# Smartphone maker Xiaomi switches China playbook with eye toward EV showrooms
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-11-10
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Xiaomi's Brick-and-Mortar Strategy Revolution in China
Meta Description: Xiaomi is revamping its strategy with plans to open 30,000 new stores in China, adapting to the shift towards offline sales and expanding product range.
URL: https://financedigest.com/smartphone-maker-xiaomi-switches-china-playbook-with-eye-toward-ev-showroomshtml

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By Josh Horwitz

SHANGHAI (Reuters) – Chinese smartphone maker Xiaomi Corp is revamping its playbook in its home country by opening thousands of new stores to spur domestic sales growth in a highly competitive market, and provide a channel for its plans to sell electric vehicles.

Xiaomi opened its 10,000th store on Oct. 30, capping a promise to double its offline store count, and [set a fresh target](https://www.financedigest.com/eu-sets-recycling-reuse-targets-to-cut-packaging-waste.html "EU sets recycling, reuse targets to cut packaging waste") to open 30,000 shops over the next two to three years.

The brick-and-mortar push is a shift for a company that grew rapidly by pioneering online smartphone sales, and shows how some Chinese [businesses are responding](https://www.financedigest.com/pitiless-machines-will-kill-your-business-if-you-dont-respond-now-warns-servion.html "‘Pitiless machines’ will kill your business if you don’t respond now, warns Servion") to persistently soft consumption and slowing economic growth.

But it comes with challenges in the form of [higher advertising and inventory costs](https://www.financedigest.com/boohoo-warns-on-outlook-blaming-higher-returns-and-pandemic-costs.html "Boohoo warns on outlook, blaming higher returns and pandemic costs"), analysts said.

In the future, the company’s strategy will [tilt more towards](https://www.financedigest.com/the-antiobesity-drugs-market-to-tilt-towards-digitization.html "The Antiobesity Drugs Market to tilt towards digitization") offline based on our sales capabilities. Our initial goal is that our offline sales will achieve the same volume as our online sales,” Shang Jin, Xiaomi’s general [manager of retail for China](https://www.financedigest.com/exclusive-allianz-in-talks-with-banks-for-china-asset-management-venture-sources.html "Exclusive-Allianz in talks with banks for China asset management venture -sources"), told Reuters.

While Hong Kong-listed Xiaomi has successfully expanded overseas, it [lags behind](https://www.financedigest.com/accounts-payable-departments-lag-behind-in-ai-automation.html "Accounts Payable departments lag behind in AI automation") larger rivals such as privately-owned Oppo and Vivo in its home market because of its weak offline presence. About 70% of all smartphones in China are purchased offline, while Xiaomi gets 30% of its sales offline.

Xiaomi’s new stores also offer its suite of internet-connected home appliances and [cameras which have fatter margins than phones](https://www.financedigest.com/snap-happy-79-of-brits-ditch-digital-cameras-in-favour-of-phone-photos.html "Snap Happy: 79% of Brits ditch digital cameras in favour of phone photos") – analysts say about 15% fatter – and set it apart from its rivals.

Looking ahead, Xiaomi hopes its new stores will become showrooms for its [electric cars](https://www.financedigest.com/electric-car-insurance-your-questions-answered.html "Electric car insurance: your questions answered"), which company founder Lei Jun has said will be his last major entrepreneurial project. The company aims to mass produce cars by 2024.

PLAYING CATCH-UP Xiaomi has pursued an online sales [model because it helps keep prices](https://www.financedigest.com/tesla-cuts-u-s-model-s-and-model-x-prices-between-4-and-9.html "Tesla cuts U.S. Model S and Model X prices between 4% and 9%") low without networks of offline distributors.

This strategy has helped the [company grow rapidly](https://www.financedigest.com/ebo-ai-expands-uk-market-following-rapid-company-growth.html "EBO.ai expands into the UK market following rapid company growth") from its birth in 2010. It overtook Apple Inc in the second quarter to [become the world’s](https://www.financedigest.com/snowboarding-british-teenager-brookes-becomes-the-youngest-world-champion.html "Snowboarding-British teenager Brookes becomes the youngest world champion") No. 2 smartphone maker, according to market [research firm](https://www.financedigest.com/cone-crusher-markets-advanced-research-growth-opportunities-in-global-industry-by-2030-edited-by-leading-research-firm.html "Cone Crusher Market’s advanced Research & Growth Opportunities in Global Industry by 2030 Edited by Leading Research Firm") Canalys.

However in its [home market](https://www.financedigest.com/the-new-fangled-normal-of-working-from-home-to-push-the-public-cloud-service-market.html "The “New-Fangled” Normal of “Working from Home” to Push the Public Cloud Service Market"), the world’s biggest, it has slipped in the rankings from first in 2015 to fourth in the third quarter, lagging behind Vivo, Oppo, and Huawei spin-off Honor.

As its domestic market [share has struggled to keep](https://www.financedigest.com/sas-bridge-financing-keeps-survival-hopes-airborne-shares-climb.html "SAS bridge financing keeps survival hopes airborne, shares climb") pace, so have its store openings. Xiaomi [opened its first stores in China](https://www.financedigest.com/asia-shares-bank-on-eventual-china-opening-oil-gains.html "Asia shares bank on eventual China opening; oil gains") in 2015 but it is far behind Oppo and Vivo, both owned by BBK Electronics. Shang [says those two rivals now have about 200,000 stores in China](https://www.financedigest.com/taiwan-says-war-with-china-absolutely-not-an-option-but-bolstering-defences.html "Taiwan says war with China ‘absolutely’ not an option, but bolstering defences").

This year, to increase its store count, Xiaomi altered its offline [distribution model to lure in more franchise partners](https://www.financedigest.com/synechron-partners-with-r3-in-one-of-the-largest-distributed-ledger-consortium-projects-of-the-year.html "Synechron Partners with R3 in One of the Largest Distributed Ledger Consortium Projects of the Year"). While it owns some of its stores, it eventually aims for a majority to be franchisees, particularly in rural areas.

Under this new plan, for certain [stores Xiaomi only classifies a device](https://www.financedigest.com/selfie-loving-brits-store-over-500-photos-on-their-electronic-devices.html "Selfie-loving Brits store over 500 photos on their electronic devices") as “sold” when a consumer purchases it rather than when it is shipped to middlemen. This lowers inventory risk for the stores and shifts the burden of unsold inventory back to the manufacturer.

Compared to store rent and labor cost, inventory is the biggest [risk for smartphone retail businesses,”](https://www.financedigest.com/why-smart-businesses-minimise-risk-with-smart-detectors.html "Why smart businesses minimise risk with smart detectors") Shang said, adding that the new system meant “no stockpiling.

This helps sweeten the deal for franchisees, who otherwise may balk at Xiaomi’s relatively lower margins per phone. Xiaomi can’t increase their [profit](https://www.financedigest.com/4-tips-for-landlords-to-increase-rental-property-profits.html "4 Tips for Landlords to Increase Rental Property Profits") margins without increasing their price, which they won’t do,” said Nicole Peng, who tracks China’s smartphone market at Canalys. So now they’re saying to vendors, ‘You’ll make a [smaller margin but I’ll take the risk](https://www.financedigest.com/smaller-lifetime-care-awards-means-accident-victims-need-to-take-more-investment-risk.html "Smaller Lifetime Care Awards Means Accident Victims Need To Take More Investment Risk") away from you’.

The new system is not without its costs. Peng said it would [force Xiaomi to invest](https://www.financedigest.com/analysis-uk-crisis-forces-off-kilter-businesses-to-halt-investment.html "Analysis-UK crisis forces ‘off kilter’ businesses to halt investment") more in offline advertising, which is more expensive than online advertising.

And since franchisees did not own inventory, they could more easily switch to selling non-Xiaomi products if they were unsatisfied.

In the longer term, Peng said the store expansion made sense for Xiaomi’s push into [electric cars](https://www.financedigest.com/germany-added-35-more-electric-car-charge-points-in-2022-says-bdew.html "Germany added 35% more electric car charge points in 2022, says BDEW"), which would require dealerships.

Cars are not standardised and [customers demand a lot of customisation based on personal preference](https://www.financedigest.com/loyalty-subscription-services-and-the-importance-of-customer-preferences-in-modern-banking.html "Loyalty, Subscription services and the importance of customer preferences in modern banking"). Offline sales are very important for that,” she said.

(Reporting by Josh Horwitz; Editing by Stephen Coates)


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