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Tuesday, 30 October 2018

Apple’s Retail Expansion in China Has Slowed Down Due to Fraud, Red Tape, and Other Issues


Between 2015 and 2016, it felt like Apple was opening a new retail store in China every few weeks. However, since then, Apple’s retail expansion has slowed down greatly in China. And it is not like the company has managed to open a retail store in China in every nook and cranny. Plus, the massive retail expansion came after Apple missed its original deadline of opening 25 new stores in China by 2011.

The slowdown comes at a time when Apple is facing intense competition from local Chinese OEMs and a rapid retail expansion is what can help Apple capture a bigger pie of the premium Chinese smartphone market.

However, since 2016, Apple has only opened four retail stores in China. This is because the retail stores have not done as well as the company’s expectations particularly in smaller cities in China. Apple has around 42 stores in China and it is now repositioning them for tourists and locals instead of simply trying to cover the entire country with stores. This makes sense given that Apple’s own retail stores account for about 10 percent of its total sales in China as per a company’s former employee, with the remaining 90 percent coming from third-party channels.

As for the delay in Apple’s retail expansion in China and missing its initial deadline of opening 25 stores in the country, The Information report blames it on red tape, bureaucracy, and the company’s own demand for massive space at premium locations.

Apple had to navigate a maze of government bureaucracy to obtain everything from business and tax licenses to construction, fire and customs permits for imported building materials, former employees say. The regulatory framework in China is far more complicated than in the U.S., with many more layers of government, these former employee say, and it’s far more opaque. Employees frequently scrambled to chase down permits and local approvals to keep store openings on track, they said.

Apple had planned to open at least 40 stores in Greater China by 2016. However, due to its dwindling sales in China, high return rates, and scalpers taking undue advantage of promotions, Apple has had to change its strategy.

“They basically wanted to have Apple stores everywhere in China, but they quickly realized that the strategy wasn’t profitable,” said one former employee with direct knowledge of the matter. “In the smaller mall stores, people would come in, have a look, hang out—but not buy anything.”

Apple’s strategy is in stark contrast to that of other local Chinese OEMs like Oppo, Vivo, Huawei, and Xiaomi who have been greatly expanding their local presence, especially in tier 2 and tier 3 cities to boost their sales. The strategy seems to have worked very well for Huawei and Xiaomi which are enjoying great success in China.

[Via The Information]

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