Why Is Apple Opening More Retail Stores in Emerging Markets?
In this article (5)
Apple continues to remain optimistic about China despite the country’s economic slowdown. As a result of this optimism, Apple plans to open a number of retail stores in emerging markets such as China and India. Apple had 28 stores in China through the end of 2015, but it plans to add 12 more by mid-2016.
In India, Apple had depended on subdistributors for the sale of its products until now. However, Apple has sought approval from the Indian government to open its own retail stores in India.
Apple considers India to be an important market in the coming days, as the country is now the second-largest smartphone market in the world after China. Apple’s revenues in India grew by a healthy year-over-year (or YoY) rate of 38% in the quarter ended December 2015.
Percentage of users buying iPhones from Apple US retail stores declining
India has some positive macroeconomic factors that make it an attractive market. It is one of the fastest-growing economies with a huge young population. According to Apple’s CEO, Tim Cook, “The population of India is incredibly young. The median age there is 27. I think of the China age being young, at 36, 37 and so 27 is unbelievable. Almost half the people in India are below 25. And so I see the demographics there also being incredibly great for a consumer brand and for people that really want the best products.”
The focus on retail in emerging markets is big for Apple, but it’s the opposite in the US. According to a report, citing research from Consumer Intelligence Research Partners, users are increasingly buying iPhones from telecom providers such as Verizon, Sprint (S), and AT&T (T) rather than its own stores. The above chart shows this trend. The main reason for this trend is that these providers offer consumers attractive leasing, installment plans, and exchange offers.
Apple commands only 2% share of India’s smartphone market
In the previous part of this series, we discussed the growing focus by Apple on India. According to Counterpoint, India recently overtook the US to become the second-largest smartphone market, behind only China. However, Apple still only commands a 2% share in India’s smartphone market.
“Apple’s revenues in India grew by a healthy year-over-year (or YoY) rate of 38% in the quarter ended December 2015.”
According to that report and as the chart below shows, Samsung led the Indian smartphone market last year, with Micromax, Intex, Lenovo, and Lava taking the up the remaining four positions among the top five players in this market. Microsoft lost its place among the top five players in this market due to the declining popularity of the Lumia line of smartphones.
Apple Aims to Increase Penetration of India’s Smartphone Market
Apple’s initiatives in India have yet to bear fruit
Apple released the low-cost iPhone SE in March 2016, accompanied by high expectations. It released this smartphone in India in early March, but it has so far failed to garner much interest from users. The problem with the iPhone SE is that although it costs $430 in the US, it is sold at the higher price of $586 in India.
iPhones cost more in India because Apple currently depends on third-party distributors to sell the devices in India, adding their commissions to the phone’s price. However, as discussed in the previous article, Apple plans to open its own stores in India, which could help bring down the prices of iPhones in India going forward.
This isn’t the first time Apple has launched a cheaper version of the iPhone. In 2013, Apple launched the iPhone 5C at around $500.
In 2015, Apple announced that it would slash the price of the iPhone 5S from $665 to $370, according to a report from the Times of India. However, all these efforts have still not helped Apple’s penetration of the Indian smartphone market. In our view, Apple would have to do much more to achieve that goal.
Questions & Answers
Q.What is the reason for Apple's differing retail store strategy in the US compared to emerging markets?
What is the reason for Apple's differing retail store strategy in the US compared to emerging markets?
In emerging markets, Apple is opening more stores due to optimism about growth. In the US, users increasingly buy iPhones from telecom providers offering attractive leasing, installment plans, and exchange offers, reducing the need for Apple's own retail presence.
Q.Despite India being a significant market, what challenges does Apple face there regarding market share?
Despite India being a significant market, what challenges does Apple face there regarding market share?
India is the second-largest smartphone market, yet Apple only holds a 2% share. Its low-cost iPhone SE, priced higher in India due to distributor commissions, has also failed to gain significant interest from users there.
Q.How many new stores does Apple intend to open in China, and by when?
How many new stores does Apple intend to open in China, and by when?
Apple plans to open 12 additional retail stores in China. These new stores are scheduled to be operational by the middle of 2016, adding to the 28 stores it had at the end of 2015.
Q.What initiatives has Apple taken to increase its market penetration in India, and how successful have they been?
What initiatives has Apple taken to increase its market penetration in India, and how successful have they been?
Apple sought approval to open its own retail stores and released the low-cost iPhone SE. It also previously slashed the price of the iPhone 5S. However, these efforts have not yet significantly helped its penetration in the Indian smartphone market.