apple-walmart
Seeing iPhones sold at Wal-Mart is like seeing Wolfgang Puck chowing down at IHOP (not likely) or Rachael Ray pimping Dunkin Donuts (oh yes she did).  Has there ever been a bigger mismatch in marketing history? What’s next, an Apple logo on a NASCAR vehicle? Or even worse, an Apple at a — what? What’s that, you say? You want to know what’s the big deal?

Oh, of course. If you’re not an Apple fanatic like myself, this might appear to be just another business deal. Everything else is available for sale through Wal-Mart, so why not iPhones? Well, that’s a perfectly legit perspective. So let me try to explain this unholy matrimony by first introducing the newlyweds….

Apple rose to uber-hipness by positioning itself as the people’s rebel against corporate giants. Its legendary “1984″ ad featured a runner heaving a hammer at a giant televised Big Brother, and its relentless PC vs Mac commercials have driven Microsoft to silly desperation. (I’m still trying to figure out those Seinfeld ads.) Apple’s fanboys are creative-industry elitists who are as much into the brand’s hipness as they are into its technology. (iPhone is short for “I prefer hipness over network excellence.”) Apple’s corporate partners are usually other hip brands like Nike and Starbucks. And Northern California-based Apple is Blue State all the way — recently donating $100,000 to fight Proposition 8 (the same-sex marriage ban).

Imagine Wal-Mart doing that…

Conversely, Arkansas-based Wal-Mart is as Red State as boar hunting, and it’s the whipping boy of choice for us lefty granola-munching critics. On Christmas Eve, the company forked out $640 million to settle 63 lawsuits over wage-and-hour violations. Wal-Mart’s big box stores are the antithesis of hippitude, emphasizing low-price over style. And Wal-Mart’s impact on communities sends neighborhood-preservationists and union organizers into mouth-foaming rages. Many of the consumers who prefer Apple would rather pay more for a product than be caught in a Wal-Mart.

And yet, these two kids are going to bed together.

It’s true, both companies have recently strayed from their once-solid reputations. As I wrote last January, Wal-Mart decided to make itself the greenest retailer in America (though I suspect the motivation was to splinter the liberal opposition). And Apple is not the golden-hearted champion of the little man it pretends to be. Wrote Wired magazine earlier this year (“Evil/Genius”)…

Apple is irredeemably evil, behaving more like an old-fashioned industrial titan than a different-thinking business of the future. Apple operates with a level of secrecy that makes Thomas Pynchon look like Paris Hilton. It locks consumers into a proprietary ecosystem. And as for treating employees like gods? Yeah, Apple doesn’t do that either.

So maybe the two companies aren’t that far apart? Maybe I, too, should accept this as business as usual?

Uh, nyet. Nada. Never! Not in the eyes of this Apple junkie. Watching this relationship unfold is like seeing Jon Stewart go on a date with Sarah Palin. It’s just wrong, wrong, wrong.

What could possibly explain it?

Well, Apple and Wal-Mart do have something in common: they’re both kicking ass during this recession. Wal-Mart, of course, is pulling in a lot of hurtin’ consumers — including some middle-class types and former Wall Street financiers who had preferred classier joints. And Apple has turned the iPhone into a recession-era cashflow machine: while hardware sales may decline, Apple still scores a chunk of the extortionary fee that AT&T charges iPhone users. Apple’s take is estimated to be between $12-$18 per month per customer. Multiply that by 14 million customers and you’re talking serious Niagara-caliber flow.

Apple is also making a killing on Apps — the small software applications developed exclusively for the iPhone, and priced impulsively low. According to Silicon Valley Insider, Apple has sold 300 million Apps since July, pocketing an estimated $50-$100 million. SVI acknowledges that that’s “couch change” for Apple — but it’s also just the beginning.

While 14 million appears to be a big number, it’s a fraction of the 250 million cell phone users across the U.S.  Apple wants more. With Wal-Mart’s frightening penetration of Middle America, Apple can now reach customers in parts of the country that have never seen and will probably never see an Apple Store. (Go Wasilla!) For Apple, this venture is clearly about subscriber fees and software. As everyone’s discovering, it’s tough to sell hardware during hard times, no matter how cool it is. Just look at Best Buy, which was the only other third-party retailer that Apple allowed to sell iPhones. Best Buy is considered the best managed electronics retailer in the business, yet its sales are also down this year. Apple clearly needed to spread its bets.

But, really now, Wal-Mart?

If Apple needed a general merchandiser, why not Target, which has a hipper brand, or Costco, which is known for carrying high-end merchandise?

Wal-Mart? Nike won’t allow its shoes to be sold through Wal-Mart. (See postscript below.)

Granted, iPods sell at Wal-Mart, but in 2008 the iPod is really just another MP3 player. Starting at under $50, it’s practically disposable.

The iPhone is Apple’s most innovative product — more so than its computers. The iPhone is the item that’s generating headlines and wishlists. What is Apple thinking?

Apparently, when the going gets tough, everyone goes to Wal-Mart, and the bottom line is all that matters… right?

Right — until the competition comes out with a comparable product. If that happens, will consumers still be willing to pay a premium for the Apple brand (the notorious “Apple Tax“)?  I’m not just talking about the iPhone. Apple’s computers are currently priced higher than comparable products. What if this Wal-Mart fling brings down the entire Apple brand, which was built on a foundation of hipness and exclusivity? Will Apple realize that it’s pulled a Dell and turned its much vaunted products into (gasp) commodities? Would Apple then have second thoughts about this relationship? Could we then see an Apple-Wal-Mart … divorce? Who’ll get the kids?!

Stay tuned.

‘Cause here’s one fairytale romance that could become a soap opera.

***

Tangential Interest: Think I’m going overboard with brand orthodoxy? Maybe I am. But consider the case of Nike, which sells golf equipment through Wal-Mart, but not its signature shoes. To tap into Wal-Mart’s massive customer base, Nike bought the Starter brand for distribution through the big box in 2005:

Nike is adamant that the products it will offer in Wal-Mart — as well as at Kmart, Payless ShoeSource, Target and other discounters in coming years — always will be swooshless…

“It’s a very funny thing,” said Mary Gleason, the president of the Exeter Brands Group, a Nike subsidiary and parent of the Starter and Shaq brands. “You can buy a Pepsi at the Four Seasons for $4 and you can pay $4 for a Pepsi six-pack at Wal-Mart. But when you cross the aisle and get to something personal, it’s very different. You have luxury brands, and you have those brands that only sell in the discount (market),” she said.

“The Nike brand just does not belong in the discount channel.”

As Nike knows, your brand is also shaped by the company you keep.

P.S. How about a little musical number to close this out?

  • Synthmeister says:
    27 December 2008 at 3:37 pm Reply

    Hey, even Wolfgang Puck sells boatloads of stuff on QVC or HSN or whatever the heck that shopping network is. And he probably cries all the way to the bank.

    The big difference between Dell selling at WallyMart and Apple is that Apple is still not entering the cut-throat pricing game. Walmart has NO leverage over Apple is this regard. Walmart simply give Apple more outlets, more visability, more free advertising.

    After all, Apple has been selling their iPod line up for years at Walmart and how did that go?

  • Actually, the Apple branded NASCAR car was in Pixar’s Cars. It’s a white car with the number 84 seen in the opening race.

    Freddy’s Comment: Nice catch!

  • Walmart is a huge retailer and was only a short while ago the largest retailer of music, only recently having been eclipsed by Apple and iTunes. Movies were the next big factor and the studios were reported to be afraid of Walmarts marketing muscle and slowed Apple down on the selling of movies through iTunes.
    .
    So, perhaps to soften up on movie sales, Apple agreed to allow Walmart to sell the iPod and iPhone line in its stores. No exclusivity, but to sell them none-the-less. It breaks down the barriers on Walmart objecting on iTunes and gives Apple another outlet to sell their product.
    .
    Apple is still a high end brand, even selling in Walmart. Dell has never been a high end brand. Dell has been a mass-market, sell it lower than the competition by selling it online brand. Dells only innovation has been making it cheaper and selling it at the least cost to Dell.
    .
    I don’t think Walmart cheapens Apple’s brand, as I haven’t seen Walmart slash prices on Apple product very much. From friends in computer stores, there is not a lot of margin on any Apple product for them to slash without going into debt. Makes me wonder how some of these stores sold at such discounts right after US Thanksgiving.

  • Dear Prof, your story is only a political view… Republicans don’t use iPhones? Only rednecks buy at Walmart? The decision to offer cheaper versions of iPhone there is a great business decision since clearly Apple will crumble once Jobs goes away (retire or whatever) since his and Apple’s story is similar to Iacoca’s and Chrysler’s (yup I read “Good to Great”). And Jobs knows this. And he doesn’t care, because ever since the beginning he’s in the game for the buck. And Walmart offers the possibility to get more bucks because Apple finally has products that are sellable there.

    Apple junkies can puke on this, but it’s their own perception of Apple getting distored, not Jobs’.

    I know, it’s hard to loose a hero :)

    Freddy’s Comment: Nice analysis, Dejan. But where are your footnotes? ;-)

  • I think you maybe need to go to a Wal-Mart store. They have been selling thousands upon thousands of iPods for several years now. Every Wal-Mart I have been in has the iPod display front and center in the electronics section and the iPod is the only music Player that has its own accessories section. Did this take away the coolness from the iPod – nope – does it make upscale buys choose something else because it is being sold at Wal-Mart – nope. So what is so different about selling the iPhone at Wal-Mart? Apple having Wal-Mart sell it’s number one consumer electronic devise appears to be a smart and logical move to me. If thousands of people go to Wal-Mart to buy iPods maybe some will decide on an iPhone instead but if Wal-Mart doesn’t carry the iPhone those people probably will just buy an iPod at a smaller profit for Apple.

  • You know, this Walmart thing is not about price. Its about location.

    Most people do not have an ATT corporate store or an Apple Store, or even a Best Buy that close by, and they are not about to go out of their way to those locales to get something as ubiquitous as a cell phone.

    And Walmart wants to carry some items of cachet that would make it more competitive with Target, which is doing better. So it will fight to be able to sell an iPhone next to the iPods and Xboxes it sells, to those that cannot make it to the states regional Apple Store.

  • For us here in Cali, Wm is no big deal – they are really a slightly larger and more crowded Kmart. Basically the only people who really opposed them are funded by Safeway and other supermarket chains so it’s not exactly some pure fight. Bottom line, they are a store – like them shop there, don’t like them, don’t shop there but clearly enough people like them or are willing to shop there so not sure why the hatred? Admitedly, they add nothing to a community as their stores are ugly and not cool looking. Unlike a Target who has managed to grow huge and seem whimsical … and of course, their stores are much nicer looking … but for most of the rest of the country and especially in many smaller communities, WM is the BIG STORE and in some towns, the only place for teens to hang out in … so Apple cannot ignore WM because for a huge swath of America – WM is it … so you have to go where the kids are … and unlike Nike who has 50,000 skus and enough shoe stores where they can bypass WM so THEY can set the terms of what’s what … Apple only has 5 products Wm is interested in … so Apple can set specific terms AND of course, Wm wants the cachet of Apple and Apple wants the mid America Wm can reach … keep in mind, there are nearly 4,000 WM’s in America … do the math if they sell just one iphone a day … (BTW, Target does not sell non-pre paid phones since Target does not do the whole phone contract booth thing …)

  • Dude..
    Walmart has been selling Apple stuff for years! (I can get the full line of hip iPods there…)

    So, just because something is cool, it can’t be sold at Walmart? Get over it. Sony sells at Walmart.Every “cool” band would love to have Walmart sel their CDs..

    Freddy’s Comment: Have you seen Sony’s stock lately? When was the last time someone lined up to buy a Sony product? I sincerely doubt that many Apple fans would consider Sony an equal.

    It is a silly argument. Apple wants to get as many iPhones into as many hands as possible. Walmart has the ability to deliver that.
    Do you complain that Best Buy sells iPhones? They are a mass-market-cheap-as-dirt box store and they even have mini Apple stores inside them.

    Freddy’s Comment: When it comes to branding and public perception, Wal-Mart and Best Buy are completely different animals.

  • Apple partnering with Walmart is possibly the smartest move they’ve ever made. Partnering with Target wouldn’t even be comparable — its market saturation is nowhere near that of Walmart and heavily overlapped with Best Buy.

    And finally — “built on a foundation of hipness and exclusivity” — really? I imagine those words would make Apple’s founders’ skin crawl. The “computer for the rest of us” had nothing to do with exclusivity. Apple’s all about selling as many well-designed products to as many people as possible. Well-designed products might be hip, but exclusive? Apple’s got products to sell; just because they don’t scrape the bottom of the barrel doesn’t mean they don’t want tons of people to buy their stuff.

    Freddy’s Comment: Well, let’s see what the Apple’s founders intentions were. Here’s a quote from Charles Pillar of the L.A. Times (quoted in Wired): “Members of the Mac’s original engineering and marketing team told me all about it. They did it by building a sense of belonging to an elite club by portraying the Mac as embodying the values of righteous outsiderism and rebellion against injustice. It started in the early ’80s with the famous ’1984′ TV commercial that launched the Mac, and continued with ‘The computer for the rest of us’ slogan and several ad campaigns playing on a revolutionary theme.” In other words, “the computer for the rest of us” was not an inclusive slogan — it was a mission statement for an “elite club” of outsiders. Combine that with Apple’s higher-than-average prices and limited distribution, and that sounds like the definition of exclusiveness.

  • I thought about this for a bit, but then recalled: do you remember when Performas, in all their confusing-# glory, were sold at Sears? I also remember Canada’s London Drugs selling various Macs.

    What seems like a mismatch may be an unlikely combination of strengths, complementary in its reach.

    Apple’s goods are still generally priced higher, but in some cases, they’ve gone from “the rest of us” to “the best of us”. :)

  • Keep in mind the Walton family are huge Apple fans. They’ve bought Apple products since the Apple //e’s in 1982 or so. They have sold Macs in the past and I noticed recently they have started putting iPods in their jewelry cases. SMART!

    Walmart is an excellent company and increases the standard of living all across America.

    The iPhone is a perfect match for Walmart so I’m not sure what the concern is about. Walmart is probably the 2nd largest seller of iPods in the world (behind Apple, slightly ahead of Amazon) so relax, the more people that can rid themselves of Nokia, Motorola, Samsung the better.

    —-

  • I love seeing all the love/hate talk about Walmart. The “snobbishness” about shopping at Walmart, or Target, or Kmart. Coming from the UK and now living in small town America, it bemuses me to see “colonials” arguing over which big box store is more exclusive and therefore more deserving to sell “cool” products. To see comments that are open criticisms of “middle America” as though that is where the unsophisticated dullards live is laughable. America has more people living between the coasts than on them. Apple is seen as cool only because it pandered to the self-indulgence so pervasive on the West Coast and garnered an Elitism to its brand. Fortunately they have some good tech behind the brand but its really not that good. The iPhone, whilst first to market is now very outdated in terms of technology, there are many touchscreen phones out there that can out perform it and thats just those available in the US, look outside and find out how far behind the rest of the world the US is in communications technology! If middle America are the unsophisticated cousins to their coastal relatives, then coastal Americans, with their slavish addiction to “cool” brands are the unsophisticated relatives to their Western European relatives.

    Freddy’s Comment: Nice! I welcome a divergent perspective, particularly when it’s as well written as this. Of course, Simon, you live near Austin, TX, which is hardly representative of small town middle America — though it does explain your anti-Californiaism. :-) Austin rocks! And as I recall, people in the heart of Austin had no love for Wal-Mart either… You know, “Keep Austin Weird”? Come to think of it, the entire country of Germany also rejected Wal-Mart. Those Western Europeans are pretty darn smart… BTW, if you run into Bijoy and the Bootstrappers in Austin, say hi for me.

  • Freddy,
    A few years ago, I attended a Macworld, or was it a WWDC, I forget, anyway, Job’s is on the stage and he says something like “We like Sony. We want to be like Sony.” So, even Jobs thinks Sony is cool, or at least something to be emulated.

    Perhaps they are using Walmart to “Think Different.”

    Besides, what could be the harm of having a zillion more people using Safari, the stripped down OS and having the Apple experience? Hasn’t the ipod-ing of the world led to the Halo affect and the introduction of millions of new Mac users? Perhaps the iPhone-ing of the world will do the same.

  • Robert Morrow says:
    28 December 2008 at 5:01 pm Reply

    It is this kind of thinking that makes me sick. Apple is about one thing; selling product. So why not get your product into the largest retail store in the world. I’m sure that they decided to sell their product at Target or Starbucks; you would have nothing but praise over Apple’s decision. This political and social bigotry is so old and useless today. How about as a consumer, being happy that we now have more options.

    Freddy’s Comment: You work in advertising and don’t understand the impact a distribution channel can have on a brand? It’s not social bigotry — it’s smart marketing. You might want to change careers.

  • David H Dennis says:
    28 December 2008 at 7:20 pm Reply

    I’m not sure what the big fuss is about. iPhone is $2 cheaper in Wal*Mart than at Apple Stores and for that I’m certainly still going to buy my future phones from Apple.

    If Wal*Mart was in any way directing Apple’s design or manufacturing, I would say this is a problem, but they are clearly not; they just want to sell the phones. In that context they are no different from any other retailer; they are simply big.

    You probably live in a big, upscale urban area where there are a lot of choices. In those areas, quite honestly, Wal*Mart isn’t that competitive because it’s not that pleasant a place to shop.

    Wal*Mart shines in underserved areas of the country like the Pittsburgh region in Pennsylvania. Here we have a couple of mediocre to awful grocery chains. Wal*Mart is better than both of them.

    Wal*Mart is a great distribution channel in markets that are generally underserved by Apple retail stores. I think it is an enormous exaggeration to talk about Apple going to bed with Wal*Mart. You’d have to see real discounts for me or most other Apple fans to buy Apple stuff from them, but for people who are not Apple obsessives it’s a very useful distribution channel to have. A distribution channel, not a bed partner.

    I used to live in Los Angeles and would never even dream of visiting a Wal*Mart there; the other stores are great. I live in Pittsburgh right now and go to Wal*Mart about once a week for basics. Once I move to South Florida you will once again see me in a high-quality retail environment and I probably won’t be caught dead in a Wal*Mart. In other words, it’s just a matter of where you are and how good local stores are.

    D

    Freddy’s Comment: Valid points. More importantly, GO STEELERS!

  • Robert F. Morrow says:
    29 December 2008 at 3:31 am Reply

    Freddy, with all due respect I completely understand distribution channels to brand positioning. What you have failed to see, is Apple keeps it’s margins exactly where they want them (so they do not pull a Dell computer) and they have exponentionally expanded their market base without any capital expense (so they drop it two whole dollars). Their “coolness” factor is not diminished in any way, it just spreads out across the county. I would say this is an easy win-win for both. Walmart expands it’s Apple selection and Apple expands it’s market share.

    And on another note, this is also a huge bone for Apple on their Applestore, think about all the people that will set up an account and start purchasing applications and music. Think about all the people that will get their hands on this product and like the way it works, and decided to go look at a computer (“hey, if this works this good, the computers must do the same”). Apple is looking at more than just selling a iPhone to a customer at Walmart. They are looking at multiple revenue streams. Thanks for your time.

    Freddy’s Comment: I welcome this more rational perspective. Though I wonder if you would advise Hugo Boss to sell their suits in Wal-Mart, provided that they could keep their prices the same. What effect might that have on their brand positioning?

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