Apple (NASDAQ: AAPL) has made headlines this year for a flurry efforts to tap the potentially fertile Indian smartphone market. Earlier in 2017, Cupertino executives reportedly met with Indian government officials to discuss duty concessions that would allow it to set up local iPhone assembly operations, followed by reports that it will start manufacturing the iPhone SE there in April.
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These moves make it clear that it has set into motion a chain of events to make a dent in this market, where annual smartphone sales could double to 200 million by 2020, according to Euromonitor International. It's no surprise that the latest Apple/India news is that the company has decided to aggressively expand its retail presence to grab a larger slice of India's smartphone market. The Economic Times reports that Apple has set up "over 100" franchised stores in India and is looking at a big expansion of that number.
Why Apple needs a stronger retail presence in India
Apple's global popularity hasn't penetrated the Indian market, with Morgan Stanley in May of last year putting its brand awareness at a distant 10th position in India. The Cupertino-based smartphone giant trailed even BlackBerry, Sony, and domestic smartphone manufacturers in terms of popularity.
Samsung reportedly became India's largest single-brand retailer, with more than 2,100 stores, in 2015, and it has continued its expansion. Its service network now covers over 6,000 districts across 29 states, giving it an edge over the likes of Apple when it comes to after-sales service.
What's more, even China's Oppo was ahead of Apple in terms of smartphone sales by value, with an estimated 8% of the market in August 2016 as compared to the iPhone maker's 5.6%, driven by an aggressive offline sales strategy. The Chinese smartphone company aims to open 35,000 points of sale in India, along with 180 service centers. It has brought famous film stars on board, and has sponsored widely watched sports tournaments to push its brand in the Indian market and grow sales.
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The good news is that Apple is now taking a leaf from its competitors' playbook. An Economic Times report says that the iPhone maker has set up around 100 small stores in India based on a franchise model. These stores will be branded as "Apple Authorized Resellers" and will be 450 to 500 square feet in size, according to the publication.
What's more, Apple is reportedly planning a sixfold expansion of these outlets next year in a bid to shore up its retail presence in the country. This is a smart thing to do, considering the progress that its rivals have made with their offline sales channels. Additionally, CEO Tim Cook believes that opening company-owned stores will be Apple's long-term play in this market, and could help enhance the company's brand.
Another potential catalyst
Apple will need to make its phones more affordable to drive popularity in India, making the iPhone SE one of its most important models for this market. The iPhone SE was recently retailing for as low as INR 19,999 (approximately $306 at the current exchange rate) for the 16 GB variant, putting the device in the mid-range segment of the market. This price included a limited-time, cash-back offer that was available to some purchasers. It looks as if Apple is clearing its iPhone SE inventory before an expected production ramp-up of the device in India.
Image source: Apple.
Mid-range smartphone sales are growing at a fast clip in India, along with a rise in the average selling price. The latest data from CyberMedia Research indicates that the average selling price of a smartphone in India rose 25% year over year in the first quarter of 2016, thanks to increasing demand for features and quality.
Apple's strategy of offering a sub-$400 smartphone through the offline channel clearly indicates that it is trying to drive foot traffic into its stores. It can then work its way up the value chain in the Indian market, as smartphone sales rise and consumer spending grows, paving the way for stronger revenue from this emerging market.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.