Apple Inc.(NASDAQ:AAPL) have to reconsider its strategic plans in China as the company is witnessing a continuous drop in iPhone sales in this region. The sales in Greater China declined 30% YoY in the third quarter, posting the highest percentage decline of any of the firm’s popular geographic regions.
One of the most disturbing things to record is that the current Apple customers in China are losing interest in the firm’s offerings. Now, company’s client base is seen to be premium in nations where the mobiles cost a bomb, and this is reason it can be anticipated that they will continue with the iPhone devices.
What is going on?
The bad news is that company has been witnessing decline in its existing customer base in China, which has resulted in a decline in its retention rates. For example, in September, Apple’s retention rate in China dropped to 75% as against a higher figure of 82% in the preceding year period.
More precisely, the demand of iPhone 7 in China has been lower than expectations with just 43% of clients showing their interest in purchasing the device. In comparison, 54% clients had shown their interest in purchasing the 6S when it was introduced, while the interest for Model 6 was better at 64%.
Thus, it is seen that Apple has been losing ground in China in last few years, and this can be ascribed to the slowdown in the nation’s economy. The economy in China has been witnessing slowdown mode in the past couple of years.
It has made clients move away from premium devices such as iPhones devices when cheaper and equally efficient options are available. This seems to be a trend that can continue in coming period since wage increase in China, though in the single digits, is waning.
For example, in 1Q2016, Chinese wage growth declined to 7.3% against over 10% in 2013. Additionally, in coming fiscal, Chinese wage growth is expected to drop further to 6.7%. This decline in wage growth can lead to weakness in consumption. Besides, as per Goldman Sachs, China is witnessing problem of rising unemployment, with the nation’s unemployment rate set to grow to 6.5% in this year.
