Smartphone maker Xiaomi is changing China’s playbook with an eye on EV showrooms

SHANGHAI: Chinese smartphone maker Xiaomi Corp is revamping its playbook in its home country by opening thousands of new stores to drive domestic sales growth in a highly competitive market and provide a channel for its vehicle sales plans electric.

Xiaomi opened its 10,000th store on October 30, crowning a pledge to double its number of offline stores and has set a new goal of opening 30,000 stores over the next two to three years.

The physical push is a change for a company that has grown rapidly by pioneering online smartphone sales, and shows how some Chinese companies are responding to continued low consumption and slowing economic growth.

But with that comes challenges in the form of higher advertising and inventory costs, analysts said.

“Going forward, the company’s strategy will shift more to offline depending on our sales capabilities. Our initial goal is for our offline sales to reach the same volume as our online sales, ”said Shang Jin, Xiaomi China Retail General Manager. Reuters.

While Hong Kong-listed Xiaomi has grown successfully overseas, it lags behind larger rivals such as private companies Oppo and Vivo in its domestic market due to its weak presence. offline. Around 70% of all smartphones in China are purchased offline, while Xiaomi makes 30% of its sales offline.

Xiaomi’s new stores also carry its line of internet-connected home appliances and cameras which have larger margins than phones – analysts say about 15% bigger – and set it apart from its rivals.

Looking ahead, Xiaomi hopes that its new stores will become showrooms for its electric cars, which company founder Lei Jun says will be its last big business venture. The company aims to mass-produce cars by 2024.

PLAY THE REMINDER Xiaomi has pursued an online sales model because it helps keep prices low without offline distributor networks.

This strategy has enabled the company to grow rapidly since its inception in 2010. It overtook Apple Inc in the second quarter to become the world’s second-largest smartphone maker, according to market research firm Canalys.

However, in its home market, the largest in the world, it fell from number one in 2015 to fourth in the third quarter, lagging behind Huawei spin-off Vivo, Oppo and Honor.

While its domestic market share has struggled to keep pace, so have its store openings. Xiaomi opened its first stores in China in 2015, but it lags far behind Oppo and Vivo, both owned by BBK Electronics. Shang says those two rivals now have around 200,000 stores in China.

This year, to increase the number of its stores, Xiaomi changed its offline distribution model to attract more franchise partners. Although it owns some of its stores, it is ultimately targeting a majority of franchisees, especially in rural areas.

Under this new plan, for some stores Xiaomi only classifies a device as “sold” when a consumer buys it rather than when it is shipped to middlemen. This reduces the inventory risk for stores and returns the burden of unsold inventory to the manufacturer.

“Compared to store rent and the cost of labor, inventory is the biggest risk for smartphone retailers,” Shang said, adding that the new system means “no storage” .

This helps soften the deal for franchisees, who might otherwise be hesitant about Xiaomi’s relatively lower margins over the phone. “Xiaomi cannot increase its profit margins without increasing its price, which it will not do,” said Nicole Peng, who monitors the Chinese smartphone market at Canalys. “So now they’re saying to salespeople, ‘You’ll make a smaller margin, but I’ll take the risk off you.’ “

The new system is not without cost. Peng said this will force Xiaomi to invest more in offline advertising, which costs more than online advertising.

And since franchisees didn’t have inventory, they could more easily switch to selling non-Xiaomi products if they weren’t happy.

Longer term, Peng said the store’s expansion made sense for Xiaomi’s push into electric cars, which would require dealers.

“Cars are not standardized and customers demand a lot of customization based on their personal preferences. Offline sales are very important for that,” she said.

(Reporting by Josh Horwitz; Editing by Stephen Coates)

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