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Apple’s new flagship store stands in front of the Oriental Pearl Tower in Shanghai.
SHANGHAI — Although Apple is widely admired in China, most fans of its products here have been buying their iPhones, iPods and Mac computers from smugglers who operate through underground electronics markets. The company has few sales outlets in the country and only one Apple Store, a branch in Beijing.
But with Apple set to open a flagship Saturday in Shanghai — one of its largest stores in Asia — the company is embarking on a concerted effort to raise its profile in the world’s biggest mobile phone market and tap more directly into China’s fast-growing consumer electronics market.
Apple intends to open 25 retail stores in China over the next two years, starting with the Shanghai outlet, which it previewed for reporters Thursday.
“We view this store as a kind of launching pad,” Ron Johnson, senior vice president of retail operations at Apple, said Thursday.
By opening retail outlets in China, Apple is following other global brands eager to market to the country’s increasingly affluent consumers. While overall retail sales in the United States and Europe are weak, China’s economy is booming, and companies like Best Buy, the Gap, Nike, Starbucks, Zara and most of Europe’s big luxury brands are opening new stores in China.
Analysts who follow Apple say that China offers a huge opportunity for the a company because Apple’s market share in the country is tiny — less than 5 percent in most major categories.
“Apple plans a major invasion of China over the next 18 months to two years,” said Charles Wolf, an analyst who follows Apple for Needham & Co. and credits its retail stores with significantly bolstering Apple’s brand. “To date, Apple has not been a force in China. But it will be.”
But other analysts say Apple faces significant hurdles in China. The company’s product releases have been dogged by delays. Sales through official distributors have been weakened by prices that are substantially higher than in the United States, fueling a brisk underground trade in smuggled goods.
The iPhone, for instance, was officially released in China only late last year, nearly two years after it was introduced in the United States. By then, analysts say, more than one million iPhones had been brought into the country by tourists or smugglers.
Apple also faces stiff competition from Nokia, Motorola, HTC and other mobile phone brands that use Google’s Android operating system. Those companies have been aggressively marketing their products in China, which has more than 650 million mobile phone users.
Even Lenovo, the Chinese computer maker, has entered the smart phone market by introducing what it calls LePhone, which is priced far below the iPhone.
In an interview published Monday in The Financial Times, Liu Chuanzhi, the head of Lenovo, said Apple was missing a huge opportunity in the Chinese market because the company was spending too little time serving Chinese consumers and understanding their needs.
Apple would not comment on the Lenovo statements. But Apple executives hope that building stores in China will give the company more direct contact with its consumers and duplicate the excitement Apple has generated elsewhere. If Apple opens 25 stores by 2012, China would most likely become the company’s third-largest market after the United States and Britain.
Retail stores could also help China Unicom, a state-owned telecommunications company that now has an exclusive multiyear deal to sell the iPhone in China.
Analysts estimate that China Unicom has sold about one million iPhones since late last year. They say the company had expected to sell far more by now but that the high price of the iPhone (5,880 renminbi, or about $864 up front for the 3GS model with a complicated calling plan and refunds over a two-year period) have prevented stronger sales.
“The price of the official iPhones is too high compared to that on the grey market,” says Sandy Shen, an analyst at Gartner, a research firm based in Stamford, Connecticut. “Also, Apple has too few retail stores in China. It is inconvenient for consumers to find one when they want to buy the iPhone, iPod or Mac.”
China Unicom recently introduced a cheaper plan, and sales have improved, analysts say.
Black market sellers say that even with new Apple stores, they have an advantage because Apple has been delaying the international release of new products like the iPhone 4 and the iPad.
“They won’t have any impact on our clients,” said Yang Zijie, a vendor selling Apple products Thursday at an electronics market in Shanghai. “Their price for the iPhone 3GS is much higher. Customers who already got used to the price of smuggled goods won’t turn to them. And they don’t have the iPhone 4 or the iPad at all!”
But many analysts say consumers will flock to Apple stores. Apple products are widely and comically imitated in China, and the large number of phones smuggled into the country is an indication of pent-up demand.
Apple will get a taste of that demand on Saturday, when the Shanghai flagship store is set to open in an upscale mall in the Pudong financial district near some of the city’s gleaming new skyscrapers.
The shop is designed in Apple’s sleek, minimalist style and punctuated by a cylindrical glass shell 12 meters, or 40 feet, tall that echoes the company’s iconic Fifth Avenue store in New York.
The entrance to the store, which has about 175 workers, is through a winding staircase that takes customers into an underground area that sells computers, smartphones and accessories. It is outfitted with the company’s trademark Genius Bar (where customers can get technical support) and a “briefing room” intended for business seminars.
Mr. Johnson was beaming Thursday as he introduced the store’s features to about 100 journalists, saying that the shop offered “all the hallmarks of an Apple store experience plus a couple more.”
At the end of his briefing, even the members of the news media could not hold back their enthusiasm; the group broke into loud applause.