Jan. 13 (Bloomberg) -- Apple Inc., whose skill at hyping new products helped make it the world’s most valuable technology company, became a victim of its own success after a botched introduction of its iPhone 4S in China led it to suspend sales.
Would-be customers who waited overnight as temperatures dropped below minus 9 degrees Celsius reacted with fury after the company’s main store in Beijing’s Sanlitun district failed to open. The company sold out of the handsets at stores that did open and later halted sales of all iPhones at its five retail outlets in the country “for the time being,” spokeswoman Carolyn Wu said by phone.
Apple had advertised that the store would open at 7 a.m. At 7:15 a.m., people began chanting “Open the door!” and “Liars!” after an unidentified man said over a bullhorn that the phone wouldn’t go on sale today, without giving an explanation. The store stayed closed “for safety reasons,” Wu said. Beijing police temporarily cordoned off the shop after it was pelted with eggs by the crowd.
“This is a debacle,” Shaun Rein, managing director of China Market Research Group, a Shanghai-based retail advising company, said in a phone interview today. “Everybody knows there will be massive numbers of people when Apple has this kind of a launch. This shows very poor retail management ability.”
Elsewhere in the capital, the introduction went more smoothly. At Apple’s store in the Xidan neighborhood, the company handed out 1,000 tickets good for the purchase of a maximum two iPhone 4S handsets each. In Shanghai, a store in the Pudong district opened an hour early to accommodate the waiting crowds before selling out of the phones immediately.
“I’m very angry,” said Li Yun, 59, a retiree who said she tried to buy the device on behalf of her daughter at the People’s Square store in Shanghai. “They had said they would start selling the iPhone 4S at 7 a.m. but I was told they were already sold out by the time I got here at 6 a.m.”
About 60 migrant workers, hired by resellers to line up last night outside Apple’s store in Beijing’s Xidan, weren’t paid the 120 yuan ($19) they were promised because they failed to get an iPhone 4S after the 12-hour wait, according to several of them, who asked not to be named for fear of reprisal. They came by bus from a labor market in the suburbs and received only a 10-yuan food allowance, they said.
The crush of crowds at the stores is a reflection of the company’s decision to slow the opening of outlets in China, Rein said.
Apple in February 2010 announced a plan for 25 stores in China over two years, then slowed the expansion. Including the Hong Kong shop, which started selling the iPhone 4s on Nov. 11, there are six in the country.
“There isn’t enough product in enough retail points,” Rein said. “If they had more points of sale, it would disperse the crowds.”
Hundreds of people lined up outside the store in Hong Kong’s IFC Mall for several nights when the new iPhone went on sale, prompting police to use metal barricades to keep order.
Apple has more than 300 outlets worldwide and planned to sell the latest iPhone model through its three stores in Shanghai, two in Beijing, the two main cities in the world’s largest mobile-phone market.
The Cupertino, California-based company sold 5.6 million iPhones in China in the first nine months of last year, giving it a 10.4 percent share of the smartphone market in the third quarter, according to research company Gartner Inc. Apple’s Wu earlier declined to comment on the outlook for iPhone 4S sales in China.
Apple’s stores in China generate the highest traffic and highest revenue of any of the company’s stores in the world, on average, Chief Financial Officer Peter Oppenheimer said last January.
The maker of Macintosh computers and the iPad tablet increased its revenue in China to $13 billion in the year ended Sept. 24, from $3 billion a year earlier, Chief Executive Officer Tim Cook said in October. China accounted for 16 percent of Apple’s revenue in the fiscal fourth-quarter, making it the company’s biggest national market after the U.S.
Today’s confrontation wasn’t the first during a product introduction at the Sanlitun store, which opened in 2008 as Apple’s first in the country. In May, the store was temporarily closed when a group that lined up outside to buy the iPad 2 “became unruly,” Wu of Apple said at the time. Four people were injured and a glass door to the shop was smashed, the China Daily reported.
The violence adds to challenges for Apple in China, where company supplier Foxconn Technology Group was hit by a series of employee suicides. The Taipei-based company installed safety nets on buildings, raised pay and hired counselors in 2010 after at least 10 workers killed themselves. Apple also commissioned a review by a team of suicide-prevention experts.
China Unicom (Hong Kong) Ltd., the nation’s second-largest carrier, is the only one of the country’s three service providers offering the iPhone with a service contract. The company sent a text message to subscribers trumpeting free home delivery of the new handset through its online store.
“Buy the iPhone 4S without lining up!” China Unicom said in a text sent to subscribers in Beijing. Unicom’s online shop made the device available at midnight, the text said.
While Apple suspended iPhone 4s sales at its China shops, the handsets remain available on its website as well as from Unicom and resellers, Wu said.
Sophia Tso, a spokeswoman at China Unicom in Hong Kong, didn’t immediately reply to messages left by phone and e-mail seeking comment.
The Unicom site lists the 16-gigabyte model for 5,880 yuan ($932), with different levels of subsidies. The handset is free to users committing to a three-year plan for 286 yuan a month or a two-year plan costing 386 yuan a month, the website said.
The crowd around Apple’s main Beijing store diminished after police lifted the cordon and the doors remained closed. Some waited a while longer for a chance to buy the phone, which includes voice recognition software that doesn’t work with Mandarin, before giving up.
“We were unable to open our store at Sanlitun due to the large crowd and to ensure the safety of our customers and employees,” Wu said.
The fracas outside the store was caused by yellow bulls, a euphemism for people who buy the phones for sale at a markup, Tony Si, an 18-year-old bartender, said outside the store. The disorder, police response and store closing was their fault, not Apple’s, though he is still disappointed, he said.
“I’m angry because they said they’d sell it, and now they aren’t selling it,” Si said.
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