes. It does mean the glory days for the stock are over, unless they can tap back into the mass market that has left them. But that will require dramatic pricing alterations, something all three up until this point have been painfully reluctant to do. Starbucks and WholeFoods really have not significantly altered prices, and Apple only did so on the iPhone (from $599 to $399 to $199) after sales of the product ground to a pedestrian level; and even at its current price level, the phone is overpriced vs. the market.

What's worse is that all three brands now have the reputation of "expensive". That will be the hardest thing to overcome: convincing the newly thrifty bargain hunting consumer you are not what they say you are...


Disclosure: Long MCD, none

Source: Apple: Like Starbucks and Whole Foods, A Trend That's Past Its Prime