After taking the online smartphone market by storm, Xiaomi’s overall share of smartphone sales in China has steadily dropped. Rival manufacturers Oppo and Vivo have both recently overtaken the Shenzhen firm, in terms of overall sales, thanks to their strategy of opening brick-and-mortar retail stores to push their products in lower-level provincial cities.
Xiaomi’s original sales strategy relied on online flash sales, however the success of its competitors has convinced co-founder Lei Jun to look to more traditional methods to revive the company’s waning fortunes. The company has recently announced plans to open 200 stores by the end of the year. This is in response to a clear change in consumers’ behavior – with many of the new generation prefering to buy their phones in person, rather than ordering them online.
Xiaomi is expected to be followed soon after by Apple, which has also announced plans to set up its own retail stores to boost sales in the country. Rather than directly copy the strategies of Oppo and Vivo, these two companies will promote their products through their own signature stores, instead of relying on already established retailers in rural areas and small cities. After the initial roll out of stores this year, Xiaomi expects to have 1,000 of its own stores across China by the end of 2019. In an online video posted on a business forum by CCTV, Lei discussed the reason for the change of ideas:
“This is Xiaomi’s biggest problem: how we can overcome the obstacles of our business model. 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.”
While Xiaomi has experienced recent successes in other large markets, such as India, success in its home market is seen as crucial. China is the world’s largest smartphone market, and Xiaomi hopes to use success at home as a platform for its overall global strategy. The company is has currently branched out into a variety of fields, including household appliances, artificial intelligence and online finance, but sales of smartphones in China are seen as the backbone of the business.
Having dropped down to fourth place in the Chinese market has had a serious impact on Xiaomi’s business figures, too. While Oppo and Vivo have soared to the top by providing rebates and incentives for successful retailers in rural parts of the country, Xiaomi’s shipments have taken a hit of 23%, down to a meagre 8.9% of the market. Meanwhile Oppo’s shipments grew by over 100% to 78.4 million, making it the market leader with a 16.8% share. IDC data shows that Huawei and Vivo both experienced phenomenal growth, too, now finding themselves second and third in the market, respectively.
While Xiaomi’s initial strategy won many plaudits at the outset – with its eye-catching online flash sales, it has become apparent that the company has been unable to reach out to over 600 million people – a huge portion of the market. These are consumers who live in the less affluent regions, and who prefer to see and try out what they are buying, with sales demonstrations and a perceived degree of peace of mind.
The new stores will tie in with Xiaomi’s wider strategy of branching out into other fields, and serve also as retail space for those products. The company has already branched out into the air purifier, drone, speaker, TV box and robotic vacuum cleaner markets. Its existing stores can be found in just 50 locations across the country at the moment. This all looks set to change, however, and the majority of China’s third-tier cities could be home to a new Xiaomi store within the next few years.