Despite increasing local demand, Apple has failed to expand its retail presence in China, now its second largest market. This lack of stores and authorised resellers in the country may cause the firm to lose more than just sales.
In 2010 Ron Johnson, former head of Apple’s retail division, predicted Apple would soon have 25 retail stores in the country. However Pennsylvania, a US state with a population of 12.7 million, currently has more stores than the whole of China, where six Apple outlets cater to a population of 1.3 billion. One fifth of Apple’s revenue is derived from China, yet according to a Reuters estimate, there is only one store for every 215 million Chinese citizens.
The huge demand in China has resulted in an overflow of customers in the small number of stores.
Apple’s chief financial officer Peter Oppenheimer, last year said the company’s China branches were its highest trafficked stores, and among those providing the most revenue for the company.
Torsten Stocker, a partner at business strategy firm Monitor Group said: “There’s certainly more demand than Apple can serve with their store footprint currently.”
The lack of stores and authorised resellers has allowed an opening for a booming grey market to emerge. Unauthorised resellers have jumped at the opportunity and are moving in, selling smuggled Apple products, or passing cheap Chinese imitations off as genuine. Scalpers are often first in line for new products which are then resold for profit. Earlier in the year scalpers even pelted a Beijing store with eggs after Apple decided against selling the latest iPhone there due to security concerns. Copycat Apple stores have also emerged in smaller mainland cities.
Poor quality products and grey market sellers offering no customer support may tarnish Apple’s reputation. Bad consumer experiences at unauthorised shops are by no means the exception and may erode confidence in Apple’s products.
David Wolf, chief executive of the Beijing-based consulting firm Wolf Group Asia warned that if Apple failed to expand its network of stores and authorised resellers, it would not only lose near-term sales: “it also endangers the sustainability of its success in China,” he said.
While Apple products can be bought online in China, many consumers prefer to test the product in the store before buying.
Apple’s growth in China may therefore be stifled. The company also has to compete with rival Samsung and domestic players Huawei and ZTE in the fast growing smartphone sector.
While Apple claims to be taking time to ensure the right locations are secured in China, the slow expansion may also be caused by other factors such as the red tape which often hampers foreign companies dealing in China.
According to Andrew Milroy, vice president of Information and Communications Technology Research for the Asia-Pacific region at Frost & Sullivan in Singapore, “there are complications around opening stores in China that you don’t get in Western countries.”
However the lack of stores also brings into question whether Apple has the right management in place to drive expansion in China.
Yet with Apple recently paying Proview Technology $60 million to settle a lawsuit over the iPad trademark, and the company now able to sell its latest tablet computer in mainland China, demand is only likely to increase.