Xiaomi has not been having a particularly good run of late. The company has seen its sales slide down drastically amid serious efforts from competitors like Huawei, Samsung and Apple to usurp its position. It is now seeking to go for a complete image makeover and very interestingly, it is hoping to be compared to — not Apple — but Washington-based warehouse retailer Costco Wholesale Corporation.
Xiaomi has always sparked off comparisons with Apple. The company started off with creating sleek, high end smartphones that quickly generated a lot of hype. However, Xiaomi co-founder Lei Jun is not too keen upon this comparison. Instead, he would rather be compared with Costco Wholesale Corp. In case you are unaware of it (which is pretty unlikely, but still) Costco is a warehouse retailer that sells almost everything you can think of and is known for offering huge discounts as compared to its peers.
So basically, this can be taken to mean that Lei wants to offer a diversified portfolio of products, that are affordable. Xiaomi already has a very varied portfolio that includes everything ranging from smartphones to air purifiers to smart bicycles.
So here is how Costco is different from Apple: The latter dominates the smartphone industry and takes a very big share of the profits home thanks to its ultra premium, expensive devices. The former on the other hand, makes more of its money through annual membership programs. Xiaomi is looking to achieve something similar. Going forward, the company will be looking to generate more money from apps and services. There is potential in the field. Xiaomi after all, managed to pull in in the north of $1 Billion from sale of services over last year.
This strategy of course, is completely at variance from the company’s previous business model of staying in business by dint of razor thin margins and focusing on bulk sales to drive profits. Strategies like flash sales were all well and good and served to give Xiaomi an edge and turn it into a instant brand, however, this has its own share of consequences and once competitors caught on to what the Chinese manufacturer was doing, they started replicating its techniques, forcing it to go on the backfoot.
So now, the company is hoping to use a combination of app and services, along with the Indian market to reignite the magic. It is going to be an uphill climb — because Xiaomi faces many of the same competitors here as it does in China and what’s more, domestic players in India have already seen the Chinese smartphone maker toppled out of its throne in China — again, by other domestic players. However, Xiaomi is still the number one online seller — thanks to its early forays into online, its flash sales and exclusive partnerships. The company is attempting to cement its position on that front before moving into other verticals.
Lei also has his eyes upon the MiHome retail stores. He hopes that with enough of these established all over the country, he can generate sales exceeding $10 billion annually. It remains to be seen if this estimate is correct and feasible however, Lei is very hopeful. The issue with these stores would of course lie in one of Xiaomi’s strengths — its diversified product portfolio. Do you go into the store to buy a phone? A pen? A bicycle? However, this could be overcome particularly for customers visit the store with the specific intent of buying such and such a product.
Meanwhile, India will have its own set of challenges for the company. When it first arrived here, Xiaomi received a very warm welcome. That has ceased through and thanks to a trend set off by the Chinese smartphone maker itself, there are now many companies vying to do volume sales with paper thing margins. This competition which is fueled by the intent to become the largest volume seller, is hurting smartphone makers and is reminiscent of the self-destructive behavior displayed by e-commerce stores when they embarked upon discount wars. Regardless, Lei believes that the company will be able to pull through thanks to investor support and a strong consumer base.
The major stumbling block for Xiaomi in my opinion, was where it started competing with the likes of Samsung and Apple and over diversified its offerings to stay in business. The company hopes to turn this into a strength. Meanwhile, what with troubled waters in both India and China, Xiaomi is going to have its hands full.
