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This Could Be Apple’s Secret Apple Watch Strategy

5 minute read

In Apple CEO Tim Cook’s words, the Apple Watch is “incredibly beautiful.” But some are saying it’s “incredibly unnecessary.”

Apple followers haven’t been shy in arguing that the upcoming Apple Watch will be a flop. Dismissive reviews of Apple’s first wearable are plentiful (“a thick, ugly clunker,” “a very stupid idea“), while analysts’ fresh estimates of first-year sales have trended on the low side. Investors haven’t been too optimistic either: Apple’s stock fell 2% Tuesday, a day after it unveiled more Apple Watch details.

But what few realize is that Apple has a 3.7 million square mile ace up its sleeve: China.

It’s no secret that Chinese consumers love their Apple products. Chinese resellers and admirers alike traveled the world and lined up for days to sweep up Apple’s latest iPhone last fall. Some constructed iPhone 6 “undergarments” to bypass customs duties on the way home. One man even used 99 iPhone 6 units to propose to his girlfriend. (She said no.)

Now, with the Apple Watch heading to China on April 24, the country’s Apple fans have already begun generating outlandish headlines. A Guangzhou man was arrested this week for selling drugs in order to finance his Apple Watch, clearly unwilling to settle for one of many cheap knockoff Apple Watches fresh on China’s black market. Those counterfeits are good news for Apple—they’re an indication demand will be high for the real thing. Previous wearables, like Samsung’s Galaxy Gear, had never been popular enough to make it into China’s counterfeit market.

See the Apple Watch Knockoffs That Just Hit China's Black Market

D-WATCH sold by Gemini TB Creative Design costs $47. The "Apple Watch" sold by Xiaowu Telecommunications costs less than $25.
D-WATCH ($472) sold by Gemini TB Creative Design has a stainless steel case and a sapphire display. Two versions are provided: the Sport and the Edition, with a watchcase made of 18-karat gold.Gemini TB Creative Design/Taobao.com
Similar to Apple's Watch it comes in Standard, Sport, and Edition versions.
Xiaowu Telecommunication's "Apple Watch" $472 is also made of a stainless steel case and sapphire display, with the Sport and Edition versions. Xiaowu Telecommunications/Taobao.com
http://item.taobao.com/item.htm?spm=a230r.1.14.137.rKB08j&id=44054747678&ns=1&abbucket=17#detail
An ad for Wearable Device Boutiques' Apple I-Xiaomi wearable watch with Bluetooth. The 4th and 5th generation watch has multi-functions, including photos and music. Prices range from $30 to $78.Wearable device boutiques/Taobao.com
http://item.taobao.com/item.htm?spm=2013.1.1998246701.3.LPtilv&scm=1007.10152.4578.i42214248102&id=43250427478&pvid=084e73b4-fba3-42da-b25f-31b95ec5f2c9
This ad for Gemini TB Creative Design's D-Watch ($48) doesn't claim to be an Apple Watch, though the company has called other versions of the D-Watch an Apple Watch previously. But the ad does claim that this watch is compatible with Apple's iOS.Gemini TB Creative Design/Taobao.com
http://item.taobao.com/item.htm?spm=2013.1.1998246701.3.LPtilv&scm=1007.10152.4578.i42214248102&id=43250427478&pvid=084e73b4-fba3-42da-b25f-31b95ec5f2c9
Another ad for the Gemini TB Creative Design's D-Watch ($48).Gemini TB Creative Design/Taobao.com
http://item.taobao.com/item.htm?spm=a230r.1.14.137.rKB08j&id=44054747678&ns=1&abbucket=17#detail
An ad for Wearable Device Boutiques' Apple I-Xiaomi wearable watch ($30 - $78) with Bluetooth. Wearable device boutiques/Taobao.com
http://item.taobao.com/item.htm?spm=a230r.1.14.120.WNe0qG&id=43446327238&ns=1&abbucket=19#detail
Small Millet Intelligent's Apple Watch GT08 ($145), which comes with a free 8G memory card that the wearable can use. The watch is theft-proof and multi-function, and supports QQ and WeChat.Small millet intelligent /Taobao.com
http://item.taobao.com/item.htm?spm=2013.1.1998246701.3.LPtilv&scm=1007.10152.4578.i42214248102&id=43250427478&pvid=084e73b4-fba3-42da-b25f-31b95ec5f2c9
Gemini TB Creative Design's iWatch ($156) supports QQ and WeChat and is compatible with Android, Xiaomi and iOS phones. The ad doesn't claim the wearable is an Apple Watch specifically.Gemini TB Creative Design/Taobao.com
Another ad for Small Millet Intelligent's Apple Watch; this one is listed at $47.Small millet intelligent /Taobao.com
http://item.taobao.com/item.htm?spm=2013.1.1998246701.3.LPtilv&scm=1007.10152.4578.i42214248102&id=43250427478&pvid=084e73b4-fba3-42da-b25f-31b95ec5f2c9
Another ad for Gemini TB Creative Design's iWatch ($156).Gemini TB Creative Design/Taobao.com

Apple, then, is likely counting on its legions of Chinese fans to scoop up Apple Watches to help boost worldwide sales. But China is no back-up plan. In fact, given Apple’s loyal following in China, the Apple Watch could very well have been made for China.

The Apple Watch’s biggest advantage in China is deceptively simple: Few Chinese consumers laugh when Apple touts the device as a luxury item. Apple became China’s top luxury brand for 2015, outranking labels like Louis Vuitton and Gucci. More recently, Apple’s status has risen as Chinese consumers of luxury goods prioritize functionality over ostentatiousness—a taboo that China’s President Xi Jinping deplored as “unhealthy,” criticizing Chinese elites’ obsession with status symbols like Rolex watches.

Even better for Apple is how much Chinese consumers value brand names in luxury goods. According to Digital Luxury Group’s (DLG) 2014 report, 73% of online searches for luxury watches are about brand names, almost twice the rate of Americans. Apple’s brand recognition could seal the deal for the Apple Watch in China—but it could also hurt sales in the U.S., where Apple is seen as a tech brand rather than a fashion label:

All this will help ease sticker shock, too. While Americans will compare the Apple Watch’s $349-$17,000 price tag to the cost of consumer electronics, Chinese consumers are more likely to stack it up against luxury timepieces. The worldwide median price of a luxury watch is about $10,700, according to DLG. That means the Apple Watch Sport (starting $349) and Apple Watch (starting $549) are inexpensive by comparison, while the gold and silver Apple Watch Edition models that start at $10,000 aren’t crazy purchases. China’s luxury timepiece market is also growing rapidly, partially thanks to the rise in Chinese women’s incomes:

Apple Watch’s promise in China as a fashionable luxury item is already clear. When former supermodel Christy Turlington Burns appeared during Apple’s U.S. event Monday to explain how she’s using Apple Watch for fitness, critics called it an awkward, even irrelevant product placement — an iconic women’s advocate wearing a watch “skewed to geeky guys.” But when the Apple Watch graced the cover of Vogue China alongside China’s most famous model, Liu Wen, hardly anyone batted an eye. As Vogue China’s editor-in-chief described the difference, “We embrace new technology and digital products more easily than perhaps people elsewhere.”

Of course, Apple has spent years laying the groundwork in China for a potential hit with the Apple Watch. It sealed a “watershed” deal with state-owned China Mobile in 2013 to ensure China’s largest mobile network supported iPhones, an agreement that was in the making as far back as in 2007 when the first iPhone launched. Apple also recently brought its iPhone 6 and iPhone 6 Plus to China, which sport the larger screens Chinese users have long demanded. Apple shipped a record-breaking 74.5 million iPhones worldwide last quarter, and while Apple doesn’t breakdown shipments by country, UBS estimates that China now claims 36% of the iPhone market, surpassing the U.S. for the first time.

And Apple has already linked the Apple Watch to China. The company’s March 9 event kicked off with a video showing the opening of a new flagship Apple Store in China, where the retail locations are set to double by mid-2016. Later, Apple showed off the Apple Watch’s compatibility with WeChat, a wildly popular messaging app in China. It was a wise move, as Chinese users have expressed worry that Apple Watch’s screen is too small for the app.

So while Apple Watch’s relevance in the West may continue to be questioned, the wearable has a clear place in China. Given how lucrative China has been for Apple, whether or not China loves the Apple Watch could be precisely what makes or breaks the device initial reception.

11 Amazing Features of the Apple Watch

File picture shows an Apple Watch during an Apple event at the Flint Center in Cupertino
The Apple Watch is the company's' first entirely new product category since the original iPad. It's a huge gamble for Apple and a test of the still-nascent wearable market.Stephen Lam—Reuters/Corbis
Apple Unveils iPhone 6
The Watch is the most customizable and varied product Apple has likely ever launched. It'll come in three editions made of different metals and be available with multiple snap-in wrist bands. Prices start at $349.Justin Sullivan—Getty Images
Apple Unveils iPhone 6
The Watch has a touch interface that can sense the difference between a light touch and hard press. But it also has a "digital crown" that allows users to quickly scroll through lists without obscuring the screen.Justin Sullivan—Getty Images
Apple CEO Tim Cook wears the Apple Watch and shows the iPhone 6 Plus during an Apple event at the Flint Center in Cupertino
The Watch must be paired with an iPhone for many of its functions. The device piggybacks on the phone's data and GPS connections to pipe in directions or incoming voice calls and text messages, for instance.Stephen Lam—Reuters
New Apple Watch is pictured during an Apple event at the Flint Center for the Performing Arts in Cupertino
The Watch, like Apple's other iDevices, will have various independent apps. Examples include a Tesla app that shows the status of your electric car when it's charging and a Starwood app that lets the Watch act as your room key.Stephen Lam—Reuters
An Apple Watch is shown during an Apple event at the Flint Center in Cupertino
Apple's fitness app, one of the device's main selling points, tracks runs, walks and bike rides.Stephen Lam—Reuters
Apple event at the Flint Center in Cupertino
The Watch also can track your heart rate (while resting, while active) throughout the day thanks to these light sensors on the back.Koichi Mitsui—AFLO/Corbis
Apple Unveils iPhone 6
It also has Apple Pay, the company's digital payments platform. Swipe the Watch in front of a compatible kiosk and it will make an automatic online payment.Justin Sullivan—Getty Images
Apple Unveils iPhone 6
CEO Tim Cook has said the Watch will last about a day before it needs to be recharged. So far, battery life has been the biggest downside of most wearables. The Watch recharges through the magnetic system shown here.Justin Sullivan—Getty Images
Apple Unveils iPhone 6
The Watch will come with many customizable bands that slip on and click in place at the top and bottom of the device's body.Justin Sullivan—Getty Images
Apple introduces Apple Watch
It also comes in two sizes, 38mm and 42mm, to fit on different size wrists.Monica Davey—EPA
Apple Watch is shown on screen during an Apple event at the Flint Center in Cupertin
Higher-end models of the watch could cost several thousands of dollars.Stephen Lam—Reuters
Apple Unveils New iPad Models
Apple is significantly expanding it's product reach.Justin Sullivan—Getty Images
Apple Inc. Reveals Bigger-Screen iPhones Alongside Wearables
And there's one more thing...David Paul Morris—Bloomberg/Getty Images
Tim Cook
It tells the time.Marcio Jose Sanchez—AP

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