Bloomberg News

Apple to Open First Hong Kong Store as China Demand Surges

September 06, 2011

(Updates with comment on taxes in 12th paragraph.)

Sept. 6 (Bloomberg) -- Apple Inc. is preparing to open its first store in Hong Kong this month as the maker of iPhones and iPads aims to capture the surge in demand from China and its neighboring regions.

The store, located inside the International Finance Center Mall in Hong Kong’s Central shopping and business district, will debut this quarter, said Carolyn Wu, a Beijing-based Apple spokeswoman, declining to specify a date. The Ming Pao Daily reported two days ago, without citing anyone, that it will open the two-story store Sept. 24, spanning 20,000 square feet.

For Apple, which says it’s only “scratching the surface” in China, Hong Kong and Taiwan after sales in the region surged six-fold last quarter, the IFC store may help the company reduce its reliance on resellers to sell products in the city. The shop will be Apple’s fifth store in the China region, which has generated about $8.8 billion in revenue in the past three quarters, or 11 percent of Apple’s total.

“The iPhone is one of the leading smartphones in the Hong Kong market,” said Sandy Shen, an analyst at Gartner Inc. in Shanghai. “The sales momentum for the iPhone is still very strong, and we see the growth being maintained for the next few quarters.”

Retail Sales

Apple may also open two more stores in Hong Kong, one in the Lee Gardens at Causeway Bay and one in Tsim Sha Tsui’s Canton Road, according to the Ming Pao report, which didn’t cite anyone or say when. The Cupertino, California-based company is in negotiations with Hysan Development Co. to open a store in Causeway Bay’s Hysan Place, a person with knowledge of the matter said in May.

Attracting a tenant such as Apple, the world’s second- largest company by market value, may be a victory for Sun Hung Kai Properties Ltd. and Henderson Land Development Co., who developed the IFC commercial complex that includes the 88-story IFC 2 office tower, as they benefit from the influx of visitors from mainland China. Rent prices for shops in Hong Kong’s Central business district may climb almost 50 percent over the next three years, according to Jones Lang LaSalle Inc.

Retail sales in Hong Kong during the first seven months of the year rose 25 percent from a year earlier, the biggest gain since data began in 1981, according to the statistics department. In July, revenue jumped 29 percent, driven by sales of jewelry, watches and electronics. The yuan’s 7.5 percent gain against Hong Kong’s dollar in the past couple of years has also boosted the spending power of shoppers from China.

Retailers Boom

The price of Apple products, including taxes, are cheaper in Hong Kong. The cheapest iPad 2 in Apple’s China store costs 3,688 yuan (HK$4,497.7), or 16 percent more than the price in Hong Kong’s online store.

Apple’s store opening “exemplifies the fact that foreign brands have bullish prospects on the retail market here,” said Mariana Kou, a retail analyst with CLSA in Hong Kong. “All the top brands are” at the IFC, she said.

Resellers of Apple products such as DG Lifestyle may not be as bullish. The retailer, which has 11 outlets in Hong Kong, closed its shop in the IFC two days ago after seven years in operation, said a spokeswoman for DG who asked that she only be identified by her surname Ko. She declined to comment further on Apple’s store opening and the business impact.

China Sales

Still, the apple store opening should not have much of a “dilution effect” on resellers, said Gabriel Chan, a retail analyst with Credit Suisse Group AG in Hong Kong.

In China, consumers need to pay value-added tax, import duties and consumption tax, so luxury products in Hong Kong are both cheaper for buyers and more profitable for sellers, Chan said.

Apple, which didn’t open its first store in China until 2008, now has two stores each in Beijing and Shanghai. Those four stores generate, on average, the company’s highest traffic and highest revenue, Chief Financial Officer Peter Oppenheimer said in January. The company had 327 stores worldwide at the end of last quarter.

Apple’s sales in the China region were “key” to Apple’s third-quarter results after they surged sixfold to $3.8 billion, Chief Executive Officer Tim Cook said in July before he was promoted from chief operating officer. The company plans to open 40 stores, including 28 new stores outside the U.S., during fiscal 2011, he said at the time.

--Natasha Khan, Edmond Lococo, with assistance from Kelvin Wong and Mark Lee in Hong Kong. Editors: Young-Sam Cho, Garry Smith

To contact Bloomberg News staff for this story:

To contact the reporters on this story: Natasha Khan in Hong Kong at nkhan51@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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