Open 1,000 stores a month, what is Xiaomi betting on

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Tencent Venture | ID: qqchuangye “The “materials” of smart phone hardware have been piled up to the extreme. Cameras are co-branded and technology firsts are everywhere, and the competition on all channels of land, sea and air is becoming more and more intense.” The source of this article is “Eleven People in Finance” (ID: caijing), reprinted by Tencent Ventures with authorization. Author/ Liu Shuqi Editor / Xie Lirong The changing flag of Chengtou is a constant proposition in the mobile phone market for more than ten years. Xiaomi has taken over a beautiful banner this year. According to data from Counterpoint, a market research organization, in the second half of last year, Xiaomi’s market share reached the third place in the world, with year-on-year growth rates of 46% and 31% in the third and fourth quarters, making it the strongest among the world’s top five manufacturers. In February of this year, Xiaomi maintained its advantage and once again won the third place in the world, ranking second only to Samsung and Apple. After temporarily gaining an advantage, Xiaomi began to make up lessons. The expansion of offline channels has been talked about for many years and many things have been done, but there has been no substantial breakthrough. In the mobile phone industry in the past, online and offline channels were divided into three to seventy percent, while Xiaomi’s situation was completely opposite to that of the broader market. In early April, Gao Ziguang, vice president of Xiaomi Group and head of new retail business in China, summarized the multiple reasons why Xiaomi is strong online and relatively weak offline at a media communication meeting. “We are not very good at business models (problems), The attention and results are not very good.” Xiaomi’s offline channel reform is very dynamic. Beginning in November last year, Xiaomi’s offline store “Xiaomi Home” has maintained a rapid expansion of about 1,000 new stores every month, and now the total number of stores has exceeded 5,000. Xiaomi offers about 7% of rebates to offline channel vendors, but it lacks direct competitiveness compared with other leading vendors’ points that often exceed 20%-30%. In order to make up for the shortcomings of stand-alone rebates, Xiaomi has cooperated with a series of incremental policies. In terms of goals, Xiaomi intends to take this round of channel construction in two steps: the first step is to catch up with the offline share of the online market, and the two will be the same; the second step, the share ratio is consistent with the broader market, with 30% online and 7 offline. to make. However, the reality lies in front of Xiaomi: OPPO and vivo have more than 200,000 offline sales points, and Xiaomi has opened stores at a rate of 1,000 per month, and the number of stores is still far behind its peers; Xiaomi has repeatedly reiterated the red line and the comprehensive hardware net profit margin. No more than 5%, how can we feed back the distributors and stimulate the prosperity of the channels? This will be the key to whether Xiaomi can get rid of channel jams and sit firmly in the third place in the world. 1 Open more stores? The main players in offline channels are Huawei, OPPO, and vivo. According to the Orient Securities Research Report, in the first three quarters of 2020, Huawei’s Android market share in first-tier cities accounted for nearly 50%, and its share in other tier cities was more than 30%. OPPO and vivo both accounted for about 20% of the Android market share in third-tier cities and below, and the two together accounted for nearly half of the sinking market. The three companies have only 20%-30% of space left to other manufacturers. In the cracks, Xiaomi only has a market share of about 10% in major cities, and has very little voice in third-tier cities and below. After Huawei’s chip ban, market share shrank sharply, and distributors began to lose. At this time, it is extremely important to seize more channel space. Among the four major domestic mobile phone manufacturers, Xiaomi has the least accumulation in the past, but is now the fastest. At the Redmi press conference in November last year, Lu Weibing, President of Xiaomi China, stated that the home of Xiaomi will be opened to every county in the next year. Since then, the number of Mi Homes has increased by leaps and bounds. The financial report shows that as of the end of 2020, Xiaomi has more than 3,200 retail stores in mainland China, adding more than 1,000 stores in one quarter. Gao Ziguang said that in fact, since November last year, it has maintained a monthly increase of about 1,000, and now it has reached 5,000. Compared to the past, this speed is amazing. From the opening of the first Mi Home in 2015, to the end of 2019, the number of Mi Home stores was only 630. In an interview with Caijing reporter at the end of March, Zeng Xuezhong, the senior vice president of Xiaomi Group and president of the mobile phone department, said that one of Xiaomi’s current challenges is to cover the channels of the primary market in the vast towns. In the past few years, Xiaomi offline channels were concentrated in major cities, and the sinking market was quite weak. Before this year, Xiaomi’s channel system from top to bottom included Xiaomi’s home (direct-operated stores), specialty stores, authorized stores, and franchised stores. The latter three types of stores were operated and managed by partners. The difference lies in store size, geographic location, and quantity of stocks. Wait. But now, Xiaomi has unified all offline stores into Xiaomi’s home, which is no longer just synonymous with directly-operated stores, but includes directly-operated and cooperative stores. The cooperative stores are divided into city-based specialty stores and township-based authorized stores. Smaller franchise stores, earlier direct supply points, and millet shops have already withdrawn from the stage of history. Millet offline channel system mapping: Liu Shuqi The reason for the unified name is that all kinds of stores are required by consistent standards. “You must meet Xiaomi’s standards if you call Xiaomi’s home, otherwise you will smash the brand of Xiaomi.” Gao Ziguang said. Among the current 5,000 Mi Homes, about 1,000 are the stock of original direct-operated stores, specialty stores, and authorized stores, and about 4,000 are newly-added stores. To drastically sink, the strategy is correct, but the path must have a strategy. OPPO and vivo channels are well-known for deepening their hinterland, and they can be seen in business halls and small stores in many villages and towns. This road is suitable for OPPO and vivo’s strategy of “surrounding the city from the countryside”, and may not be suitable for today’s Xiaomi. At present, Xiaomi’s strategy is to sink in the form of Xiaomi homes with higher specifications and thresholds, and the location is mainly in the shopping malls and communication streets in the county. Gao Ziguang revealed that among the existing 5,000 Xiaomi stores, about 50%-60% are in shopping malls. “There must be a trade-off,” he explained to a reporter from Caijing. “You can sell Xiaomi by posting a few posters and logos of Xiaomi, which does not meet Xiaomi’s standards.” A channel dealer in a fourth-tier city in Henan opened two Xiaomi homes in the local area. He told the Caijing reporter that at the beginning of this year, Xiaomi cancelled its franchise stores and changed its authorized store pickup mode, which caused many small merchants to withdraw from Xiaomi. Channel system, but after Xiaomi has improved in the sinking market, some more powerful merchants have started to do Xiaomi. An owner of a Xiaomi franchise store in Nanchang, Jiangxi, told the Caijing reporter that after Xiaomi announced the closure of the franchise store at the beginning of this year, his store was unable to meet the upgrade conditions and eventually closed at the end of March. Due to the strong structure of OPPO and vivo, Huawei and Honor opened stores in good locations, and his business can hardly go on. Recently, he decided to change his career. Xiaomi’s channel thinking is very clear: the focus is from online to offline, from high-tier cities to low-tier, from small stores to large commercial districts, from cooperation with a low threshold to cooperation with certain capital and operational capabilities. But even when opening stores at the current speed, Xiaomi still has a gap that cannot be ignored compared with other mobile phone manufacturers. According to various official data, OPPO currently has about 200,000 sales points in China, and vivo also has about 250,000 offline sales and after-sales outlets. 5000 Xiaomi homes are only one fortieth of OV. Next, opening more stores will still be the core task of Xiaomi. The question is, how do you control the rhythm? Gao Ziguang’s judgment is that the share of the number of stores must match Xiaomi’s market share. “If stores have less market share, business opportunities will be lost; if stores have more market share, they will lose money.” Grasping this balance will be the key, Xiaomi It is expected that this time point will come within 3-5 years. 2 earn more money? In the past, Xiaomi misfired offline, and the small number of stores was just the appearance, and the narrow profit margin was the root. Xiaomi’s 7% rebate, compared with other leading manufacturers’ points of more than 20%-30%, lacks the most direct competitiveness. “Doing Xiaomi doesn’t make money” has been the consensus of many mobile phone distributors for a long time. For this reason, allowing channel operators to earn more money has become the key to Xiaomi’s offline expansion. Since the comprehensive hardware net profit rate cannot exceed 5%, the most direct way is to give more goods to the channel. Under the global chip shortage, Xiaomi 11 and Redmi K40 are already in a hurry online, but there are still stocks offline. Gao Ziguang said that offline is currently a period of strategic support, and the ability of offline stores will be greater than offline stores. The aforementioned Henan Xiaomi distributor told the Caijing reporter that due to the serious shortage of the mobile phone supply chain this year, the supply of other brands is scarce, but the supply of Xiaomi is relatively sufficient. Merchants who are willing to invest can only choose Xiaomi. In addition, Xiaomi’s ecological chain products can also support part of the business, so that the mobile phone is out of stock and the store cannot be operated. Another measure is to improve efficiency and speed up turnover. Mobile phones are like seafood, fast iterations and fast obsolescence. Popular models will cool down in only half a year. Unsold goods are a major concern for distributors. Due to performance pressure, mobile phone manufacturers often pass on the pressure to the channels and move downwards. When the goods are delivered to the channel vendor, it means that they are sold and recorded as income in the financial statements. However, sometimes the goods are just backlogged in the channel’s warehouse, and the channel is responsible for the loss. As for how to solve the inventory turnover problem, Xiaomi’s idea is to upgrade the original simple back-office settlement system to a self-developed retail link, and digitally control the flow of goods, passengers, conversion, and personnel, thereby controlling the flow of goods between different regions and stores. Distribution. On the other hand, the backlog of inventory is recorded in Xiaomi’s account, and the channel cannot bear the loss. At present, this model is mainly implemented in Xiaomi specialty stores in urban areas, and has not yet covered authorized stores in counties and townships. Xiaomi’s internal calculations value the rate of return on funds, which is calculated by multiplying the gross profit after subtracting expenses by the turnover. The gross profit is the rebate given by Xiaomi, and the cost is the cost of rent, water, electricity and manpower of the store. Turnover time is the most important. At present, the purchase of 1 million Mijia can be sold out within three weeks on average, which means that it can be transferred 17 times a year. The aforementioned Henan channel business believes that Xiaomi’s combined actions to support offline channels have indeed standardized the previously chaotic settlement system and dealer system, and improved efficiency. But it does not mean that all problems have been solved. The three-week turnaround time may be possible in stores with good locations and strong sales capabilities, but his two stores cannot be reached for the time being. Best-selling mobile phones such as Redmi K40 have a fast turnover. Chain products still have the problem of easy backlog. There is an implicit tension between intensively opening stores and ensuring channel profitability. He believes that in the past, Xiaomi has regional protection, that is, it cannot reopen stores within a certain range to avoid competition between the two stores. But now the regional protection has been cancelled, the number of nearby stores has begun to increase, and the original gross profit was not high. For Xiaomi, this has increased the density, but for the distributors, this is not a good thing. Xiaomi’s mainstream rebate model is quite controversial in the channel. This is Xiaomi’s special delivery method. The purchase price of the merchant is the same as the selling price. After the sale, Xiaomi will give a rebate of about 7%. This part is counted as the merchant’s gross profit. The advantage of this model is that it is not easy to chaotic prices and the rights of goods belong to Xiaomi, but the disadvantage is that it requires merchants to deposit more funds on Xiaomi’s account, which requires higher cash flow. A channel source from another leading mobile phone manufacturer in China told the Caijing reporter that now that Xiaomi’s home is opened in a direct or similar-direct mode, it is to a large extent the test of Xiaomi’s own operational capabilities. According to a reporter from Caijing, Xiaomi will send a store manager to each store, and the store manager is an employee of Xiaomi. As the root system continues to expand, Xiaomi’s investment in offline channels will inevitably increase. On the one hand, Xiaomi started with Internet mobile phones, pursuing low profit margins and asset-light operations; on the other hand, expanding the sinking market requires intensive manpower and greater investment. How to effectively reconcile this inherent contradiction will be the sinking energy of channels. The key to achieving expectations. 3 Close hand-to-hand combat This round of offline channel reform by Xiaomi is almost the most radical in 11 years. Nothing else, in the era of stock competition, breaking through the comfort zone and fighting against competitors has become the inevitable choice for manufacturers to seek development space. OPPO’s dominant position is sinking the market, but since last year its channel strategy has been highly focused on e-commerce and core cities and core business districts. OnePlus and Realme used to be online as their main battlefields, and are now laying more offline channels. The power of Glory is also accelerating its penetration into offline. It is planned that the proportion of online and offline sales in 2022 will reach 46%. The market is iterating rapidly and competition is getting fiercer. Xiaomi first needs to give enough attention to manpower. At present, Xiaomi Beijing headquarters has about 500 employees responsible for offline channels, including 200 operators and 300 engineers. In addition, there are branches in various provinces, with a total of tens of thousands of employees. Sources from the aforementioned head phone manufacturers told Caijing that since last year, Xiaomi has been vigorously “digging people” in various cities, mostly channel managers who are familiar with the local water temperature. Leading this battle are two “newcomers” from Xiaomi’s offline channels. Lu Weibing was born in Gionee, known as the “King of Offline”. After joining Xiaomi in 2019, he took up the post and served as the President of Xiaomi China from the end of that year. In April of the following year, Gao Ziguang, general manager of Xiaomi Youpin’s e-commerce department, was promoted to vice president of Xiaomi Group and transferred to China to manage new retail business. Last year, Lu Weibing led the team and spent half a year traveling to all provinces across the country with a clear goal: not only research, but also to attract more dealers to join the Xiaomi system. In September last year, Xiaomi, which had obvious shortcomings offline in the past, re-established an offline sales model and goals that emphasized digitization and high efficiency. This offline battle is not only about channels, but also about Xiaomi’s future. Chang Cheng is the vice president of Xiaomi Group, responsible for the product planning of the mobile phone business. He told the reporter of Caijing that high-end is a systematic strategy of Xiaomi, including product and technology upgrades, channel upgrades, and brand logo changes at the press conference. Tell brand stories, etc. Among them, sinking in the form of Xiaomi’s home is also a crucial part of Xiaomi’s high-end strategy. For its high-end strategy, Xiaomi has made continuous moves recently, not only releasing 3 new flagship phones, Mix Fold, 11 Pro, and 11 Ultra at the same time, but also releasing the surging chip again four years later. According to a reporter from Caijing, the smart factory that Xiaomi built in Yizhuang, Beijing last year, also serves to meet the confidentiality needs of high-end devices. The newly released Mix Fold is produced in this factory. Lei Jun said at the spring conference that Xiaomi has “preliminarily established itself in the high-end mobile phone market.” The financial report shows that in 2020, the global sales of Xiaomi’s high-end smartphones will be about 10 million, including some products of Xiaomi 10 and Redmi K40. However, the high-end defined by Xiaomi here is a mobile phone priced at 3,000 yuan or more than 300 euros, which is still far behind the industry’s 4,000 yuan or more than 600 US dollars. According to data from Canalys, a market research organization, Xiaomi shipped approximately 150 million mobile phones worldwide last year, and sales of high-end phones accounted for less than 10% of the total shipments. Xiaomi still has a long way to go if it wants to truly stand on top of high-end mobile phones. According to data from Counterpoint, a market research organization, Xiaomi ranked third with a global market share of 13% in February this year, next to Samsung and Apple. OPPO and vivo followed closely behind, with a share gap of less than 3% with Xiaomi. The pattern may change at any time, and Xiaomi cannot relax its vigilance. The “materials” of smart phone hardware have been piled up to the extreme. Cameras are co-branded and technology firsts are everywhere, and the competition on all channels of sea, land and air has become fiercer. With the continuous evolution of products and the continuous iteration of the system, how to continue to surpass the existing flagships, this will be the ultimate question that continues to test Xiaomi and other manufacturers. END What is your opinion on Xiaomi’s offline strategy? Welcome to leave a message in the comment area and share with you.