Huawei’s New Retail Strategy Sets the Stage for a Showdown with Apple in China

Huawei is shaking up its retail approach by launching flagship stores across China, strategically positioning many near Apple stores. This move is part of its effort to reclaim its dominance in the premium electronics market in the world’s largest smartphone economy.

One notable example is Huawei’s newly revamped store in Shanghai. Situated directly across from Apple’s flagship store, this three-floor outlet in a heritage building includes amenities like a coffee shop and a gym, aiming to attract a premium clientele.

Between December and February, Huawei opened four such stores in major Chinese cities. This marks an aggressive shift from its past reliance on licensed distributors. The company is recovering from U.S. sanctions imposed in 2019, which significantly disrupted its smartphone business for four years until it could source domestic replacement parts.

“The Huawei flagship store is very nice. It looks much brighter inside compared to the Apple Store across the street,” commented Amy Chen, a 27-year-old physiotherapist. She visited the Shanghai store to switch to Huawei’s Pura 70 Ultra from the iPhone 15 Pro, hoping for better mobile reception.

While Apple operates 47 stores in mainland China, Huawei, which opened its first flagship store only in 2019, now has 11. “I think they will open more than 20 of them. Then it will eventually catch up to Apple,” predicted Ethan Qi, an associate director at research firm Counterpoint.

This expansion contrasts starkly with 2021 when many of Huawei’s licensed stores closed due to product shortages caused by U.S. sanctions. Since then, Huawei has developed its own chips, launched popular 5G-capable products, and started aggressively recruiting dealers.

“As Huawei now manages to ship in large quantities, given the good profit margin they could provide, distributors have become willing to purchase Huawei devices again,” Qi explained. Previously, many distributors struggled to get stock, and their 4G devices didn’t sell well.

Huawei has been negotiating with distributors, emphasizing its above-average profit margins and sometimes requiring exclusivity agreements. According to industry sources, more than 5,200 stores licensed to sell Huawei products emerged in the first ten months of 2023, with a significant number in third and fourth-tier cities, broadening Huawei’s distribution network.

This revitalized marketing effort is a significant challenge for Apple, which saw a 6.6% decline in iPhone sales in China in the first quarter, dropping to 10.8 million units. In contrast, Huawei increased its smartphone shipments by 110%, reaching 11.7 million units and surpassing Apple as China’s second-largest smartphone vendor.

Huawei and Apple did not respond to requests for comment.

Premium Market Ambitions

Lucas Zhong, an analyst at Canalys, noted that Huawei had plans to expand its flagship stores since 2020, but progress was hindered by U.S. sanctions, slowing the development of its high-end products. Despite ongoing supply chain issues, Huawei’s new phones are receiving positive reviews, allowing the company to focus on selling premium products to compete with Apple.

Huawei’s latest Pura 70 Ultra smartphone, priced at 9,999 yuan ($1,300), is on par with the iPhone 15 Pro Max, while competitors like Samsung and Xiaomi are pricing their premium models lower due to soft market demand.

Huawei’s luxurious flagship stores showcase a range of premium products, from smartphones and tablets to smartwatches, televisions, and even electric vehicles made in partnership with Chinese automakers. “Huawei now has a long product line,” Qi said. “They need big demo areas… They will have to do it themselves because their distributors don’t have the capability to rent such a massive area.”

This push to build its own stores underscores Huawei’s heavy reliance on offline sales, with 70% to 80% of its sales coming from physical stores, compared to about 40% for Apple, according to Toby Zhu, another analyst at Canalys.

“Xiaomi, Oppo, and Vivo are all being affected by Huawei’s comeback,” Zhu noted. “But for now, the biggest impact has been on Apple.” ix ix ix ix ix ix ix

The ripple effect of Huawei’s resurgence is starting to be felt beyond mainland China. Simon Lam, owner of Trinity Electronics in Hong Kong, reported that more independent shops had begun selling Huawei devices in recent months. “Everybody is stocking up on some Huawei right now. Some more, some less,” he said. “People are willing to pay a lot of money for high-end Huawei, something other brands really can’t compare with.”