Apple Stores in China Outsell Fifth Avenue as Nation Outgrows Gray Market
Gao Jun arrived at the newest Apple Inc. store in Beijing 30 minutes before it opened in hopes of beating the crowd. The crowd was already there.
About 35 people stood in subfreezing temperatures this week waiting for the Joy City Mall outlet to open at 10 a.m. Gao said he needed technical support for the iPhone 4 and the MacBook Air laptop he bought in the past two months.
“There’s always lots of people if you come in the afternoon, and weekends are absolutely crazy,” said Gao, 50, a publisher. “Hopefully, at this hour I’ll avoid some of the worst of it.”
Gao’s dilemma helps illustrate why China has Apple’s highest-grossing stores worldwide less than three years after the Cupertino, California-based company opened its first one in Beijing. The company said in February it planned to open as many as 25 retail stores through 2012 in the world’s most populous nation -- a market that Chief Operating Officer Tim Cook last week called a “top priority.”
“Apple has an iconic product, and they are well-positioned in China,” said Ted Dean, president of Beijing-based technology consultant BDA China. “There is a category of consumer in China that wants the best-in-class product, and they are willing to spend to get it.”
Revenue in mainland China, Hong Kong and Taiwan in the first quarter quadrupled to $2.6 billion from a year earlier, Cook said during a Jan. 18 earnings call. Those regions will contribute “well over half” and possibly as much as 100 percent of Apple’s total earnings growth in the next two years, Morgan Stanley estimates.
“We put enormous energy into China, and the results of that have been absolutely staggering,” said Cook, who will handle the company’s day-to-day operations as Chief Executive Officer Steve Jobs takes medical leave.
“It’s clear that we’re introducing a lot of people to Apple who previously had not been introduced to the company.”
Apple had 323 stores worldwide at the end of the first quarter, with 87 of them outside the U.S. The retail stores generated a record $3.85 billion in the first quarter, compared with $1.97 billion a year earlier.
The four Apple stores in China generate, on average, the highest traffic and highest revenue of any company stores in the world, Chief Financial Officer Peter Oppenheimer said on the call.
Worldwide, the company’s stores averaged $12 million in revenue, a 69 percent increase from $7.1 million a year earlier, Oppenheimer said. Average sales volume at the international stores exceeded that at the U.S. stores.
The world’s second-most valuable company opened its first China store in Beijing’s Sanlitun Village shopping center in 2008. Before then, the primary way for Chinese to buy Apple products was at gray-market retailers selling merchandise smuggled from Hong Kong.
The iPhone wasn’t officially available in China until the fourth quarter of 2009, when it was offered through a contract with China United Network Communications Group Co. That was two years after its U.S. release.
In the past six months, Apple added the Joy City Mall store and two in Shanghai.
50 More Stores
Luan Yahan regularly spends two hours on Beijing’s packed subway traveling from her university in the northwest suburbs to the Joy City Mall store, which opened in September. Her first Apple products were bought at gray markets like those in the capital’s Zhongguancun district.
Luan, 21, now owns two iPods, an iPod Touch and a MacBook Pro laptop.
“There’s always a lot of people checking out the iPods and iPads and using them to play games,” Luan, a design major at Beijing University of Aeronautics and Astronautics, said outside the store. “You normally have to wait to get a turn.”
Apple this year plans to open 40-50 stores worldwide, with more than half of them outside the U.S., the company said in its quarterly earnings report. It didn’t specify the number of openings in China.
The company’s Hong Kong-based spokeswoman, Jill Tan, declined to comment on plans for new stores in China.
Apple doesn’t disclose individual-store revenue. The company’s “Cube” on Manhattan’s Fifth Avenue is likely its most-trafficked U.S. store because it is the flagship location, said Ashok Kumar, an analyst with Rodman & Renshaw LLC in New York. The underground store is always open.
“Nobody has had the success that Apple has had” with its retail outlets, Kumar said. “The level of customer loyalty is unmatched.”
On a recent afternoon at the Fifth Avenue store, about 260 people were trying out products on 30 tables. Some displaying iPods had no customers, and some of the approximate 100 employees chatted with each other to pass the time.
A similar table in the Joy City Mall with eight iPods attracted as many as three customers per model. There was barely enough space to wade through the crowds between displays.
Company sales in China will surge as Apple adds new products and more stores, Morgan Stanley analyst Katy Huberty wrote in a Jan. 20 report to clients. China’s Ministry of Industry and Information Technology this month approved the sale of the 3G iPad tablet, in addition to the Wi-Fi version now available.
Apple will more than triple sales in China this year to $9.4 billion from $2.9 billion last year, Huberty wrote. Sales may reach $15.2 billion in 2012, she estimated.
Within 30 minutes of the Joy City Mall store opening one morning this week, the aisles were packed with more than 100 shoppers. All four tables displaying iPads were filled with people playing games such as Angry Birds and Fruit Ninja.
“The store is always crowded because of all the people playing games,” said Luan, who likes to try applications such as Zombie Farm and Pig Shot. “If you stare at people a while, they will usually leave.”
To contact Bloomberg News staff on this story: Edmond Lococo in Beijing at +86-10-6649-7507 or email@example.com.
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