It’s hard out there for a scalper; HK’s gray market is feeling the squeeze

by Wang Gengye | Nov 16, 2015

“Just HK$6988, it’s yours!” a young man shouted to the passerby, shaking iPhone6’s in his hand. Getting no response, he shouted again; “Wait, wait, stop! Just HK$6888, all right? I have stood here all day. It’s back-breaking!”

This man is a scalper, selling iPhone6s and iPhone6s Plus, the latest Apple products, outside the Apple Store in Causeway Bay, one of the three licensed Apple Stores in Hong Kong. According to his business card, his surname is Wong.

“I am a professional. I have been standing here every day, for ten hours, selling iPhone6s and iPhone6s Plus, since the 25th of September,” he said. “Soon, it’s Chinese national day, and many travelers from mainland China could boost my business. I need to work harder!” he said, growing a little bit excited.

It’s a gray market, but legal. During this reporter’s interview with Wong, a policemen patrolling nearby just ordered these bargains to be made on the sidewalk to avoid interrupting the traffic flow, without otherwise interfering.

The three official Apple Stores in Hong Kong are the exclusive sources selling the latest iPhone products after their launch. Outside every Apple Store, however, many scalpers like Mr. Wong can be seen, buying Apple products at a relatively low price, then selling them out at a higher price for a profit.

This is a tough and challenging job.

This first challenge is that they must get the latest Apple products as soon as possible after they are announced, or at least earlier than most genuine Apple customers. “It’s a business depending on time. Time is money,” Wong, the scalper, emphasized. “As a scalper, if you can do that, you win. These Apple products are so hot that in the early days, they are always sold out of stock before you realize what happened. So if clients want them immediately, come for us,” he said.

It’s true. This time, Rose Gold iPhone6s with 64BG capacity, the most popular model, was snapped up within a few minutes, since 8 am, September 12, the first-day online reservations were available.

“On 25 September, the first day Apple provided the latest products in the store, I just waited outside, to buy these phones from people willing to sell them. You know, some people buy for selling, of course, with a higher price, to get quick money,” said another scalper. “It’s legal,” he emphasized, just like Wong, adding, ”if you buy it from me, it’s legal too.”

According to a self-statement published on the website Engadget, a user with the network name Richard Lai said he was the first customer to pick up the 128GB Rose Gold iPhone6s Plus and then quickly sold it for HK$10,000 at the gray market to make a quick profit. “That’s roughly a US$250 profit based on the device’s local price, which isn’t bad at all,” he wrote.

But it’s hard work. In order to cull the iPhone gray market, the Apple’s official policy is that during the first few days after new products were released, all customers buying the new advice have to place an order on Apple’s website in advance. Also, the reservation needs a Hong Kong local home address, an Hong Kong credit card number, and the Apple ID, with a limitation of two devices for a single customer. That means, every scalper could just buy two devices legally, which is far fewer than they need.

Some other scalpers have found another relatively easy way. “Someone high-level among us could get that kind of software, which could break Apple’s sale rule, ordering more than two devices technically online,” Wong whispered.

“Do you have that weapon?” Wong was asked. “That needs a lot of money,” he said, with no direct reply.

Even if the price from these scalpers is obviously higher than the official original price in the Apple Store, it is still attractive for many Apple fans from mainland China, due to the high import tax on foreign goods imposed by the Chinese government. That can explain why the fans from mainland China have become the main clients of Mr. Wong, since they have no Hong Kong home addresses or credit cards needed by Apple, not to mention that it’s highly unlikely to order successfully online even for Hong Kong local residents during the first frantic days.

At the same time, the big clients from mainland China, who usually buy large stocks of phones — up to a dozen even dozens at once, to be resold in mainland China — contribute to this gray market. ”They are the real big bosses. The market is mainly decided by them,” Wong said.

“It’s just like a stock market,” said another female scalper, who is Wong’s partner. “During those white-hot days, the dealer price fluctuated even every minute, decided by several factors. You go to have a dinner, and come back, finding the price is different.”

Many different factors could affect the dealer price, including the quotation by the heavy buyer from mainland China, which is offered on the site named XianDa, the current stock level in scalpers’ hands, and the seller’s quotation, which is affected by the Apple’s official supply level.

“Because you know, the official supply shortage is always followed by the price rise in the gray market, leading to a higher dealer price. It’s market rules,” said another local scalper, calling himself Lou, taking the business in gray area as a good way to earn extra money. “I’m a part-time scalper,” he said.

“You need to be smart, and sharp,” Lou said, “Otherwise, you f___d up.” A man was selling his 64GB Rose Gold iPhone6s at the quoted price of HK$7288, whereas his competitors kept their quoted prices just about HK$6688, just HK$300 higher than the original price. “This man just f___d up, because he bought the device at an irrational price, so he is trying to sell it out at a price higher than market level, which won’t work. It’s a market rule too,” he teased, “a stupid guy”.

However, Apple’s latest policy is making this gray business tougher and tougher.

During the beginning days after the launch, no spot supplies are available in all three Apple Stores, which means every device the customer get needs to be booked and paid online in advance, with the limit of two devices for a single customer.

Also, Apple has improved its stock volume and supply chain in Asia. After the hottest days, except the most popular Rose Gold edition, most other ones were available. And the customer can get their iPhone6s immediately by going to the Apple Store upon finishing the reservation process, or just need to wait for one to two weeks for the home delivery service, instead of two to four weeks before.

What’s more troublesome to these scalpers is that mainland China for the first has been on the list of first wave launch markets, just like Hong Kong. That means Apple fans in mainland China could get their iPhone6s as soon as Hong Kongers, rather than wait for another several months. This change is a hard hit on the gray market in Hong Kong, given that clients from mainland China have long been the mainstream of the buyers. Now they are gone.

Also, according to the employee in the Apple Store, as time goes by, the supply pressure has been eased, and the spot buying of some less popular models is available now. And travelers from mainland China have been able to buy those models now without online reservations or local credit cards, another step by Apple aimed at squeezing out the gray market.

“It’s a tough time, but I’m professional,” said Mr. Wong, with his bag full of latest Apple products, looking at the stream of passengers.