Apple takes cautious approach in China

26 September 2011

BEIJING: Apple, the consumer electronics giant, has fallen behind its original retail growth plans in China, a country where various challenges to its position exist.

Last week, the firm launched its third Chinese branch, in Shanghai, as well as its first in Hong Kong, taking the organisation's amount of branded outlets in the two markets to six.

In 2010, when there was one Apple store in these areas, the company outlined the goal of unveiling 25 sites by February 2012. Bloomberg thus argued its growth rate in this field is just 25% of the initial target.

Apple also boasts over 900 sales agents in mainland China, but has not been able to match popular demand, meaning only half of the 1.1m iPads sold locally in Q2 2011 were from officially-recognised sources, per Analysys International.

"They have been quite cautious so far," said Sun Peilin, an analyst at Analysys International. "For Apple, they have now seen the benefits and potential of the market, and I think they will speed up the store openings."

Shaun Rein, managing director of the China Market Research Group, the insights provider, suggested this hesitancy may allow rivals, like those using Google's Android operating system, to gain ground.

"In many ways they are still behind the curve, and they are opening stores too slowly," said Rein. "Before, Apple had clear dominance in terms of technology, but now the gap is being lowered because of Android."

Another problem is widespread counterfeiting, both of devices and in the form of "fake" Apple stores, such as the one discovered in July in the city Kunming.

While Apple has recently received 40 patents in China, Ian Robertson, an analyst at Seymour Pierce, thought two main options presented themselves: "You can keep suing, or try to roll out products faster," he said.

According to Gartner, the research firm, Nokia's Oyj took 36% of Chinese smartphone shipments in Q2, with Samsung on 15%. Apple was on 13%, or 2m units, a figure rising from 300,000 year on year.

David Wolf, CEO of Wolf Group Asia, a consultancy, predicted boosting store numbers would prove directly profitable and exert a "halo" effect on wider sales. He also praised Apple's focus on flagship sites, and its progress given the logistical challenges in China.

"I don't think anyone really expected them to come up with 25 stores in 24 months," said Wolf. "Location is important and iconic ... Apple's performance is excellent, but not quite outstanding. I'd give them a strong B+."

Data sourced from Bloomberg/Financial Times; additional content by Warc staff