Is Apple Screwing Up in China?

Here's something you don't see every day. Apple (Nasdaq: AAPL  ) ran into a bit of a speed bump in China last week over what was supposed to be the launch of the iPhone 4S.

The device was set to go on sale on Jan. 13, prompting loyalists to camp out overnight at the Beijing Sanlitun Apple retail store, similar to their domestic counterparts. A key difference is that local temperatures were as low as minus 9 degrees Celsius, which is enough to test the resolve of any devotee.

The store had advertised that it would open early at 7 a.m., and when the front door failed to open on time, impatient (and cold) customers got a bit unruly. By 7:15, they began to chant "open the door!" and yell "liars!" And when an unidentified man announced the device wouldn't go on sale that day, things got out of hand.

Source: M.I.C. Gadget; Beijing SWAT controlling the crowd

Customers began hurling eggs at the location, and violence erupted between scalpers and hopeful buyers, according to local Chinese tech blog M.I.C. Gadget. Scalping the device is so profitable that the adventurous types even form teams to maximize how many iPhones they can flip. A Beijing SWAT team was soon called in to try to quell the uprising and attempt to control the massive crowd that had formed.

In response, Apple has decided to suspend in-store sales at any of its Beijing and Shanghai locations "for the time being" out of safety concerns for customers and employees. Apple is redirecting prospective buyers to the online store, other authorized resellers, and its only official carrier in China, China Unicom (NYSE: CHU  ) .

The debacle shows that Apple still has a lot of work to do in expanding its retail distribution footprint in its fastest-growing geography. Not only does it need to extend carrier partnerships to China Mobile (NYSE: CHL  ) and China Telecom (NYSE: CHA  ) , but it also needs to build more stores. Both carriers will inevitably be brought on, with China Mobile being the biggest carrier and China Telecom making progress in the regulatory front.

Apple has only six official retail stores in China, so there's plenty of room for growth. Building more stores would ease the traffic and spread out the masses, which is clearly needed. Stateside, Apple is further expanding into Target (NYSE: TGT  ) locations with mini-stores, similar to those found at other third-party retailers like Best Buy. Apple needs to ink more reseller partnerships like the one with Target within China.

While this fiasco is certainly a misstep in China and Apple has its work cut out to capitalize within the nation, Cupertino will recover and unlock the massive potential there. China is one reason you can still buy Apple.

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Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Best Buy, Apple, and China Mobile. Motley Fool newsletter services have recommended buying shares of Apple and China Mobile, creating a bull call spread position in Apple, and writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On January 16, 2012, at 6:40 PM, FreeRange1 wrote:

    This article underplays the real problem which are the ruthless scalpers. Some of whom even bussed people in to stand in line. For China, Apple should sell new devices only be reservations, only with a bank card and limit the quantity per purchase to one. They really blew it at the Hong Kong event by allowing individuals to purchase up to 5 phones which is absolutely ridiculous and inexcusable on Apple's part as they are well aware of the scope of the black market.

  • Report this Comment On January 16, 2012, at 7:01 PM, 0taojones wrote:

    get serious!!!!

    since when is overwhelming demand for a product a screw up? if chevy could screw up this bad it would be great . go and ask rim if they could use a screwup this bad…

    bet the farm on apple don't look back

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