Xiaomi defends strategy of building offline retail network

Lei Jun, the founder of Beijing-based Smartphone maker Xiaomi, on Tuesday defended the company’s decision to expand its offline retail network, saying the strategy was paying dividends, even as the company suffered weaker growth in sales last year following supply chain problems.

Lei said that the company has an edge over other smartphone makers because Xiaomi designs, manufactures and sells its products on its own platforms, however he stopped short of offering up any specific solutions to fix its supply chain weakness.

“I was warned about setting up physical stores,” said Lei who was a speaker at the Alibaba Group Global Netrepreneur Conference in Hangzhou. “I was told that nobody would go to stores.”

Once hailed as China’s most valuable start-up, Xiaomi has run into troubles, which include delays in launching new models because of production problems.

Xiaomi’s 2016 shipments slumped 23 per cent and its share of the market fell to 8.9 per cent, lagging behind its three main rivals, according to research firm IDC.

Xiaomi now banks on its online-and-offline sales strategy and diversified product range, which includes air-purifiers and the Mi Box, a 4K Ultra HD streaming device and gaming box.

Xiaomi last week said that it shipped 23.16 million smartphones in the second quarter, a 70 per cent jump from the previous quarter and a quarterly record since the company began making phones seven years ago.

The company, which started its business selling phones over the web, attributed the recovery in sales to its online-and-offline strategy and its strong performance in overseas markets.

Xiaomi has 137 stores worldwide and plans to open 2,000 more in China and overseas in the next three years, according to a report by CNBC .

Lei said he collected 500 million yuan (US$73.52 million) worth of sales on opening day from the debut of a store in the Indian city of Bengaluru in May, the first by the company in the southern Indian metropolis.

Xiaomi gained a reputation for disrupting markets by selling cutting-edge smartphones at a fraction of the price of similar products sold by competitors such as Samsung and Apple.

Lately, however, the strategy had been squeezed by new competitors in Xiaomi’s home market. On the low end, local brands Oppo and Vivo used brick-and-mortar stores to draw customers in smaller cities, while high-end models by Huawei Technologies attracted status-conscious customers away from Xiaomi.

In spite of growing challenges, Lei said that the company would continue to focus on design, innovation and building its own community. Lei said Xiaomi aims to be the Muji of technology, adding that he looks up to the Japanese retailer’s innovative and minimalist design while keeping its products reasonably priced.