China’s iPhone Launch Weekend Exclusion Fuels Gray Market Growth

TIMOTHY A. CLARY/AFP/Getty Images

TIMOTHY A. CLARY/AFP/Getty Images

It’s no secret that Apple’s new iPhone models are in high demand. While the iPhone 6 and the iPhone 6 Plus officially went on sale on Friday, September 19, eager customers have been lining up in front of Apple Stores and other reseller locations around the world for days, and sometimes even weeks, ahead of time. Many of these early bird shoppers are just dedicated Apple fans that want the newest iPhones as soon as possible, while others are guerrilla marketers that are piggybacking on the publicity generated by the new iPhone launches. However, there are also many people who are standing in line in order to acquire a new iPhone for the highly profitable international gray market.

While Apple’s latest iPhone models started to go on sale on September 19 in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore, and the U.K., the devices won’t officially arrive in many other countries around the world until the next phase of releases on September 26. Meanwhile, Apple has still not announced the official iPhone release dates for some countries like China and Brazil. While China was included in the initial launch weekend for last year’s iPhone 5C/iPhone 5S, the country was noticeably absent from this year’s list of the ten initial launch markets.

Although Apple has declined to reveal the reasons behind the delayed launch in China, The New York Times cited sources that claimed that the new iPhone models were still awaiting approval from China’s regulators. While the limited supply of new iPhone models around Apple’s launch weekends has always attracted a fair number of amateur resellers who are looking to make a quick buck, this year’s debut of two larger iPhone models, combined with the uncertainty about the devices’ availability in China, appears to have caused an even greater number of devices to be diverted into the international gray market.

While phablets are becoming increasingly popular with consumers around the world, the larger-screen smartphones are known to be especially popular in Asian markets. According to market research firm Canalys, smartphones with screen sizes five inches or larger accounted for 39 percent of total smartphone sales in Greater China and 43 percent of sales in Asia Pacific in the first quarter of this year.

The exclusion of China from the initial iPhone launch weekend, combined with Chinese consumers’ preference for larger-screen devices, has created a perfect storm of opportunity for entrepreneurs looking to take advantage of the overwhelming demand for a limited commodity. As noted by Bloomberg, there appeared to be many international customers lined up outside of San Francisco’s Apple Store and some of them admitted that they were planning on reselling the iPhones they bought.

Filmmaker Casey Neistat shot a documentary short titled “Black Market Takes Over the iPhone 6 Lines” that appeared to show that many of the new iPhone models being purchased at an Apple Store in New York were being obtained for resale in China’s  gray market. Although Neistat refers to the reselling activity as a black market, it should be noted that it is not illegal to purchase iPhones for resale, which is why it is usually referred to as a gray market activity. On the other hand, some resellers may be smuggling the iPhones into other countries in order to avoid paying import taxes, which is illegal.

While the iPhone purchases made for the gray market may not be illegal, some Apple customers who are buying devices for their personal use have expressed their frustration about the resellers who are depleting the already limited supplies of the new iPhones. “They should make people open it and activate it in the store. People will have it in China tomorrow,” a London-based iPhone shopper with no apparent sense of irony told Bloomberg. Apple’s iPhones are manufactured in China and since the company relies on air freight to transport the devices, it’s quite likely that the iPhone being purchased by the alleged reseller was in China the day before.

Still, there is little doubt that the gray market will have an impact on the initial availability of the new iPhone 6 and iPhone 6 Plus. According to Neil Shah, a Counterpoint Research analyst cited by Bloomberg, up to five million iPhones may be smuggled into China before the devices are officially released there. While the gray market may make it harder for some consumers to get one of the new iPhone models this weekend, from Apple’s perspective, a sale is a sale, no matter where the iPhone eventually ends up. Apple watchers will likely find out how many iPhones Apple sold over the launch weekend on Monday, when the Cupertino-based company traditionally announces its first weekend sales numbers.

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