Troy Wolverton

Apple's Chain Reaction

 

Additionally, Apple operates in the electronics area, in which price cuts are the norm. In sectors in which retailers have more pricing power, they can increase sales simply by bumping up prices.

Apple, however, may find that harder to do: The company recently cut prices on its iBook line and it has repeatedly slashed prices on its various iPods.

Retail sales growth "is very tough to sustain over time, particularly in a deflationary environment," says Jay McIntosh, a retail analyst at Ernst & Young.

While the retail stores are likely helping sales of the iPod, the company as a whole -- and the retail segment in particular -- has become dependent on those sales for growth, notes Johnson.

Should iPod sales cool, the company will need to find another hit product despite how hot its retail stores have become.

The danger, says Johnson, is that Apple could become like Sharper Image (SHRP), whose results have lived and died by the success of its Ionic Breeze air filters. After sales of the product fell off, so did the company's shares, Johnson notes.

No one expects Apple to be in the same ditch as Sharper Image any time soon. As long as the company can continue to unveil new, hot products, Apple stores will help push its growth, analysts say.

"There's a lot of risk there. It's a different business than manufacturing," say McIntosh. "If you're a manufacturer that has a unique product, if you're an innovator, that would give you an edge."

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