Apple and China

From a recent story in Want China Times, “Two Percent of China’s Public Consumes One-Third of World’s Luxury Goods”:

According to China’s official population clock, there are an estimated 1,359,025,970 people in China as of Sept. 26, with just 2% of that number — some 27,180,519 people — consuming one third of the world’s luxury items. The 2% are the backbone of the global luxury goods sales and the target of hundreds of international brand names, the Chinese-language Money Week magazine reports. Although the huge majority of China’s population is unable to purchase luxury items, as the country’s economy grows so will its market, the magazine said.

When the iPhone 5C came out last month and was not “low cost”, many took it as a sign that Apple was somehow ignoring China. I would say it’s just the opposite: they’re skating to where the puck is heading, not where it is, and positioning their products to thrive as China’s upper class grows.

From Apple’s perspective, there’s no such thing as an “emerging market”. There are certainly cultural differences between consumers in different countries, but the bottom line is that there are people who can afford iPhones and iPads, and people who can’t. The class of people who can afford Apple products is growing faster in China than it is anywhere else.

There’s nothing unique to Apple about this, except, perhaps, the size of the opportunity. Chinese consumers are buying disproportionate quantities of luxury products across the board. Red Obsession, an excellent new documentary film about the French wine industry (available on iTunes; I recommend it highly), documents the rise of China as the number one market for the best (read: most expensive) French wines.

Apple’s hirings of Burberry CEO Angela Ahrendts (to head Apple’s online and retail stores) and former Yves Saint Laurent CEO Paul Deneve (“special projects”) fit right into this dynamic.1 Apple’s path to success in China (and much of the rest of the world) is not to lower itself and compete purely on price against low-cost commodity Android devices. It is the opposite: to further separate its products, in terms of branding and quality, from its competition. The sweet spot for Apple in China is the same as it is in the U.S. and elsewhere: attainable, affordable, casual luxury.