Xiaomi has not been hit by the revised e-commerce policy: Manu Kumar Jain
In a detailed interview to ET’s Writankar Mukherjee, Jain shared interesting trends in the Indian business of one of the most valuable consumer technology start-ups.
There was fear that the revised e-commerce policy will have implication on sales of e-commerce exclusive and focussed brands. Has there been any impact on your sales?
There has been no impact since in the last two years none of our phones were exclusive in any e-commerce platform. We were selling our phones through Flipkart, Amazon, Mi.com, 5,000 MI preferred partner stores, and large chains like Reliance, Big C, Poorvika amongst others. There were some brands which were exclusive and may need to change their business model. But for us, nothing really changes. And we are a big believer of e-commerce.
Since you have made rapid in-roads in offline sales, how big is online for you at present?
Last year 2/3rd of our sales came from online and 1/3rd from offline. This year, we are expecting the contribution to be 50-50%. We want to hold our online share and expand into offline by entering few hundred cities and going deeper into offline. We are definitely trying more than hundred cities and could be few hundred too. We have 20% share in offline with presence in only 50 cities. India has few hundred cities. At the same time, we want to go deeper in cities like Bangalore, Delhi, Kolkata and Mumbai. With such aggressive plans, there is no reason why we can’t increase our share.
Online is 35% of the smartphone market, while offline is 65% of the market. In online for last two years, we have around 50% share and a dominant number one. Second biggest brand has 7-8% share. In offline, we started with less than 1% market share two years ago. Today, we have more than 20% share and is the second largest brand. Combined both of these, we have about 30% share.
Have you managed to innovate in offline expansion too?
Of course offline business cannot be as efficient as online. But we are trying to ensure that our offline efficiencies are closer. The kind of margins we pass and the cost structure we have, we are one of the most efficient brands in offline retail. We have taken a lot of learnings from online and implemented in offline. For example, we sell TVs through MI preferred partner stores. And it was a great success. These 200-400 sq ft mobile shops never sold anything else. For TV, you need big space for display and hold inventory. We told them, you don’t need any. You just have to showcase two TVs and keep 2-3 in the stock. You sell them and we will replenish you twice or thrice a week. Around 40-50% of our MI preferred partner stores are actually selling TV. We are the first brand in the country to sell TV through mobile retailers.
We have 50 large MI Homes in ten cities which we will double this year. Then there are 5,000 MI preferred partner stores which too will be doubled this year by entering few hundred cities. The number of stores in all cities may not be so many since all markets does not need so many stores. And 500 exclusive Mi Stores for small towns which we want to grow ten times this year to over 5,000 stores. When we do that, we would be one of the biggest rural retail chain in India.
How do you see Samsung as a competition this year since they have revamped their smartphone and television portfolio and adopted much more aggressive pricing?
It is not fair for me to comment on competition. But if you ask me personally, I have huge amount of respect for many of our competitors, including Samsung and Apple. Samsung and many other brands have built great systems and processes, great distribution network over last many years. And you have to give credit to our competition. We can learn a lot of things from them. Just that our way of working is very different. Everybody, including them, were focussing on the offline for the longest period of time. We started focussing on online. Each one of them were spending millions of dollar every month on advertising and marketing and we for the first three years spent zero dollars. Yet we became number one.
Even when we started our offline business two years ago, instead of going for width of distribution we went for depth. So in every cluster we were present in few shops. We believe we are a pull brand and not a push brand. By doing this, it’s a win-win for us and partners. It makes the few shops we are present as the largest retailer for Xiaomi and he can focus on us. The partner can move his inventory very fast. This strategy is diametrically opposite from most of our competitors who were focusing on width of penetration in offline.
And we were always focussed on efficiency and honest pricing. This makes me happy since now a lot of brands are trying to lower down margins and start offering honest pricing. At the end of the day this means two things - our philosophy and understanding was right and now when other brands are following it, this justifies. We have been number one brand for six quarters. The gap with number two brand has been increasing. For instance, in Q4 we are like 50% bigger than the second biggest. Our philosophy of honest pricing, low cost structure, and high efficiency is the right model for long term perspective. This also benefits consumers since they can get latest models at lower pricing.
Last year we entered TV, security camera, luggage and smaller categories like neck pillow. This year, we have already launched sunglasses and shoes. We have 15,000 fully paid orders for shoes. Now we are launching shoes in Mi.com. It won’t be sold offline which is tough. We will launch 3-4 other smaller categories this year in lifestyle. We may launch 1-2 other big launches. We are working on multiple products -- water purifiers, laptops, washing machine, AC, fridge. But all may not come to India this year. One or two may come and balance next year. Since we don’t have capacity to take up so many projects at one go. We are still a pretty small company from team perspective with just 1/10th or 1/20th of the big electronic companies in India. We prefer to do fewer things and a good job rather than too many things and a bad job.
Since you plan to venture into home appliances, any plans to sell through consumer electronics retailers?
We want to, but the margin expectation there is too high. In some cities, we are working with them. We are talking to them whether we can run a trade programme for them like MI preferred partner programme.
What kind of sales growth you expect this fiscal?
I can’t share financial numbers. As per IDC, we have grown our shipments by 60% year-on-year last fiscal.
Your parent is investing Rs 3500 crore in the Indian business. What is this for?
This for a range of expansion plans. We are expanding into offline which is a pretty big investment. A lot of investment is going into R&D. In India, we have built four different product teams - for phones, TV, software and IoT devices. We have built labs in our Bangalore office for camera and thermal testing. A lot of investment is also going to warehouses, call centres, service centres and to support expansion of our manufacturing in India. We are also building internet businesses such as music, video and content and investing in start-ups.
Xiaomi globally has made a lot of investment in eco-system companies. What about India?
In India, we have made a lot of investment but not able to come across any hardware start-up where we can invest. There are no eco-system company in India who can co-design products with us. We would be happy to invest in any mobile internet service company which is good enough. We don’t have any specific fund for that. We will make such investment from our balance sheet.
Since you are in the rank of global vice-president, are you handling other markets since Xiaomi is now expanding fast globally?
Outside China, India is the biggest and fastest growing market. So we are structured internally as China, India and rest of the World. Last year, the Indian operation took additional responsibility for running some of the neighbouring countries like Bangladesh, Nepal and Sri Lanka, while I have mentored some other countries. One good thing about Xiaomi is that we have local leadership in most of the countries. For instance, our Bangladesh operation is run by a local who heads it.
We also understand every market is different and there can’t be one size which fits all. Like in India, we started our offline journey much faster than China. But we share learning so that they can learn from our success and mistakes. They can then replicate some of the success there too. Like in Bangladesh we have overtaken Samsung in six months and now the third largest there. We took a lot of learning from India and customised it. For instance, Dhaka accounts for half of all smartphones sold in Bangladesh. So, we first decided to build our business in Dhaka. In Bangladesh less than 5% is online. I am a global VP which means I am part of the global group decision making but my primarily day-to-day responsibility is still running India and neighbouring countries.