Lenovo, Taking Page From Apple, Chases Samsung in China

Lenovo, Taking Page From Apple, Chases Samsung in China

Taking a page from the playbook of Apple Inc. (AAPL), a company it’s already beaten in China smartphone sales, Lenovo Group Ltd. (992) is counting on a chain of retail stores to help it surpass leader Samsung Electronics Co. (005930) The outlets offer the gleaming glass and wide counters found at Apple shops, with phones and tablets sitting on tables for customers to try out. Lenovo’s Solution Center takes the place of the Genius Bar, and staff look trim and neat in black polo shirts instead of Apple’s blue Tees.The retail outlets are part of a strategy to overtake Samsung in the world’s biggest smartphone market, offering a range of devices in an environment starkly different from the typical Chinese electronics bazaar. Chen Xudong, Lenovo’s president of China operations, doesn’t shy away from comparisons to Apple and a strategy that helped make the iPhone maker the world’s most valuable technology company.

“We want customers to feel free to play with the products, and that basically is quite similar” to Apple, Chen said at Lenovo’s headquarters in Beijing’s Haidian technology district. “The difference is we provide more choices for the customer.”

Unlike Apple, which focuses the bulk of its sales energy on the iPhone 5, Lenovo’s stores feature at least 10 different IdeaPhone handsets, ranging from the A376 for 749 yuan ($122) up to the K900, priced at 3,299 yuan.

The iPhone 5 ranges from 5,288 yuan to 6,888 yuan, while Apple stores in China offer two older models for as little as 3,088 yuan.

Internet TVs

While both companies offer desktop and laptop computers, Lenovo’s stores offer one product line that Apple doesn’t: smart televisions that connect to the Internet. And Lenovo has six tablets starting as low as 999 yuan.

Lenovo, best known globally for its ThinkPad laptops, is strengthening its push into other devices to tap changing consumer trends and protect it from slumping personal computer demand. The company aims to top Samsung’s China smartphone sales within two years, said Chen.

In the past, Lenovo has relied on 40,000 partner-owned shops in China. Since it started offering smartphones in 2010, it’s begun to emulate the retail strategy of Apple, which has more than 400 stores worldwide.

Lenovo opened its first company-owned shop last year, in Beijing. It added a second this month and a third is to follow in September. In the next three years it will open one or two locations each in Shanghai, Shenzhen and Guangzhou, Chen said.

Less Cool

“Lenovo is learning from Apple in opening up its own stores to increase its influence with consumers and make Lenovo a more recognized brand,” said Wang Jun, an analyst with researcher Analysys International in Beijing. Still, Wang says, Lenovo isn’t “as cool” as Apple or Samsung.

Apple inaugurated its first China outlet, in Beijing’s Sanlitun district, in 2008, and now has 11 stores in five Chinese cities. Chief Executive Officer Tim Cook in April said he would double that number within two years.

The broader range of products helped Lenovo leap ahead of Apple in China. It surged to No.2 in smartphone shipments in the second quarter of last year, from seventh the previous quarter, and has maintained that position over the past year.

Samsung, the South Korean maker of Galaxy handsets, sells at almost 5,000 locations in China. Samsung led China’s smartphone market with 18 percent share in the second quarter, followed by Lenovo with 12 percent, according to research firm Canalys. Samsung declined to comment on the company’s retail strategy in China, or to disclose whether the company directly owns any retail locations there.

India Stores

Apple ranked seventh with 5 percent of the market, Canalys says. Apple declined to comment on Lenovo’s retail strategy.

Outside China, Lenovo still trails Samsung and Apple by a wide margin. The top global smartphone vendors in the second quarter were Samsung with 30 percent, Apple with 13 percent, LG Electronics Inc. (066570) with 5.1 percent, and Lenovo with 4.7 percent, according to researcher IDC.

Lenovo expects to tap more of a franchise model for partner-owned stores, which will triple to 300 in the next three years, Chen said. The company provides money, signs, furniture and design help to ensure partner outlets look like its company-owned locations, he said.

While Lenovo has no plans for its own shops outside China, it’s aiming to have more partner-owned stores dedicated to its products. In India, such outlets will rise 50 percent this year to 1,200, according to Milko Van Duijl, president for the Asia-Pacific region.

Fickle Consumers

“The battle of the future is the battle that is won in stores,” Van Duijl said.

For the investment to pay off, Lenovo will have to learn more than just the brick-and-mortar portion of Apple’s retail strategy, said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong.

“The strength of Apple’s stores is the exposure to consumers directly as well as the after-sales service, which is unparalleled,” said Lafayeedney. That’s “important in gaining a loyal customer base as consumers are fickle. Building brand loyalty takes time.”

Full Range

Lenovo still has a way to go to match Apple’s retail success. On a recent Friday afternoon, about 15 Lenovo staff served approximately 50 shoppers in its store on Beijing’s Wangfujing street, and its Solution Center was helping one customer with a new laptop. Three blocks away, some 85 Apple staff were helping more than 200 customers, and the Genius Bar was packed, with some 60 customers getting tech support.

Lenovo is already beginning to see some dividends from the stores. Wu Kouting, a 22-year-old student from Shanxi province who bought a Nokia Oyj (NOK1V) smartphone last year, said he’s considering switching to Lenovo after a visit to the company’s store in Beijing.

“Next time I buy a phone, I’ll definitely consider Lenovo,” Wu said. “Until today, I hadn’t seen their full range.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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