Apple's Discount Strategy Deserves Credit

Apple might have been the No. 5 online retailer on Cyber Monday, but what's really impressive is its judicious discount strategy.
Author:
Publish date:

Chant after me, raucous crowd: "We're No. 5! We're No. 5!"

OK, stop. After all, didn't we just get through describing how

emotionally driven the business media could be

when it comes to

Apple

(AAPL) - Get Report

? And how that makes them lose sight of what really matters?

And then this comes along: a ranking of the busiest retail sites on so-called Cyber Monday, the day when we all supposedly slack on our work to shop online.

Apple came in fifth on an absolute basis. And because it's Apple, we got this comically misplaced headline from

Fortune

: "

Apple was 5th busiest retail site on Cyber Monday

."

Don't be thrown by the wasted headline, though, from the important underlying issue. It's the context in which have to view every retailer: discounting and its long-term effects.

Here's the central issue in the article, the one that did not make the headline (and the one that should be the central issue of any retailer in the current environment):

"While its competitors were offering deep discounts to pull in recession-battered customers, Apple had already ended its Black Friday sale and by Monday was back to charging its usual premium prices for laptops, desktops and MP3 players.

"Yet its online store still managed to grab the No. 5 spot in comScore's ranking of the top 20 most visited retail sites on Monday Dec. 1, handily beating not only

Dell

(DELL) - Get Report

and

Hewlett Packard

(HPQ) - Get Report

, but such full-fledged retail outlets as

Best Buy

(BBY) - Get Report

, Toys "R" Us and

Circuit City

(CC) - Get Report

.

"Apple.com drew nearly 3.7 million visitors that day, up 43% from November's somewhat depressed average."

So it doesn't matter that Apple was No. 5. In fact, it's comic nonsense, typical of Apple coverage, that this was the takeaway any headline skimmer came away with. What is significant is that Apple kept discounting to a minimum and still did well. That's a real positive.

Out of fear and desperation -- and because everyone else is doing it -- retailers are discounting like it's a tic. This could cause myriad long-term issues, especially to higher-end retailers, including damage to brand value. A high-end retailer doesn't want a "60% Off" sign to be customers' default mental association. Moreover, if margins -- the only result that matters long-term -- suffer as a result, they can take quite a while to creep back.

Retailers that refuse to discount or that do it judiciously, like Apple, are playing with fire. The product has to be good enough that people still crave it. And the retailer has to have a good control of inventory levels.

The Wall Street Journal

did a good job this morning of cluing investors in to the apparent trouble afoot at

Abercrombie & Fitch

(ANF) - Get Report

. Like Apple, Abercrombie has held fast against too much discounting. But as the

Journal

makes clear in the lead

, this is causing trouble:

"Hip retailer Abercrombie & Fitch Co. suffered dismal November sales results last week, and one reason may be a bold tactic that is backfiring: while rivals are aggressively slashing prices to battle the weak economy, Abercrombie has refused to join the rush to discount."

Don't get caught up in chants about a retailer becoming No. 5. What the savvy investor has to focus on these days, especially when it comes to high-end retailers, is only what the retailer's discount strategy is and how it is playing out. Unlike a No. 5 ranking, the impact of the current discounting strategy, positive or negative, will be felt for a long time to come.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven� column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

click here

to send him an email.