SHANGHAI — Apple has more retail stores in Pennsylvania than in all of China — where it earns a fifth of its revenue — and a slow pace of expansion may cost the firm more than just sales. Apple’s six stores in China are routinely packed, and customers often wait in long lines for iPhone repairs. Scalpers are known to camp out to be first in line for new products, which they then resell for a tidy profit. The California company is notoriously fastidious when it comes to its flagship stores, and has said it is taking its time in China to ensure that it secures the right locations. But its retail expansion has fallen well short of its own goals. In 2010, Ron Johnson, then Apple’s retail head, forecast that the company would have 25 stores in China by this year. “There’s certainly more demand than Apple can serve with their store footprint currently,” said Torsten Stocker, a partner at Monitor Group, a business strategy firm. The clamor for Apple products has spawned a bustling gray market where smuggled goods are peddled by unauthorized resellers. Copycat Apple stores have popped up in smaller mainland Chinese cities. The Apple frenzy will only intensify now that the company has agreed to pay Proview Technology $60 million to settle a lawsuit over the iPad trademark, freeing it to sell its latest tablet computer in mainland China. Apple has two retail stores in Beijing, three in Shanghai, and one in Hong Kong. Chinese government officials said last month that the company is looking to open two more in the major cities of Chengdu and Shenzhen. In Pennsylvania, a state with a population of 12.7 million, Apple has eight stores, including three in the city of Pittsburgh alone. The population of China is 1.3 billion. Apple declined to comment for this story. The shortage of retail stores and authorized resellers leaves ample room for unlicensed resellers to move in. Bad consumer experiences at unauthorized shops are common, and they run the risk of eventually eroding confidence in Apple’s products, said David Wolf, chief executive of the Beijing-based consulting firm Wolf Group Asia. If Apple does not expand its network of stores and authorized resellers, it “loses not only near-term sales, it also endangers the sustainability of its success in China,” he said. Apple products can also be bought online in China, but many consumers prefer to buy at the store after testing the product. Apple’s flagship stores in China are packed with people tinkering with the company’s latest gadgets, even on weekdays. Last October, Apple’s chief financial officer, Peter Oppenheimer, said the China branches were the highest trafficked stores, and among those with the highest revenue, for the company. Demand for new Apple products is so high that scalpers lined up outside a Beijing store this year for the latest iPhone, only to pelt the store with eggs after Apple decided against selling the phone there over security concerns. Apple competes with Samsung as well as the homegrown Chinese technology firms Huawei and ZTE in China’s fast-growing smartphone sector. The pace of retail expansion may not be dictated entirely by Apple. Red tape often hampers foreign companies’ expansion plans in China, and that may be holding back growth. “There are complications around opening stores in China that you don’t get in Western countries,” said Andrew Milroy, vice president of information and communications technology research for the Asia-Pacific region at Frost & Sullivan in Singapore.
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