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Huawei has opened four flagship stores in China since

December

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Huawei also adds more licensed distributors in

China-sources

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Premium push aimed at boosting sales beyond

smartphones-experts

By Josh Ye

HONG KONG, May 15 (Reuters) - Huawei is revamping its

retail strategy and aggressively opening flagship stores in

China, with some just a stone's throw away from Apple ( AAPL )

shops, as it seeks to retake the premium electronics throne in

the world's biggest smartphone market.

Situated directly across from Apple's ( AAPL ) Shanghai flagship

store, Huawei's recently renovated shop spans three floors of a

famous heritage architecture building in the financial hub's

busy shopping district and includes a coffee shop and a gym.

Huawei opened four such stores in major Chinese cities

between December and February, an aggressive marketing blitz by

a company that had largely relied on licensed distributors and

is rebounding from U.S. sanctions imposed in 2019 that had

crippled 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,"

said Amy Chen, a 27-year-old physiotherapist who visited the

Shanghai store this week to switch to Huawei's top-end Pura 70

Ultra from the iPhone 15 Pro in hopes of better mobile

reception.

Apple ( AAPL ) has 47 stores in mainland China. Huawei, which did not

open a flagship store until 2019, now has 11 of them.

"I think they will open more than 20 of them. Then it will

eventually catch up to Apple ( AAPL )," said Ethan Qi, associate director

at research firm Counterpoint.

It marks a stark contrast to 2021 when the company's

licensed stores were shuttered across China due to product

shortages caused by the U.S. sanctions.

Huawei has since developed its own chips, introduced highly

popular 5G-capable products and, according to sources, has

started aggressively recruiting dealers in recent months.

"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 said.

"Previously, many couldn't get stock and their 4G devices didn't

sell well."

Huawei has been actively bargaining with distributors,

touting the above industry average profit margins of its phones

and sometimes demanding exclusionary clauses to turn them into

its exclusive partners, according to two industry sources.

More than 5,200 stores licensed to sell Huawei products

sprang up through the first 10 months of 2023, with more than

half of them in third and fourth-tier cities, according to

market research firm GeoQ, helping Huawei expand its army of

distribution partners nationwide.

Its renewed marketing push poses a major challenge to Apple ( AAPL ),

which suffered a 6.6% plunge in iPhone sales in China to 10.8

million in the first quarter, according to IDC data. By

contrast, Huawei boosted its smartphone shipments by 110% to

11.7 million in the first quarter and overtook Apple ( AAPL ) as the No.2

smartphone vendor in China.

Huawei and Apple ( AAPL ) did not respond to requests for

comment.

PREMIUM PUSH

Lucas Zhong, an analyst at research firm Canalys, said

Huawei had plans to build out its flagship stores since 2020 but

the progress was slowed by the U.S. sanctions, which led to a

much slower iteration of its high-end products.

There are still supply chain issues leading to shortages of

specific models, but they are under much better control and the

new phones are garnering good reviews. That means Huawei is now

putting its focus squarely on selling premium products that

compete with Apple ( AAPL ), according to analysts.

Its latest Pura 70 Ultra smartphone, for example, starts

at 9,999 yuan ($1,300), matching the price tag of the iPhone 15

Pro Max, while Samsung and Xiaomi ( XIACF ) are

keeping prices for their premium models lower amid soft market

demand.

Huawei's luxurious flagship stores display premium products

ranging from smartphones to tablets, 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."

The push to build more of its own stores also underscores

Huawei's heavy reliance on offline sales. Between 70% and 80% of

Huawei's sales come from physical stores, while Apple ( AAPL ) sees about

40% of its sales coming from online, according to Toby Zhu,

another analyst at Canalys.

"Xiaomi ( XIACF ), Oppo and Vivo are all being affected (by Huawei's

comeback)," Zhu said, referring to other Chinese smartphone

makers. "But for now, the biggest impact has been on Apple ( AAPL )."

And the impact is beginning to be felt beyond mainland

China.

Simon Lam, owner of a popular smartphone shop named Trinity

Electronics in Hong Kong, said more independent smartphone shops

had started 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."

($1 = 7.2259 Chinese yuan renminbi)