Sunday, July 11, 2010
Apple, GAP among American companies hedging their bets as they expand into China
by Larry Geller
Following up a little on my post We need to create an economy of our own—soon (7/10/2010)—
I suggested that should we no longer be able to fulfill our assigned roles as consumers in the American economy, it won’t matter much, because corporations are already cultivating new markets overseas. We will be replaced, and in spades. Then we will be discarded, just as fallen leaves are swept up and thrown in the trash. Extreme? Let me leave it that way for the moment, because at the same time I don’t think that’s what will happen. It could happen only if we do nothing.
Let’s look at some examples.
Apple is still on a roll in the USA but they are moving into China as well. Right now, early adopters are very willing to line up outside Apple stores to sacrifice their children’s college fund in order to own the very latest iPhone, iPad or iWhatever. At some point, though, as unemployment continues and the shrinking market saturates, even Apple may not be content with the US market to fuel its growth. Certainly, they will continue to give competitors a hard time here, no question of that. There’s nothing quite like the iPhone, iPad, or iWhatever.
Apple is indeed looking to develop markets elsewhere. The logical place is China, and that’s where they are headed.
The company, which has been slow to cultivate the Chinese market, has relatively few sales outlets in the country and only one Apple Store — a modest branch in Beijing.
But with Apple set to open a flagship showroom on Saturday in Shanghai — one of its largest stores in Asia — the company is making a new push to tap into the world’s biggest mobile phone market and grab a bigger share of China’s fast-growing consumer electronics business.
“Apple plans a major invasion of China over the next 18 months to two years,” said Charles Wolf, an analyst who follows Apple for Needham & Company and credits its retail stores with significantly bolstering Apple’s brand. “To date, Apple has not been a force in China. But it will be.” [New York Times, Opening a Big Store in China, Apple Remains a Market Underdog, 7/8/2010]
Apple will open 25 stores, according to the article.
It’s not just Apple.
By opening retail outlets in China, Apple is following other global brands eager to market to the growing numbers of increasingly affluent consumers in this country of 1.3 billion people. With retail sales booming in China this year, companies like Best Buy, the Gap, Nike, Starbucks, Zara and most of Europe’s big luxury goods makers are opening stores in China.
The companies may not subscribe to my theory, but they are moving into China and other markets nevertheless. Also, their capturing of overseas markets will create growth, which means increasing stock valuations. Trying to create growth in the stagnant-to-declining US market is becoming increasingly difficult.
American clothing retailer Gap Inc. has unveiled details of its entry into China with plans to open Gap stores in Beijing and Shanghai in late 2010, and simultaneously bring an online shopping experience to all Chinese consumers.
The first four Gap stores will feature a full range of Gap adult, GapKids and babyGap product, including all styles of the brand's stylish and fashionable 1969 Premium Jeans. This announcement marks the start of a long-term, multi-channel consumer market entry strategy for Gap Inc. that involves more stores in major regions, including Hong Kong, in the coming year. [China Retail News, Gap Reveals China Retail Development Plans, 6/25/2010]
Jumping to the cellphone market for another example, the rate of growth is impressive.
China added 40.8 million phone users during the Jan.-May period, bringing the nationwide total to more than 1.1 billion in a country with a 1.3 billion population. [crienglish.com, China's Phone Users Top 1.1 Billion, 6/29/2010]
For broadband, another snippet from the same article:
Meanwhile, the number of Chinese broad-band Internet users jumped nearly 9.8 million to 113 million by the end of May.
It’s important to watch broadband because the Chinese consumer is buying equipment to hook up to those broadband connections.
Google will reveal other examples.
No question, American retailers are going after the China market. Those that are not yet there must be either thinking about it or they will be soon.
China’s economy is hot, ours is cold. As our value as consumers declines, we could be simply swept away, discarded. Neither Wall Street nor Congress care whether we own homes or have jobs, based on their inaction so far. Perhaps the sweeping is already underway. Congress sure jumped through hoops to save Wall Street.
To avoid that scenario, we need to take back our economy from a Wall Street that doesn’t care where its profit comes from. The color of the money doesn’t even have to be green any longer. And since Congress is funded by Wall Street, don’t count on your elected representatives to represent you, once elected. So we need to take back our government at the same time.