Smart phone manufacturer Xiaomi is exploring Direct-to-Retail (DTR) with a novel approach that cuts out middle men and lowers costs.
“We broke our own records by selling phones only online. Xiaomi sold over a million units in the September 2015 quarter, and repeated the feat in the two subsequent quarters,” said Manu Kumar Jain, India Head of Xiaomi Technology India.
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Xiaomi had become the fifth largest smartphone company, purely on the strength of its online presence. Currently, it is the second largest in terms of online market share of smartphones, and first in wearables, as per research firm IDC. It sells eight models of phones ranging from INR 5,999 to INR 24,999, and tablet PC and wearable.
“A brand that nobody had heard of, without any marketing and advertising, could sell such a high quantity by selling only online. People do lot of research before buying a product,” he said.
Xiaomi also started selling its products on Amazon, Snapdeal, Tata Cliq, Paytm and its portal Mi.com/in.
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Offline sales are too expensive as there are 4-5 middlemen between the brand and retailer thus the company started a pilot direct-to-retail through distributor Redington. Jain said through DTR, Xiaomi wanted to eliminate certain middlemen between distributors and shopkeepers.
Each of these middlemen will try to push inventory to others and increase working capital cost in the entire supply chain. “It was a push system. We decided to pilot a pull system, wherein retailers directly placed orders on a daily or weekly basis with Redington,” he said.
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Instead of getting ten phones of a single category, retailers can order multiple products depending upon the buying pattern. This reduces working capital for retailers, while Xiaomi can provide the inventory based on need.
Margins will be better, as each middleman charges 2-5 per cent, depending up on value addition. “If we cut two layers, it means margin will improve by 10 per cent. It also becomes more predictable on the exact quantity the retailer needs. If we push the product, we don’t know whether it will sell. But in pull system, predictability is high,” he said.