What IS wrong with the fake Apple Store?

The story of a “fake” Apple store in China has circulated major media outlets, including the Wall Street Journal, Reuters, and every other media outlet.  This is among the top stories covered on the Google News web site (indicating that it has lots of hits). A humorous blog entry of the “only-seen-in-China” variety describes an American's visit to an Apple product retail shop decorated exactly like an Apple Store, down to the staff's uniforms and name tags.

Apple only operates four official Apple Stores in China but supplies to countless Apple product resellers throughout the country, including more than 10 authorized resellers in Kunming.  Our store is not one of these, although it may or may not have been an authorized reseller in the past.  Bloomberg now reports that the City of Kunming, where the store was located, is conducting an audit of its electronics retailors and has ordered the closure of some stores, although other account indicates that the original fake Apple store survived the inspection, upon showing a valid business permit and its genuine Apple products.

So what is the problem of genuine iPads in a fake Apple Stores? Professor Richard Gruner, the director of the John Marshall Law School Intellectual Property Law Center, succinctly posts the 8.8 billion dollar question: “Either someone is fooled or they are not. If not, why bother?”  Some angry consumers were tricked into the store and consummated their purchase there based on the misappropriation of Apple's trademark or trade dress.  Apple's goodwill may also suffer should a blue-shirted staff member antagonize an iPhone devotee.  In any event, Apple registered the “Apple Store” mark in China for computer retail, service, education and whatever else an Apple Store does.  Legally, this is classic trademark infringement.

But the real damage in this instance goes to the owner of the fake store, not Apple or the consumers.  Apple makes money off its products, not its retail operation. Its coffer grows as long as the iPads come from Apple.  Here is a story of Hong Kong store workers being bribed to release shipment dates of Apple products to resellers. Resellers then came to buy up all the iPads for resale in China.  Nor is this isolated to Apple products.  Kotaku reports a similar situation for Sony's handheld gaming console PlayStation Portable, which cannot legally be sold because the Chinese government outlawed gaming machines in order to protect the waistline of its youths (so they play Warcraft on the computer instead). However, contraband PSPs are available in Chinese cities that “could ultimately be helping Sony's bottom line.” Apple's muted response the Kunming story is not surprising.

Consumers also benefit from having access to genuine Apple products. Bloomberg notes that Apple's “network of more than 900 retail outlets has failed to keep up with demand, forcing customers to buy from vendors not sanctioned by Apple.” This Apple simulacrum also offers a better shopping experience commensurate with the status of an Apple device. For example, a 16 GB iPad 2 costs 3,688 yuan (US$558), or approximately two months’ worth of the average urban per capita income. Given the choice, why would a consumer who can plop down that kind of money buy from an Apple authorized reseller who “operates a stall with fewer than half-a-dozen counters displaying products inside a larger mall that specializes in electronics?”  The "simulated" Apple Store experience provides the sense of exclusivity, class, luxury, and edge. Perhaps consumers like to believe that they are in an Apple store (or at least the store has enough similarity to enable them to suspend their disbelief).  The dingy Polo wannabe in Beijing, reported by Danny Friedmann of IP Dragon fame, should take a lesson from Kunming's Apple copy. And no wonder Apple's competitors go as far as creating not one, but two Steve Job doppelgangers to sell look-alike products!

So how is the owner of the fake store damaged? He is damaged by a shortsighted instinct to duplicate and lost an opportunity to develop his own retail brand.  Prof. Gruner shares the winning formula to Chinese retailors: “The proper approach -- and probably one that Apple could not stop -- would be to provide the same buyer experiences under a different store title.”

The tragedy here is that the store appears to provide high quality products, good customer service and an inviting environment, but all of the credits generated from this refreshing shopping experience accrue to Apple.  The store is simply a glorified Apple salesman living on a thin margin, until a real Apple Store enters Kunming or an authorized reseller decides to “class up.”  And for an absurdist twist, query how many consumers are actually confused.  Given the value at stake, we would expect most of them to have done their due diligence, especially when the list of Apple's authorized stores and resellers are readily accessible online and consumers have a heightened awareness of the proliferation of fakes.  So this vendor went through the length to live in Apple's shadow and probably fooled fewer people than it had hoped.  Meanwhile, it fails to harness into its own trademark the goodwill of every satisfied customer who thought “this is a nice place.”

I bought a great suitcase in Taiwan this year.  According to the maker, it won various consumer product awards and recently earned the “MIT” designation reserved for quality products coming out of Taiwan. However, its future is limited because 15 years ago, someone branded this line of suitcases “Audi” and selected a logo design featuring four circles overlapping in a triangular pattern. It cannot be imported into the United States or Europe without being seized at the border.  Its web presence is completely overwhelmed by the car maker it copied from. This great company squandered 15 years worth of goodwill and it will never be able to compete internationally.  I hope the Kunming store owner recognizes his fortune at being “outed” and uses this opportunity to create a genuine retail brand that signals a quality shopping experience.