* Blogger says store is "beautiful rip-off"
* Fake stores sell illicit goods and genuine ones too
* Risk of damaging a company's reputation, brand
* Brand choices: police operations or take full
* Starbucks chose to take control in southern China
By Jason Subler
SHANGHAI, July 22 A fake Apple store in China,
made famous by a blog that said even the staff working there
didn't realise it was a bogus outlet, is probably the most
audacious example to date of the risks Western companies face in
the booming Chinese market.
Few products have captured the imagination of Chinese
consumers quite like Apple's iPhones and iPads. Demand
is surging across the country of 1.3 billion people, even
hundreds of miles away from the tech giant's official stores in
Beijing and Shanghai.
That marks a huge opportunity for Apple to sell its iconic
products, but it also leaves the most valuable brand name in the
world vulnerable to the sort of scam perpetrated by the fake
store in Kunming, in southwestern Yunnan province.
Complete with the white Apple logo, wooden tables and cheery
staff characteristic of real Apple stores worldwide, the Kunming
copy left even regular industry watchers startled at the
"I'm not aware that there have been actual fake stores like
that before," said Bob Poole, vice president of the China
operations of the U.S.-China Business Council in Beijing.
"If your products are being sold as fakes, then your
reputation goes down and people are going to be less willing to
buy. We have to maintain active vigilance."
Apple has authorised close to a thousand resellers in China
to sell its goods. They are required to comply with certain
standards and rules on store layout and customer service to get
the rights to sell such items as Apple's iPhones and iPad tablet
The Cupertino, California-based company, which global brands
agency Millward Brown says has the world's most valuable brand
worth some $153 billion, has just four official stores in China,
two of them in Beijing and two in Shanghai.
In spite of the number of resell outlets, many more copycats
have popped up. They often sell real Apple products, obtained
from illicit channels, such as smuggling, or through the grey
market via Apple agents and distributors.
The blogger who made the store an overnight online sensation
said the Kunming store was a "beautiful rip-off" and the
salespeople "all genuinely think they work for Apple."
The bogus store, where staff admitted to Reuters on Friday
was not an authorised reseller, cuts to the core of the risk big
brands take in China.
The widespread unauthorised reselling even of real consumer
goods means it is more difficult for companies like Apple to
manage their brands and risks undermining their longer-term
plans to make inroads into the country.
"It's becoming more of a problem I think," said James Roy, a
senior analyst with retail consultancy China Market Research in
"A lot of foreign brands are increasingly really seeking to
set up a real retail presence in China, not just selling to
resellers or through franchisees," he said.
DIFFERENT FROM PIRACY
That China is a hotbed for piracy is nothing new.
Multinational companies have long seen problems such as
intellectual property theft and unclear regulations as the price
of doing business in the world's fastest-growing major economy.
The United States and Europe have persistently pressed
Beijing to do a better job of enforcing intellectual property
rights and stamp out the production of everything from fake DVDs
An increasing number of U.S. companies in China say the
enforcement of intellectual property rights has deteriorated in
the last year, an annual survey by the American Chamber of
Commerce in Shanghai released in January showed.
China has said it is cracking down, particularly on piracy,
and Western companies have claimed some victories.
This week, Baidu Inc , China's biggest search
engine, agreed with top music studios to distribute licensed
songs through its mp3 search service, ending a legal dispute
over accusations the company encouraged piracy.
The less-publicised phenomenon of unauthorised vendors
setting up shop to peddle real products has grown alongside
China's manufacturing prowess. Many of the factories that
produce brand-name goods on contract have been known to do extra
runs of the goods to make extra cash, analysts say.
Paul French, chief China analyst at retail consultancy
Access Asia, said Apple had two choices to clamp down on fake
"One is they either have to police their operations better,
or two, they have to sell everything through their own stores
and cancel their reseller agreements," he said.
China's high import duties on many goods have also
encouraged the likes of the fake Apple store in Kunming,
Shop owners can buy everything from computers to cosmetics
at significantly lower prices overseas, smuggle them into the
country, and undercut the prices of official Chinese retailers.
Vendors often turn to Chinese students studying abroad to
buy products in the United States, Hong Kong, Australia and
Internet "bulletin boards" are full of advertisements
soliciting interested parties, who can earn 100-200 yuan
($15-30) in fees per iPhone or iPad they manage to sneak past
customs agents when returning home for the summer or winter
LOSS OF CONTROL
At first glance, it might appear that companies would not
mind having their products bought in other countries or obtained
through other means and resold in China through resellers, as it
helps drive sales but with less expense and hassle over customer
After all, building up a retail presence in a country as
vast as China takes time and is expensive. That's why many
companies have sought to expand their presence through
The problem is, any negative experiences customers have with
service at unauthorised resellers can backfire on the brand
because customers relate their disappointment with the product.
"People might have a bad experience, they might blame the
brand," said Roy.
Many Western brands are now opting to take back control of
their operations. It may mean a more measured pace of expansion,
but it gives a company greater control.
Starbucks last month took back control of its
retail stores in southern China, having worked in the past
through a joint venture.
While the issue of unauthorised retailers has not yet
garnered the same attention as piracy, China has made efforts to
crack down on such activities, stepping up screening to try to
But if Beijing's track record with combating piracy is any
guide, analysts say, it is unlikely that fake stores -- Apple or
otherwise -- will be stamped out anytime soon.
"China has very low penalties. It's almost considered a good
business deal to get caught, then move and set up shop again,"
said Poole of the U.S.-China Business Council.
(Additional reporting by Jane Lee in Shanghai and Beijing
newsroom; Editing by Neil Fullick)