The second largest smartphone brand for the quarter, Xiaomi is aggressively moving into the offline retail segment.
The second largest smartphone brand for the quarter, Xiaomi is aggressively moving into the offline retail segment. After its 2016 revenue crossed the $1 billion mark, the Chinese company now aims to double that figure this year enabled by its strong offline strategy. The brand, which started its operations in India three years back, had sold 3.8 million devices in the first quarter of 2017 and followed that up with 4.8 million in the April-June quarter. It is now focusing on setting up its own branded stores, dubbed Mi Home, in India. At the launch of its new Mi Home store in Gurugram, Xiaomi India managing director Manu Jain said the store, the first outside Bengaluru, will be the biggest of the five so far, and is expected to push sales further and make the brand even more popular.
After maintaining an online-only sales model for the first three years, the Chinese company is acknowledging the value of the offline space. In a country like India where offline retail channels account for 80% of smartphone sales, it was only a matter of time before Xiaomi had to reconsider its strategy. Jain shared that the company’s approach to offline will be different from that of competitors. Instead of tying up with every potential retailer and carpet bombing the retail space, Xiaomi plans to partner only with a handful of retailers in key areas.
Xiaomi’s offline strategy relies on three distinct models, each of which has helped the company grow the contribution of offline sales from 4.5% in January 2017 to 20% in July 2017.
The first model is partnerships with large format retailers such as Croma and Vijay Sales who sell Xiaomi smartphones at a marginal mark-up. This works well for Xiaomi as the company gets exposure to a large number of potential customers piggybacking on the popularity of the retail chain. The second, and more critical channel, is the Xiaomi Preferred Partner channel. These are retailers who have a number of stores spread across the city. Jain said it would cherrypick the retailers to partner with depending on the location. While Xiaomi would get dedicated branding and space within the store, the retailer would receive training on not just Xiaomi smartphones, but also on the smartphone category as a whole. “Revenue for preferred partner stores has gone up by a minimum of 2x to as much as 5x,” said Jain, adding that the strategy has proved to be beneficial for both Xiaomi and the preferred partner, who is under no obligation to stop sales of other competing brands.
The third and final prong in its offline retail strategy is the exclusive Mi Home stores. According to Jain, these stores are designed to emulate the space of a customer’s home, with wide spaces between furniture and calm, white walls. Currently, Xiaomi has four Mi Home stores in Bangalore and one in the NCR region, but Jain says the company plans to expand this network to at least 100, with Mumbai, Hyderabad, Chennai and Pune being the next locations for the company owned stores. According to Jain, Xiaomi is also looking to grow its preferred partner network to 1500-plus stores across more than 30 cities.
According to the latest IDC report numbers, Xiaomi accounts for 46.9% of online sales of smartphones, a number larger than the market share of the next four companies combined. Jain shared that the company had sold roughly 3 million units of the Redmi Note 3 in one year, based on which the company decided to import 5 million units of the Redmi Note 4 over a period of six months. He said that the company has seen a 10x growth in offline sales in the last six months, which would account for the rising share of offline revenue in the company’s overall earnings.