Chinese smartphone maker Xiaomi dials up a stores plan to grow
February 10, 2017 11:12 AM
(Bloomberg)—After pioneering online flash sales in China to reach the top of the smartphone market, Xiaomi Corp. is turning to old-fashioned retail to arrest its slide.
The phonemaker, No. 3 in the Internet Retailer 2016 China 500, will roll out a chain of about 1,000 bricks-and-mortar stores under the Mi Home banner over the next three years, as co-founder Lei Jun mimics a strategy that’s helped the Oppo and Vivo brands leapfrog Xiaomi to the top of China’s smartphone market. The new target accelerates plans outlined just last month to open 200 stores in 2017.
Xiaomi, which was valued at about $45 billion in 2014, is resorting to traditional selling techniques to make inroads into the next generation of smartphone buyers who eschew buying online. While Oppo and Vivo use a network of resellers to reach consumers in rural areas and smaller Chinese cities, Lei’s strategy would be more akin to Apple Inc.’s (No. 11 in the China 500), with plans to own and operate its own signature outlets.
“This is Xiaomi’s biggest problem: how we can overcome the obstacles of our business model,” Lei said in a video clip from a business forum posted by national broadcaster CCTV. “Our model can no longer be online, it has to be new retail.”
“We have a chance to do 60 to 70 billion yuan in business” from those stores, Lei said without specifying a timeframe.
Xiaomi is overhauling its approach to try and regain its perch atop the world’s largest smartphone arena. While it’s expanding globally—particularly in India—plugging all manner of household appliances and deepening research into artificial intelligence and online finance, the company still gets much of its revenue from its first hit product.
Oppo and Vivo’s retail strategy has helped them take two of the top three spots in the Chinese market, providing rebates and incentives for the shop owners that dominate sales in far-flung provinces to push their products.
That has driven down Xiaomi’s share of the home market. Oppo’s smartphone shipments more than doubled to 78.4 million units last year as it took top spot with a 16.8% share, according to IDC data. Huawei Technologies Co. and Vivo both rose at a double-digit pace to rank second and third. Xiaomi’s shipments slumped 23% and had just 8.9% after topping the market two years earlier.
Savvy use of social media and flash online promotions, where a limited number of devices are available for a short period, helped build buzz around a company that has drawn comparisons to Apple for the fervor of its fans. But that doesn’t work so well in rural areas, where more than 600 million people live and new buyers want advice and demonstrations.
Having its own network could also help Xiaomi push a wider variety of products.
While the company is best known for phones, it’s invested in dozens of startups and now offers air purifiers, drones, speakers, TV set-top boxes and robot vacuum cleaners. Its Mi Home outlets resemble Apple stores with their white walls and spare space, but on display is the wider range of appliances that Xiaomi’s invested in over the years. It operates about 50 locations across China currently.
Apple has about 40 stores across mainland China, most of which are in large cities, but its iPhones are also sold through about 40,000 locations such as outlets controlled by wireless carriers and spots within electronics chains.
Xiaomi’s not just relying on offline retail to jazz up its phone sales. The company is close to using its own “Pinecone” processors and could introduce the chipset within a month, the Wall Street Journal has reported. In so doing, it would join Apple, Samsung Electronics Co. and Huawei in employing their own processors, which can heighten the user experience by making hardware and software work together more efficiently.