Electronics retailers like Best Buy, Staples, Radio Shack and even WalMart, love the foot traffic and accessory sales that come with the launch of a new “i” device like the New iPad, or the iPhone 4S. However, the fact of the matter is they make next to nothing on each new “i” device sold, even less on wifi only iPads, and iPods.
According to Reuters Best Buy purchases the 16gb iPhone 4S from Apple for $600 and then turns around and sells it to customers for $299. The wireless carriers who carry the iPhone 4S then pay Best Buy a $400 commission on the iPhone 4S for a gross margin of $100.
More after the break
In contrast Best Buy pays Motorola $300 for a Motorola Droid Razr. They then sell the Razr to customers for $200 and they get the same $400 commission from Verizon Wireless. The gross profit on the Android powered Razr is $300, three times the amount of the iPhone 4S.
“Clearly, the profit margins on Apple products are thinner than other products, whether you are talking about an iPod versus another mp3 player, whether you are talking about an iPhone versus Android or BlackBerry handsets,” said Anthony Chukumba, an analyst with BB&T Capital Markets in an interview with Reuters.
Chukumba goes on to say that the electronics giants are forced to sell the Apple products because of “…sales perspective, a relevance perspective, and a customer traffic generation perspective.”
The margin loss is clear with connected devices and even worse with Wi-Fi devices from Apple where they make nearly no margin at all. Chukumba concludes that electronics retailers would love to see an Android tablet succeed, which would provide a margin closer to that of the Motorola Droid Razr in the example above.
source: Motley Fool