One narrative floating around recently is what bad shape Apple is in these days. APPL, perhaps, but not Apple. Yet, part of that narrative points out how Apple products are on sale. That seems true. But what is the truth?
Stores vs. Discounts
Historically, Apple isn’t a company with many sales. I do not recall a sale on any product at an Apple Store. Yet, the iPhone maker does have sales. They’re not official sales in the traditional sense. You’ll find some refurbished items on eBay and on the Apple Store online.
Look around. Many Apple retailers have sales. Over the past few months I’ve seen more sales than in years past– Mac, iPhone, iPad, Watch, HomePod, and others. Why? The retail industry works on supply and demand. When supply is tight and demand is high, higher prices rule. When supply is abundant and demand is low, lower prices rule.
Apple compensates for those changes in supply and demand by allowing select retailers to sell various Apple products at a discount. During this past holiday season– and, to a certain extent– we saw those sales, promos, and discounts from a variety of retailers, including Amazon, Target, Best Buy, B&H, and other outlets; big box stores and online stores.
Why? Supply and demand. Supply was more abundant than demand so Apple does what every retailer does– sales, promos, and discounts.
Over the past year Apple has also increased prices. No. Wait. That’s wrong. I haven’t seen a Mac or iPad or iPhone increase in price. What I’ve seen is what you’ve seen. New models with new prices. They are not the same thing but they serve the same purpose. Higher prices benefit the company in many ways.
First, higher revenue (sales). Second, higher gross margins. Third, higher prices. Combined, Apple products with higher prices bring the company more revenue and profits.
What happens when supply is more abundant than demand?
Lower prices. But not lower prices at retail. Instead, Apple retreats from the so-called higher prices by adding sales, promos, and discounts to the retail chain. There’s another relationship going on that few pay attention to– lower prices often stimulate demand. Apple’s newer products have higher prices, but also more sales and higher discounts than in years past. Why? Demand is soft. Lower prices stimulate demand.
Yet, Apple products with higher price tags that then get sales and discounts still mean the company keeps higher gross margins, therefore, higher profits than competitors.
It’s math. Higher prices may have retreated here and there, but that still means higher gross margins, and that means profit remains.
Stock market disruption notwithstanding, not one of Apple’s competitors is in a similar position.