Apple's China Strategy Meets Manhattan Reality

Shoppers at the 5th Avenue Apple store in New York Photograph by Craig Warga/Bloomberg

The scruffy underbelly of the smartphone industry was on full display in the lengthy queue at the Fifth Avenue Apple Store on Friday. A group of young men in sunglasses hung out the window of a black SUV, offering $1,000 for a spot in line. Some cheery types in matching T-shirts hawked iPhone insurance for $8 a month. Ignoring all of this, for the most part, were dozens or hundreds of Chinese iPhone enthusiasts, many of them speaking into phones that wouldn’t have seemed out of place in the 1990s. Rolling suitcases are all the rage among this crowd.

Many people in line declined to talk to reporters, but those who did had similar stories. They were immigrants, either working in low-paying jobs or not working at all. They were interested in buying as many iPhone 5Ss as they could, to give to young family members.

Telling a slightly different story was 29-year-old William Shi. He showed a U.S. military identification card and said he was from Fuzhou, the capital of China’s Fujian Province.

“The Chinese people are into this mainly for profit reasons,” Shi said in Mandarin, indicating the people surrounding him in line. He said he wanted to buy an iPhone 5S for himself but was purchasing another one because there was such big demand for the phones in China. When asked how he could get his phone to that market, he was vague. “The people here all have friends and relatives in China,” he said. “We have so many ways.”

Standing next to Shi was a woman who said she was in her 50s and worked at a garment factory in New York. A half-hour earlier she’d been at the front of the line; she didn’t offer much of an explanation about how she now found herself in the back. She also wanted to buy two 5Ss, she said, for her sons.

There has always been strong demand for U.S.-purchased Apple products in China, because there is a significant markup on the devices in the country. This year, the newest model of the iPhone will be available in China much sooner than in years past, prompting hopes that it would reduce the trade in grey-market phones.

But at Apple’s flagship store there seemed to be no lack of demand from Chinese-speaking customers offering vague reasons for why they were waiting in a long line to buy multiple devices. Apple caps the number of phones that a single person can buy at two 5Ss. People were allowed 10 copies of the 5C, the cheaper model that was widely seen as a way to move into the Chinese market (and widely panned for being too expensive to sell there). Interestingly, no one who talked to Bloomberg Businessweek on Friday was at all interested in the iPhone 5C.

“Who wants the 5C? That’s garbage,” said Shi. “It’s nothing more than an iPhone 5 with a colorful jacket.”

This isn’t the only indication that, despite all the talk about the C in 5C standing for China, the higher-priced model is more enticing. Bryan Wang, a Beijing-based analyst for Forrester Research, says China’s largest mobile carrier, China Mobile, is also mainly interested in using Apple as a way to target the high end of the local market. “We believe China Mobile would prefer to focus on the higher price 5s model, which it can leverage to keep (or even win back) high end customers,” he wrote in an e-mail.

It certainly seemed like many of the 5Ss bought on Friday weren’t going to spend much time in the possession of those who were buying them. One middle-aged Chinese couple, who said they were unemployed, bristled when asked whether they had been hired by someone to stand in line. The woman said she was an iPhone user but couldn’t say which model she owned. When asked why she was buying two phones, she gave a logical answer.

“Each person is allowed to buy two,” said the woman. “That’s why we’re buying two.”

Translation by Charlotte Li