Apple Watch Targets Chinese Aspirations in $16 Billion Market

Apple Inc. jumped to the top of the Chinese market by adapting the iPhone to local tastes. It’s using the same recipe with the Apple Watch.

The new timepiece is available in gold — appealing to China’s appetite for luxury. Apple also is showcasing the WeChat messaging service from China’s Tencent Holdings Ltd., an app used by half a billion people.

The smartwatch starts at 2,588 yuan ($413) in China, putting Apple in position to boost sales beyond the $182 billion in revenue from iPhones, iPads and Macs last year.

Apple’s China sales rose 70 percent in the past quarter, helped by the introduction of the iPhone 6 and 6 Plus. By moving to a screen that’s bigger than a traditional smartphone’s but smaller than a tablet’s, the iPhones were popular in a market where consumers prefer to carry one device.

The Apple Watch is “going to be a massive hit in China,” said Shaun Rein, managing director of China Market Research in Shanghai. “It’s a brand that’s aspirational, but it’s not so over the top in price.”

Greater China contributed more than $16 billion to Apple’s sales in the past quarter, about 21 percent of the company’s total. The country still ranks behind the Americas and Europe in total revenue. Yet Chief Executive Officer Tim Cook has said China eventually could become the company’s biggest market.

China has been a key component of Apple’s marketing of the watch since it was first announced in September, with the device gracing the cover of China Vogue before any other magazine.

Volkswagen Polo

China prices for the watch were released Tuesday after Cook showed off the device in San Francisco. The Apple Watch Sport is the least expensive model at 2,588 yuan. The 18-karat gold Apple Watch Edition will cost about 126,800 yuan, more than the price of a Volkswagen AG Polo.

“For an international brand, plus add gold into the equation, and I think that combination is going to appeal in China,” said Chris Jones, an analyst for Canalys, noting the popularity of gold-colored iPhones.

The most expensive watches could be a tough sell in some quarters, though. Conspicuous consumption has become a hot issue as President Xi Jinping tackles the waste and corruption that he said threatens the Communist Party’s rule.

Graft Crackdown

China’s sales of luxury goods have been damped by the government’s antigraft campaign, which has curbed gift-giving. Luxury spending in mainland China fell for the first time in 2014, slipping 1 percent to 115 billion yuan, according to consultancy Bain & Co.

Yang Dacai, a former official in Shaanxi province, was vilified on social media after images showed him wearing luxury timepieces while smiling at the scene of a deadly bus crash. He was sentenced to 14 years in prison for graft in September 2013.

“The anti-corruption campaign has definitely made people, especially in government, reluctant and even scared to buy expensive products,” said Shi Jie, a partner at the Grandall Law Firm and a member of the China People’s Political Consultative Conference. “They buy fewer for themselves and fewer to give others.”

Usually the bling factor of a new, high-end device would make China one of the strongest markets for the Apple Watch Edition, but this year could prove different because of the anticorruption campaign, said Bryan Ma, an analyst at International Data Corp. in Singapore.

Juggling Act

Zhou Fen, a 28-year-old guide who takes Chinese tour groups to Southeast Asia, has been won over, at least for a less expensive model. He plans to buy the Apple Watch when it’s released April 24, the same day as in the U.S.

“On a tour my hands are full. I’ve got tickets, clipboards with itineraries, a megaphone so the group can hear me,” Zhou said at Apple’s store on Beijing’s Wangfujing shopping street. “Trying to get a phone out of my pocket with all those things in my hands is a juggling act. With all these functions right on my wrist, I can stop the juggling.”

Apple’s presentation on Monday included a video showing the new store in Hangzhou, emphasizing China’s value to the company, said Andrew Uerkwitz, a New York-based analyst with Oppenheimer & Co.

“China is arguably the most important market outside the U.S. and, without this key market, I don’t see how Apple can have success with the watch or any future product,” Uerkwitz said.

Luxury Watches

Uerkwitz projects the watch will do well in China, helping push global sales this year to 15 million units.

Neil Shah, an analyst at Counterpoint Technology Market Research, predicts Apple Watch sales will surpass 5 million units this year.

Zhang Xiaohong, a 21-year-old college student in Beijing, was shopping in watch stores along Wangfujing street, looking for something between 3,000 yuan and 5,000 yuan.

“I’d be very interested in the Apple Watch because I love Apple products,” Zhang said. “I’ve got an iPhone 5 and a MacBook computer. The design and quality is so good.”

While Apple has grabbed headlines for the success of its devices, its move into wristwear hasn’t caught everyone’s attention just yet.

Chen Zhiting, shopping for watches in Beijing wearing a New York Yankees baseball cap, was looking for something sporty at a price as much as 50,000 yuan.

Would he consider the Apple Watch? “Does Apple make watches?,” he responded. “I thought they were the iPad people.”

Source: Bloomberg