Walmart (WMT) has begun giving $50 gift cards to customers who buy Apple (AAPL) iPhone 4s, the Wall Street Journal reports. It is a risky move considering what the world's largest retailer is likely to pay Apple for the handsets.
Walmart sells the iPhone 4 for $197, "two dollars less than Apple and AT&T Inc. do -- with a two-year contract," according to the Journal. But industry experts say that Walmart pays Apple as much as $650 for each device. It is not certain what the retailer collects from AT&T (T), which gets the two-year subscription fee as the wireless provider for the smart phone.
There is an old adage in the retail business that a company can lose money on every unit it discounts, but make the money up on volume. It's an absurd notion. Walmart must have some other incentive for its action with the iPhone 4. The only realistic one is that people who come to Walmart stores to buy the smart phone will purchase other things. Walmart has a habit of discounting popular items to create store traffic. Whether the effort pays off is another question.