Asia’s biggest Apple store opens in Shanghai

SHANGHAI — Cui Lizhen, who lined up two days before Friday’s opening of Asia’s largest Apple (AAPL) store, was hoisted in the air by the company’s retail employees and carried into the block-long outlet along tony East Nanjing Road. It was the start of a daylong pep rally that tapped into the yearnings of a new generation of Chinese consumers and signaled the emergence of a new center of gravity for the Cupertino company.

Cui had no words to describe the experience of entering the store with its circular glass staircase. “It’s beyond description,” the 27-year-old said.

Apple’s fifth store on mainland China is big enough to handle as many as 40,000 visitors a day. It’s located just a few miles away from Apple’s 16,000-square-foot flagship glass cylinder Pudong store, which, like Apple’s other nearby store in this city of 23 million, is unable to handle the crush of customers clogging their floors.

On Saturday, Apple plans to unveil its first store in Hong Kong, another ballroom-size outlet built to help the company overcome its biggest problem in Asia — an inability to meet the stampedelike demand for iPhones and iPads. The latest retail extravaganzas are down payments on the investment Apple is making in the emerging economic giant, whose swelling ranks of ready-to-spend Chinese could one day represent a market greater than that of the United States.

“Apple is a maker of high-end electronics products. China’s market is huge, with great consumption power,” said 20-year-old Qiu Shi, who, along with his friend, Lee Dongsheng, embarked on a 10-hour train ride from Guangzhou to queue up behind Cui for the opening of the three-story edifice that will employee 300 blue-T-shirt Apple workers. “When the two are together, they will create a great future,” he said, cradling a blue-covered iPad he used to photograph the new store, which was as crowded as a Shanghai subway.

This week, Apple also released its 3G iPad 2s in China, where previously consumers could only buy Wi-Fi-enabled tablets. Meanwhile, some analysts speculate the company is on the verge of launching a less expensive iPhone aimed at developing markets like China when it announces its new iPhone 5, expected to occur in coming weeks.

The store openings come at a time fake Apple stores are spreading across China and as some experts wonder if the company was simply unprepared for the frenzied demand for iPhones, iPads and MacBooks in this country of 1.3 billion people. Apple has plans for many more stores in China and across Asia. But its exacting retail strategy — not only are its stores designed down to the smallest detail to meet the art-house consumerism of co-founder Steve Jobs, but their locations in chic neighborhoods are painstakingly picked — makes quick store rollouts difficult.

“I do believe there is some desperation on Apple’s part to capture the moment in China,” Needham & Co. analyst Charles Wolf said. “The middle class in China is really nouveau riche — they really want to spread their wings and buy luxury items because they have been deprived of them for so long.”

Apple, which seems to never miss a business beat, appears to have miscalculated in China, said John Quelch, former senior associate dean of Harvard Business School and now head of the China Europe International Business School in Shanghai.

“It’s a brilliant company, but it’s highly U.S.-centric,” he said. “If they had foresight, they would have at least 50 stores in China. You can afford to be meticulous with a country with 2 to 3 percent GDP growth, but not in a country with 10 percent GDP growth.”

Apple, nonetheless, is increasingly relying on Asia to rev up sales.

The company in July reported third quarter sales were up 600 percent for what Apple calls Greater China — Mainland China, Hong Kong and Taiwan — which translated into $3.8 million. “I firmly believe that we are just scratching the surface right now (in China),” Tim Cook, Apple’s new CEO, said during the conference call with analysts.

Upwardly mobile Chinese, ever on the lookout for products that can put a sheen on their social status, eagerly snap up iPhones and iPads, the ultimate gadget eye-candy — even for those who never learn how to use the devices.

“Every girl I know has an iPhone. They make 2,000 renminbi (about $313) a month, but they still have an iPhone,” said Ming Yang, an executive with a solar company. “The iPhone is like the ‘It’ phone.”

Official iPhone 4 prices in China start at about $780, though black-market devices can sell for more when supplies are low in Apple stores. iPads are popular gifts for government officials and business partners.

“It’s the best gift,” said Yan Sun, co-founder of Shanghai-based Modim Technologies, maker of mobile video chat applications. He has brought armloads of iPads back from Silicon Valley to give to prized employees and business associates.

Andrea Lui, a designer of high-end retail stores, recently got a taste of the Apple fanaticism spreading across Asia when she inadvertently left her handbag in a section of a Hong Kong Ikea store. When the store’s security department found it, they paged her. “They told me everything looked fine — they saw my wallet was in there, my keys. My BlackBerry was there. The cash was there. But the iPhone was missing.”

Even the dead seem to want Apple products. Chinese buy paper iPhones, iPads and MacBooks for sacrificial offerings to deceased relatives during funerals or days honoring ancestors. “They are easy to order, so they don’t have to line up,” Peter Chien, manager of a Hong Kong funeral parlor store for sacrificial items.

The fact that Apple has not been able to keep up with demand in Asia fuels “the intensity of zeal” among consumers, Quelch said. “China is a very brand-intensive society. The reason that brands are so very important is that they are a way to signal social status. When you have a country that is roughly four times the size of the United States, it is even more important to stand out in order to get noticed and get ahead.” China could quickly become as big a market for Apple products as is the United States, Sterne Agee analyst Shaw Wu said. “China is like the United States in the ’60s — people enjoyed 30 years of growth.”

What is remarkable is that Apple’s success in China has so far come without a partnership with China Mobile, the world’s largest carrier with more than 600 million subscribers. Apple has a partnership with China Unicom, which has about 170 million subscribers.

Apple and China Mobile have been in negotiations, though no deal has yet been announced.

That means countless Chinese have had to give up coveted China Mobile numbers to switch to China Unicom — or pay for two phones — so they can use an iPhone.

This is one of the reasons Ailing Wang “hates” Apple. Her other gripes include the difficulty of typing in Chinese on Apple devices, the fact most apps for the iPhone and iPad cost money — Chinese don’t like paying for software — and the company’s overall American approach to technology, even in China.

“Their attitude is, ‘We are Apple. We are who we are. We don’t change for Chinese people,’ ” said Wang, who works as a training director with a consulting firm that works with multinational companies.

“I always criticize them on (Twitter-like) Weibo,” she said. “Then I buy their products.”

John Boudreau

24 Sept 2011

http://www.mercurynews.com/business/ci_18964424?nclick_check=1