Apple’s first stores in India signal a new bonhomie

Apple phone sales in the country are estimated to have touched $74 billion last year. And, if it wants to up its comparatively modest revenues in India, it needs a direct presence in the country.

Apple Inc has 300 stores in the US and Canada. Its 2022 sales in the Americas were $169.6 billion. In China, it has 50 stores. Sales in the country are estimated to have touched $74 billion last year. Ergo, if it wants to up its comparatively modest revenues in India, it needs a direct presence in the country. Which explains the two stores it is opening this week in Mumbai and Delhi, its first ever in the country.

So, what if it comes 22 years after its first store opened in the US and 15 years after the first one in China which coincided with the Beijing Olympics. That year, Apple’s total revenue was $37.4 billion. Today it is a $394.3 billion giant, with China alone contributing $74.2 billion. Set against that, sales in India do look puny. Setting up stores earlier might have helped, but Indian regulations related to sourcing by single-brand foreign firms came in the way. The reliance on third-party resellers and distributors clearly didn’t work too well.

But here's the thing. When MNCs sniff a market opportunity, they wrap their strategy around regulation. Apple now needs India more than ever before, both as a business destination and as a production base, a part of the China Plus 1 strategy that many global corporations are now pursuing in an effort to spread risk more evenly.

China Slumps, India Soars

After a double-digit year-on-year growth in iPhone revenues from 2008 to 2015, Apple’s revenue from smartphones stagnated for the next five years. A pandemic-inspired bump led to massive sales increase in 2021 but growth since then has moderated with volumes actually dropping. Even more pertinently, sales of iPhones in China have been dropping in the face of falling domestic smartphone sales in the country. Needless to say, iPhones are crucial to Apple’s business, since they account for 52 percent of its revenue. What’s more, sales of Macs, hitherto a steady source of revenues, have also suddenly fallen off the cliff with shipments plunging 40 percent in Q1 of this year.

In India, after a slow start since it first entered the market, growth over the last 2-3 years has been explosive, with sales of two million iPhones in just the fourth quarter of 2022. But given the low base, there’s much more to do. It won't be enough for the company that it already has a 40 percent share in the premium smartphone market. Apple will want to grow the market itself and increase its share.

And it isn’t just the sale of these products that’s important. What follows is equally so. Subscription services to music, video streaming, video games, fitness and even cloud storage are a big source of revenue for the company and way more profitable than all others. Apple Services is the company’s second-largest division, responsible for 19 percent of revenue in 2022 earned from the over 900 million subscribers for its popular services, including Apple Music and Apple TV+. Currently, these aren’t big in India. But with the momentum generated by its two stores, and presumably more to follow, these services too should start accruing at some point.

Demand For Premium

The timing of Apple’s aggressive sales push for its high-priced products in India seems right too. The market for premium products in India is in overdrive. Luxury car makers Mercedes-Benz, Lamborghini, Porsche and Lexus, all of whom posted record sales in 2022, expect these numbers to keep growing. Marriott, the world's largest hotel chain, is planning more than 100 properties in India by 2025 as demand for 5-star hotel rooms in the country dwarfs supply.

The reason for this buoyancy is obvious. India's uneven wealth distribution which has seen the richest one percent own 40.5 percent of the total wealth, has also resulted in a 50 million-strong cohort of middle class who can well afford an Apple product.

In all of this, India has everything to gain and little to lose. The promise of other MNCs following in the footsteps of the Cupertino giant and moving significant slices of manufacturing from China to India hasn’t really materialised despite all the incentives offered by the government. But with $5 billion of iPhone exports out of India, expected to go up to 25 percent of Apple’s entire production line of the smartphone by 2025, India has finally hit the sweet spot in the supply chain of the world’s most valuable company. That’s certainly something to celebrate.

Sundeep Khanna is a senior journalist. Views are personal, and do not represent the stand of this publication.