China, Here We Come: Why Retail is a Core Part of Apple's Global Strategy

Last Updated Aug 26, 2010 2:47 PM EDT

Don't think of Apple (APPL) stores in terms of conventional retail metrics; think of them as business incubators.

Consider the stores' profit margins. They are considerably lower than that of the overall company, and slipped in the latest quarter to 22 percent from 23 percent. An outside consultant might look at those numbers and say the company would be better off investing in other operations.

But that misses the point. The stores are a catalyst for everything Apple. In the latest quarter, Apple stated in an April 20 conference call, first-time buyers accounted for more than half of the Mac computers sold in the stores. That's a lot of new Mac-olites, particularly given the company's reputation as a provider to a specific, captivated audience. Heck, the Simpsons compared the company to a cult.

But that's not all. The stores are a critical part of the strategy to launch what Apple hopes is its next category-killer, the iPad. Apple cultists will line up for iPads, of course, but the device is up against established E-reader competition. To sell the unfamiliar machine to a wider audience, Apple is counting on the stores to warm up the audience for iPads. As CFO Peter Oppenheimer said in the conference call, "I think the stores are really going to be a great place for customers to come in, look at and buy iPads."

The stores aren't only important from the product prospective, however. Apple is opening two new stores in China this summer and plans to have 25 in the country by the end of 2011. Considering that Apple only has about 285 stores worldwide, that's a big investment.


In the first half of this fiscal year, Apple had sales of $1.3 billion in China, up almost 200 percent over the year earlier period. The company recently added 800 distribution points. The stores are important, though, because while tech-savvy Chinese know all about Apple, the great bulk of consumers -- those who use rather than exude over electronics -- will have to be weaned from their much-cheaper PCs.

By providing a great retail experience, in a country that loves to shop, Apple believes it can plant the seeds to grow a whole new generation of Mac-olites.

Flickr photo: myuibe