What is the Value of Cool?

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I have often been chastised by the Apple (NASDAQ: AAPL) faithful for approaching the company’s position and devices too scientifically and not giving enough credence, and thus value, to the “cool factor.” One of the greatest appeals of the iPhone, I am told, is that it is cool and is the choice of those individuals that others wish to emulate. While I am perfectly content to concede this point in the immediate term, acknowledging that this has driven business to this point and perhaps will do so for a bit longer – the problem with investing in cool is that it can change very quickly.

Segment Commoditization

Within the last few decades there has been a significant shift in the way that cool is perceived by the consuming public. The clothing sector is an area in which this trend is very apparent. Where once having clothes all of a given brand signaled to one’s peers that you were in the know, and owning items from discounters was a huge faux pas, today accessories seem to rule the day. My daughter, for example, is perfectly content with multiple outfits from Target (NYSE: TGT), as long as she can round things out with a North Face jacket – a brand owned by VF Corp. (NYSE: VFC) – or carry her iPod Touch. There is not a stigma associated with discount clothes because the “statement” that you make is drawn from other areas. This is one of the principal reasons that Target has been so successful in growing its clothing business and drawing consumers into its stores for all of their needs.

Clothing has become increasingly commoditized as not only the trends have changed, but as the way consumers assign value has changed. Stores like The Gap (NYSE: GPS) have continued to flourish because it has found ways to maximize price discrimination across brands – Banana Republic and Old Navy – and by adapting to shifting trends. None of this is to suggest, however, that brand loyalty and consumer identity through label choices is gone completely, rather that each is fundamentally different than it once was. The attitudes of consumers have changed and continue to change at an increasingly high rate. As with most things, changes that once took decades, now take only years.

The Impact for the iUniverse

What this ongoing shift means for all things Apple is that while they may enjoy the status of king of cool today, there is little guarantee that this will persist indefinitely. As other alternatives, specifically those on Google’s (NASDAQ: GOOG) Android ecosystem, continue to offer the same or better functionality in highly similar packaging, the notion that consumers may become less obsessed with this form of cool is not such a stretch. Android has already become the most popular smartphone platform on the planet, having risen from serious questions as to whether it could compete at all. These types of changes are very difficult to predict as they may be spawned by some new and disruptive technology or simply by the passing of time.

Against this backdrop, Apple products can be judged in an evolving light. iPhones, iPads and iPods are all extremely well-made and interact with the Apple ecosystem that remains at the top of the pack for the present. The company has shown a knack for setting trends rather than following them, and if it can continue in this tradition, all should remain on track. This is but one reason why the release of the iPad Mini has caused some concern amongst observers, but one trend-following move does not prove much; Apple is certain to sell a lot of the new device, so it is hardly time to panic.

The Trade

I remain bullish on Apple at current levels, particularly coming off of a 15% correction from the over-$700 high. With that in mind, I believe that given the cool factor that the company’s products carry, paying attention to these trends is critical to remaining informed. Weakness in sales need to be considered fiscally, but also for what may lie beneath the surface. Apple may be the reigning king of cool, but this is a crown that has proven difficult to maintain.

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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Gap. Motley Fool newsletter services recommend Apple, Google, and Gap. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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