Apple Is Said to Be Close to Opening First Retail Store in India

(Bloomberg) -- Apple Inc. has finalized a short list of locations for its first retail store in India, according to people familiar with the plans, as the company redoubles its efforts in the world's fastest-growing smartphone market.

The iPhone giant has zeroed in on several upscale sites in Mumbai, and plans to make a final decision in the next few weeks, said the people, asking not to be named because the discussions are private. The vetted spots are comparable to iconic Apple locations on Fifth Avenue in New York, Regent Street in London or the Champs-Elysees in Paris, they said. Apple has been prohibited from opening its own stores in the country because it doesn't meet local sourcing requirements, but it's shifting manufacturing into India and is in talks with the government about its retail expansion.

The Cupertino, Calif.-based company has struggled to establish itself in India where consumers have opted for less expensive Chinese brands such as Xiaomi and Vivo. But Chief Executive Officer Tim Cook has vowed to improve in the fast-growing market, especially as Apple loses ground in China. Manufacturing in India will also allow the company to sidestep 20 percent tariffs on imported phones, making its devices more competitive.

“India is a very important market in the long term,” Cook said after the company's earnings report last week. “It's a challenging market in the short term, but we're learning a lot. We plan on going in there with sort of all of our might.”

Apple doesn't break out its revenue from India since it's such a minor part of the business. In the most recent quarter, the company generated 44 percent of revenue from the Americas and 18 percent from greater China. India is lumped in with the rest of Asia-Pacific, which altogether account for about 6 percent..

Apple has tried in recent years to gain ground as India eclipsed China as the fastest-growing smartphone market in the world. One Apple veteran took over as country chief at the end of 2017, overhauling its strategy and replacing top sales executives. But with little sign of progress, a new country chief was named in November.

Still, Apple continues to flounder in India. Research firm Canalys estimates the company's shipments fell by more than 75 percent in the first quarter of 2019, giving it only about 1 percent of the country's smartphone market.

Now Apple appears to be doing the difficult -- and expensive -- work of building a foundation for its business. Foxconn Technology Group, its most important manufacturing partner, is running quality tests for the iPhone Xr series in India and plans to begin mass production at a facility in the suburbs of Chennai. Older models are already assembled at a Wistron plant in Bangalore. The increase in local operations should expedite approval for a company-owned store when a new government takes over in India at the end of May or early June, said the people.

“Its own retail store might be just what Apple requires to reinforce its premium image,” said Rushabh Doshi, an analyst with Canalys. “A store just before the next launch will be the perfect timing for Apple to restart its Indian growth story.”

It's clear Cook won't give up against Chinese phonemakers that have come to lead the market. “We have made some adjustments in India and we've seen preliminarily some better results there,” he said last week during the earnings call.

Indeed, last month Apple ran front-page newspaper ads announcing sizable discounts on the latest iPhone Xr. The phonemaker, which rarely slashes price on its latest models, has offered a markdown of 17,000 rupees ($244) on its latest iPhone Xr, bringing the price down to 59,900 rupees. This week online retailer Paytm Mall announced cash paybacks on a variety of iPhone models.

“The price cuts are definitely a step in the right direction,” said Doshi. “Apple has a delicate balance to maintain: It needs to appeal to the cost-conscious Indian buyers, while ensuring that price drops do not dilute its premium image.”

--With assistance from Mark Gurman.

To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan