15 September 2019
Apple is pinning high hopes on its own retail chain to ratchet up sales in China amid worries of lower subsidies for iPhone sales by China's telcos. Photo: HKEJ
Apple is pinning high hopes on its own retail chain to ratchet up sales in China amid worries of lower subsidies for iPhone sales by China's telcos. Photo: HKEJ

Apple sets store by outlet strategy as waning telco sales bite

Look through the cracks into boarded-up prime retailing areas in several second-tier cities and you’ll find a legion of workers inside laboring around the clock to knock the space into shape. They are on the front line of Apple Inc’s push into China this year.

The US tech giant updated its official Chinese website at the end of last month and will soon cut the ribbon on 10 new Apple Stores in Chongqing, Chengdu, Wuxi, Zhengzhou, Tianjin and Shenyang, doubling its outlet total on the mainland to 20 by the year end. Apple already has 10 stores in Beijing, Shanghai, Shenzhen and Chengdu, with Shanghai claiming four shops and Beijing three.

Apple spent years tiptoeing into the country, slowly rolling out its sleek, glass-framed gadget playrooms but now the iPhone maker is determined to reignite sales and Apple Stores have a vital role to play in this ambition.

Apple has been recruiting new blood for posts ranging from store leader to “Genius”, the technicians that help customers solve problems with their devices. Mainland media reports say Apple will have to recruit more than 2,000 new staff.

The company has been swift to put the vision of its top executives into practice. Apple chief Tim Cook indicated last year that the firm will go beyond China’s biggest cities to more outlets to sell its devices. Angela Ahrendts, Apple’s senior vice president of retail and online stores, was previously quoted as saying that there would be no fewer than 20 stores in the country by 2016. That goal is now well within reach.

On the surface, everything seems to be positive. The cash-rich firm can well afford the hefty investment in its aggressive expansion and there are still Apple diehards in China who want the latest iconic products as a status symbol.

But Apple may have been in the doldrums — iPhone sales, its mainstay source of income, have shown clear signs of fatigue as Samsung lures more high-end buyers in China with larger screens. Cheaper local alternatives like Xiaomi, ZTE (00763.HK, 000063.CN), Huawei and Lenovo are also nipping at Apple’s heels, with their hit offerings selling at just a fraction of the iPhone’s price.

In the first quarter, 9 million iPhones were sold in China, as opposed to Xiaomi’s 10.4 million.

These are not the only woes.

China’s three state-owned telcos have all lowered their subsidies for iPhone sales, according to Guangzhou Daily and Southern Metropolis Daily. Carriers had agreed to team up with Apple to sell the iPhone in the hope that it would lure more network users.

Telcos usually pay the price of the phone in advance and customers only need to pay a monthly fee of 300-400 yuan, a fee that includes the price of the phone and network services on a 24-36-month basis.

But China Unicom, the first to seal a deal with Apple in 2009, was startled to find that despite the initial spike in the number of new customers, it gradually lost momentum as buyers turned their noses up at the monthly plans.

When the latest iPhone model, the 5S, was launched in September, Unicom lowered its subsidy for new customers by 8 percent and China Telecom by 15 percent, China News Service reports.

China Mobile began to sell the iPhone earlier this year – months after the iPhone 5S and 5C debuted, and media reports say sales growth has been lower than expected.

Around 80 percent of iPhone sold on the mainland last year were through the big three carriers and other partners like Suning (002024.CN). Apple Stores and its online retailing services contributed less than 20 percent. So, Apple must get cracking and build more stores to sustain sales as its telco partners lose faith in the iPhone effect.

Though cash is not a problem for Apple, opening 10 new stores within a year is still a breakneck pace given the firm faces myriad challenges from site selection to recruitment. Apple will also have to walk a fine line between maintaining a premium brand image and wider market coverage.

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An Apple store in Central. Customers from across the border contribute the bulk of sales at Apple’s three stores in Hong Kong. Photo: HKEJ

EJ Insight writer