Xiaomi‘s remarkable journey in the Indian smartphone market, from its grand entrance to becoming the biggest brand, is nothing but a surprising yet aspiring growth story. However, after a successful eight-year run, the company faced multiple setbacks, including poor smartphone sales, ED raids and others, resulting in losing its numero uno position to Samsung in Q4 2022. The struggle continued in Q1 2023 as Vivo leapfrogged Xiaomi only to push it further down to the third position.
In a strategic move to reclaim the throne, the Chinese smartphone giant has decided to shift its focus towards bolstering sales through retail outlets rather than relying solely on e-commerce.
According to Xiaomi’s India president, this strategic move aims to revive smartphone sales and recover from lagging behind Samsung and Vivo. The move, however, leads us to an intriguing question, “Is offline shopping still the preferred choice for Indians compared to online shopping?“
To gain a comprehensive understanding of Xiaomi’s intensified efforts to boost smartphone sales in India, let’s first explore the underlying factors that led to the shift in strategy towards targeting offline customers over online. Also, how this strategic move played a pivotal role in Samsung’s triumphant comeback, allowing it to reclaim its position from Xiaomi after an astonishing 20 consecutive quarters.
Xiaomi India: From Dominance to Struggle
Xiaomi made its foray into the Indian market in July 2014, facing a prevailing perception among Indians that Chinese products were not worth buying due to their quality. Additionally, the company faced the challenge of its brand name “Xiaomi” being difficult for local customers to pronounce. However, despite these hurdles, Xiaomi managed to establish a special place in the hearts of Indian consumers through its relentless efforts and innovative offerings.
In addition to offering feature-packed smartphones at affordable prices, Xiaomi employed several strategic approaches to solidify its position in the Indian market. Rather than investing in its own supply chain operations, the company chose to partner with major e-commerce platforms like Amazon India and Flipkart. By leveraging its robust distribution channels, Xiaomi effectively saved costs and ensured the widespread availability of its products.
Furthermore, Xiaomi’s Mi community played a crucial role in their marketing and sales efforts across all tier-I, II, and III cities in India. This vibrant online community not only fostered a sense of belonging among Xiaomi users but also served as a platform for sharing information, reviews, and recommendations. The active engagement within the Mi community contributed significantly to the marketing and selling of Xiaomi smartphones.
In 2014, Xiaomi’s decision to hire Manu Kumar Jain, the co-founder of Jabong, proved to be a strategic move in their India operations. With the departure of Hugo Barra, then-vice president of Xiaomi, Jain stepped in to fill the void. Jain swiftly became the poster boy of Xiaomi in India, actively engaging with local media, distributors, and fans, and acting as a crucial link between Xiaomi’s top-level management in China and its counterparts in India.
Following Xiaomi’s groundbreaking success, other Chinese players, including Oppo and Vivo, recognized the immense potential of India’s smartphone market and decided to enter the fray. However, Xiaomi not only managed to dethrone Samsung to become India’s largest, most preferred, and most trusted smartphone brand in India, but also maintained its leadership position amidst fierce competition.
During the fourth quarter of 2017, Xiaomi surpassed Samsung in India’s smartphone market, marking a pivotal shift in the industry landscape. Xiaomi’s market share during this period stood at an impressive 25%, while the Korean giant trailed closely behind with a share of 23%.
Surprisingly, 2021 was the start of the end of Xiaomi’s dream run in India. In December 2021, the Enforcement Directorate (ED) officials raided Xiaomi’s India offices on grounds of financial irregularities and seized many documents. Meanwhile, Manu Kumar Jain silently moved to Dubai, which further raised many eyebrows. In April 2022, the ED summoned Manu Kumar Jain for the third time, following his failure to appear on two previous occasions. On April 29, the ED froze approximately $725 million (equivalent to INR 5,551.27 crore) from Xiaomi’s Indian bank account. The ED accused Xiaomi of violating the Indian foreign exchange law, specifically the Foreign Exchange Management Act, alleging that funds were remitted to foreign entities without receiving any corresponding services.
These developments profoundly impacted Xiaomi’s position in India and significantly influenced people’s sentiments.
Xiaomi’s declining sales in India can be attributed, in part, to the increasing focus of competitors like Samsung, Apple, Vivo, Oppo and Realme on the offline market, particularly in tier three and four cities. On the other hand, Xiaomi’s top management continued to struggle and invested heavily in a bid to solve the issues with authorities.
Muralikrishnan B., the President of Xiaomi India, openly acknowledged the company’s relatively lower market position in offline sales, despite its strong online presence. Counterpoint Research data reveals that only 34% of Xiaomi’s smartphone sales in India this year came from retail stores, while most were generated through online channels. In contrast, Samsung relies on physical stores for 57% of its sales.
In Q4 2022, Xiaomi lost its dominant position to Samsung in the Indian smartphone market. The Chinese company experienced a significant 40% YoY decline in shipments, totalling approximately 5.5 million units. This decline continued into Q1 2023, as Xiaomi reported a massive 44% YoY shipment decline, subsequently losing the second spot to Vivo India. Within just one year, Xiaomi’s market share plummeted from 23% to a mere 16%, highlighting the challenging competition and market dynamics in the Indian smartphone industry.
Xiaomi’s Strategic Shift Towards Offline Expansion
India has emerged as one of the world’s fastest-growing e-commerce markets, with a surge in internet and smartphone adoption over the past decade. This digital revolution has propelled giants like Amazon and Flipkart to unprecedented heights, paving the way for brands like Xiaomi, Samsung, Oppo, and Vivo to flourish in this dynamic landscape.
The phenomenal growth of online sales, which now capture 44% of India’s smartphone market, is undeniable. However, amidst this online frenzy, Xiaomi has now set its sights on an often-overlooked frontier: brick-and-mortar stores.
Now that online sales have thrived, Xiaomi recognizes the untapped potential that resides within the physical retail space. The company understands that despite the convenience of online shopping, there is a unique and irreplaceable experience in browsing through a store, physically interacting with products, and receiving personalized assistance when purchasing a new smartphone.
However, the road to offline success is not without its challenges. Fierce competition from rivals boasting larger market shares poses a formidable obstacle for Xiaomi in the offline market.
In addition to competition from Samsung and other Chinese players like Vivo, Xiaomi faces a new threat from Apple in the Indian smartphone market, particularly in the premium segment. The Cupertino giant has already opened two exclusive stores in Mumbai and Delhi. As part of its broader expansion plan, the company has announced its intention to open three more retail shops in India by 2027. The iPhone maker is also actively working on strategies – including boosting the local manufacturing capacity in collaboration with Tata – to make its devices affordable for Indian users.
Standing in the shadow of these dominant players, the Chinese giant must find a way to carve out its niche and capture the attention of offline shoppers. It’s a battle that requires strategic manoeuvres and innovative thinking.
To bridge this gap between online and offline sales, Xiaomi has ambitious plans to expand its store network beyond the current count of 18,000.
It is important to note that Xiaomi India made a significant stride in its offline expansion by inaugurating its first flagship retail store in Bengaluru on August 15, 2018. Within a span of just over two years, the company achieved a remarkable milestone of opening over 3,000 offline retail stores across the country.
Xiaomi intends to collaborate with phone vendors to offer a broader range of products, including Xiaomi TVs and security cameras, where competition is comparatively less intense.
During their offline endeavours, Xiaomi encountered a marketing challenge where partner stores prominently displayed rival brands inside the shops despite featuring Xiaomi’s vibrant orange branding outside. This is a concern that the company is determined to address and rectify.
Xiaomi has also outlined plans to recruit more store promoters. These skilled salespeople will entice, engage, and persuade potential buyers inside retail outlets. Xiaomi aims to triple the number of promoters to an impressive count of 12,000 by the end of next year, building upon the levels seen in early 2023. This move reflects Xiaomi’s determination to enhance customer engagement and drive sales within physical stores.
Counterpoint analyst Tarun Pathak believes offline retail remains a key platform as India embraces the premiumization trend. Consumers are willing to spend more desire the experience and perception of owning a premium product, making the offline space crucial for success. Xiaomi recognizes the importance of meeting these expectations and aims to enhance its presence in physical stores to cater to this growing demand.
In light of Xiaomi’s strategic shift towards offline expansion and the enduring preference for physical retail experiences, one question arises: Will Xiaomi’s renewed focus on brick-and-mortar stores help it regain its lost market share and reclaim its position as the dominant brand in the Indian smartphone market?