By Neil Saunders
The latest iteration of stores and in-store sessions encourages add-on purchases. Apple’s approach to retail is light years ahead of many traditional retailers.
Apple delivered a great set of results, underlining the innovation the company has put into its suite of products over the past year. Although the new iPhone XS and XS Max versions, along with Apple Watch Series 4, were only available at the end of this quarter, we still believe they had a positive material impact on sales.
The strong initial reception also bodes well for the next quarter, as Apple will have a full period of sales of the iPhone XS models as well as the iPhone XR. We are more confident about this release than we were with the iPhone X for several reasons:
- The replacement cycle is now firmly in Apple’s favor. Our data suggest that consumers were content to skip the iPhone X, so many of these are now due for, and willing to make, an upgrade.
- Knowledge of Apple’s trade-in upgrade program appears to be more widespread. This is encouraging customers to buy a new model, especially as it takes the edge off the cost.
- The introduction of a cheaper priced XR model will give Apple access to a part of the market it struggled to reach with its more expensive models. Early evidence suggests that the multiple colorways have been particularly well received.
In addition to the boost from iPhones, we are also encouraged by the developments with the Apple Watch. Enhancements, especially on the health side, have gone a long way to making this a more useful item than it was when first released. Improvements to the design have also helped perceptions. While we still maintain that the Watch will fall short of being a big hitter like the iPhone, we see it becoming an increasingly important part of Apple’s business.
Recent improvements to the iPad may help moderate some declines that this product line has witnessed over the recent past. However, the iPad is simply less relevant than when it was first launched and will struggle to find the mass audience than it once attracted.
Services revenue continues to increase at pace. This represents a massive forward opportunity for Apple, and we welcome the news that the company is looking into streaming video services. Competition is tough in terms of the market for visual media, but the advantage Apple has over a company like Netflix is that its hardware—in the form of the vastly improved Apple TV—is already in many homes. Even so, Apple will have to produce some pretty compelling content of its own if it is to gain ground in this arena.
In terms of shops, we are impressed with the latest iteration of stores and all of the sessions Apple is running in them. Not only is this helping consumers to get more out of their devices, but it is also encouraging them to buy new kits, especially in terms of peripherals, accessories, software, and apps. Apple’s approach to retail in general is light years ahead of many traditional retailers.
With a strong release of products, the potential launch of new services, and more sessions being added to better stores, Apple has set itself up for another year of growth.
Neil Saunders is managing director of research firm GlobalData Retail.