Wal-Mart: Always Low Prices on the iPhone

Includes: AAPL, BBY, T, WMT
by: Trefis

Retail giant Wal-Mart (NYSE:WMT) recently reduced its pricing for a 16 GB iPhone 3GS to $97, down from an earlier price of $199. The discount is likely to attract buyers and positively affect Apple (NASDAQ:AAPL), AT&T (NYSE:T) and Wal-Mart. In comparison, the same phone is available for $99 directly from AT&T, but for $150 from Wal-Mart competitor Best Buy (NYSE:BBY).

Wal-Mart is looking to become a more dominant player in the retail electronics market, while Apple and AT&T are looking to broaden the reach of the iPhone.

Wal-Mart is Looking to Spice Up its Electronics Sales and Strengthen Ties with Apple

In recent times, Wal-Mart has been trying to spice up its electronics sales and compete effectively with specialty retailers like Best Buy. The economic recession presented Wal-Mart a unique opportunity to expand into the electronics market.

For example, Circuit City closed down in early 2009 and Wal-Mart started making moves to capture roughly $11 billion market left for grabs by the closure. Consumer electronics account for about 13% of Wal-Mart US revenues making it an important segment and if Wal-Mart successfully gains share in this market, its revenue per square foot can experience positive shift.

The retailer’s latest move to cut down iPhone 3GS prices in order to sell the inventory represents its discounting power and strengthening ties with Apple. Apart from recently released iPhone 4, Wal-Mart is also expected to sell the iPad later this year.

The growing popularity of Apple’s devices can help Wal-Mart boost its electronics sales given the adequate support services for the gadgets. Wal-Mart will also be selling other popular smartphones like Motorola (MOT) Droid, HTC HD2, Motorola Devour and Samsung (OTC:SSNLF) Moment.

Apple Leverages Wal-Mart for Greater Distribution

Apple typically sells iPhones via its own stores or AT&T’s stores. With the iPhone now available at Wal-Mart, Apple is expanding its distribution medium and can take advantage of the retail giant’s nationwide reach and discounting power to better compete with other smartphones.

For example, Google’s Android phones are widely distributed at electronics stores like Fry’s, Best Buy and Radio Shack. If Wal-Mart starts offering multi-package deals in order to impose discounts, lower prices could attract many more customers for Apple’s iPhone and other products.

Adding an additional retail channel can also help Apple in offloading the rush at its own stores during release dates. The demand for newly released Apple products tends to be quite high and a significant number of customers rush to buy these devices on the first day.

AT&T Can Secure iPhone Customers Attracted By Low Prices

Discounting of the 3GS version of the iPhone could attract new customers who are looking for a cheaper price as well as encourage 3G upgrades. In order to take advantage of Apple’s latest operating system for the iPhone, a 3GS version of the iPhone is necessary which can act as an incentive for several existing customers to go for a cheap upgrade (unless they are willing to go for an iPhone 4).

Disclosure: No positions