3 Reasons Apple Could Be The Next Lululemon
Apple (NASDAQ: AAPL) is suffering from a loss of pricing power, declining margins and increasing competition.
The combination could lead the company to a fate like that of Lululemon Athletica (NASDAQ: LULU), a high-end women's yoga clothing maker whose high-quality products were too pricey given their basic functionality.
1. Lost Pricing Power
In 2007 when Apple first introduced the iPhone, AT&T was the only authorized dealer. Now it's not exclusive, and it's cheap: companies such as Verizon that were not even authorized to sell the iPhone before are giving it away (when people sign a two year contract).
Earlier this year, Apple fell on warnings from the company. Still, it has soared in recent market action. Much of that has been because of the company's "charm offensive." Charm cannot mask the loss of pricing power for long, however.
This loss of pricing power was detailed in a recent Benzinga article, "Apple Store Popularity Could be Dwindling." In that look at Apple's retail units, one researcher stated that visits to seven domestic stores "...found that there were typically more employees than customers." The same decline has taken place at Lululemon stores, too.
2. Falling Margins
Margins are also falling for Apple. Margins on wider screen devices are particularly thin because of higher input costs. As an example, iPhone margins used to be 25 percent higher.
3. Increasing Smartphone Commodification
As great a company as Apple is, it hardly scares off competition. Amazon just introduced its own smartphone, the Fire. Facebook is rumored to be coming out with a smartphone. Competition is increasing for other products, too. Finally, Apple is very weak in emerging market countries, where the growth will be in the future.
Lululemon and Apple both make products of a high quality. Apple has done well and will continue to, because of massive amounts of liquidity in the market and its efforts to be more shareholder-friendly. But a loss of pricing power, falling margins and increasing competition are difficult to ignore for the long term price of the stock.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.