3 Reasons Apple could be the Next Lululemon

In 2007 when the iPhone from Apple AAPL was first introduced, AT&T T was the only authorized dealer.

Earlier this year, I received a letter Verizon VZ, my carrier, offering me a free iPhone 5 if I re-upped for two years. There are other companies offering free iPhones, too. Companies that were not even authorized to sell the iPhone before are now giving it away. Apple is suffering from a loss of pricing power, declining margins, and increasing competition which could lead the company to a fate like that of Lululemon LULU, a high end yoga maker for women whose products of a high quality were priced too high for the basic functionality.

Earlier this year, Apple fell due to warnings from the company.

But is has soared in recent market action. Much of that has been due to the company's "charm offensive." But that cannot mask the obvious loss of pricing power. It is Verizon and AT&T who control the pricing power in mobile phones now. Apple missed its opportunity when Sprint S was cheap.

This loss of pricing power was detailed in a recent article in Benzinga, "Apple Store Popularity Could be Dwindlng." In that excellent piece about Apple's retail units by Louis Bedigan, one researcher was noted as stating 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.

Margins are also falling for Apple. There will be more constrictions in margins with wider screen devices due to higher input costs. As an example, iPhone margins used to be 25 percent higher.

Apple also has no barriers-to-entry.

As great a company as Apple is, it hardly scares off competition. Amazon AMZN just introduced its own smart phone, the Fire.  Facebook FB is rumored to be coming out with its own smartphone, too.  Competition is increasing for other products, too.  In addition, 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 due to massive amounts of liquidity in the market and the impact of its moves 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.