Xiaomi Store Upgrade


Offline channels have changed: "Abandon" franchise stores, merchants need to invest another 800,000 to renew

From the perspective of the company, this is a reasonable choice. But for those merchants who have followed Xiaomi for many years in their eyes, what they feel is that they are not respected and not worthy-is this the pain caused by the rapid expansion of Xiaomi's home?


In early January, Wang Yu suddenly discovered that Xiaomi’s direct supply platform could not place orders normally.

After his verification, it was found that his channel contract with Xiaomi from 2020 to 2021 just expired on this day.


He then submitted a renewal request in the background. By convention, he will receive a text message with a link to the contract. 

As long as he signs his name and confirms it, the electronic version of the contract will be sent back to Xiaomi for review. 

In his nearly three years of working experience with Xiaomi, this kind of review can generally be completed successfully in a few hours.


But as of press time, this contract has not been reviewed. To be precise, if Wang Yu does not make certain clear concessions and compromises, this contract may never go through.


If you don't upgrade, you'll be out

After submitting the application that day, Wang Yu quickly learned that the creation of the electronic contract he initiated failed. 

The platform stated that it does not support franchise store contract renewal for the time being, "Urban stores/county stores, please contact the city manager to upgrade the store."


What is the store upgrade? 

Conventionally, Xiaomi is about to reform its existing offline stores across the country. The core points are scale, location, decoration, and supply of goods.


Take Wang Yu’s situation as an example. If he wants to continue to operate Xiaomi’s products, he has only two options: one is to relocate in the city and go to a large shopping mall to open a Xiaomi home. 

The renovation cost is 60-100 square meters and the decoration cost is 100,000. Yuan, a one-time delivery of 600,000 yuan, and another 100,000 yuan deposit.

The second is to open a Xiaomi authorized store in a small town dozens of kilometers away, and the one-time delivery and decoration costs are about 400,000 yuan.


Similar things are happening among the merchant groups of Xiaomi franchise stores across the country.


On January 14, according to Sina Finance, a franchisee claimed that Xiaomi unilaterally terminated the contract, that is, the contract will not be renewed when the contract expires, the ordering platform will not place orders, and there is no phone or document notification. 

At present, the affected franchisees have established rights protection groups with more than 200 people. Wang Yu told Jiemian News that his rights protection group is also more than 200 people.


Among them, most businesses have been told that Mi Home will be upgraded and transformed.


To stay, the investment is huge; to move away, to start all over again-no matter which road is "difficult to walk" for a business like Wang Yu.


However, if you stand from Xiaomi’s standpoint, you will find that if the implementation of this decision is successful, it will complete a channel reform with a good effect. 

Among all the merchants that continue to cooperate, those who lack financial strength will go to the county and small towns. 

In the town, open uniformly decorated and higher-standard stores to help Xiaomi complete the channel sinking task; while more powerful businesses will stay in the city and go to large shopping malls to open more spacious and bright Xiaomi specialty stores.


Just from the perspective of expanding the coverage of the brand and occupying the minds of users, Xiaomi can gain a beautiful channel upgrade. At the same time, according to the information currently available, most of the financial pressure for channel expansion and upgrades is also allocated to the merchants, and Xiaomi can also collect a considerable cash flow from the first delivery after the upgrade of the store.


But this is only an analysis. A few days after Wang Yu discovered that the contract could not be renewed, Xiaomi gave an official reply.


On the afternoon of January 14, Xiaomi issued an open letter to franchise store partners on the direct supply platform. 

The letter mentioned, “In the past year, Xiaomi’s home has experienced rapid growth from a hundred to a thousand, and it is scaling up and sinking its high-efficiency operation model, forming a more mature channel strategy, and it has been able to transform the new The company’s business model has officially empowered everyone."


"Next, we will make a unified channel model upgrade and standardization for the offline channel system. Taking franchised stores as an example, this model will gradually withdraw from the existing channel system after the contract expires, and will upgrade the venue and image. The franchise stores are upgraded to franchise stores or authorized stores."


"The current contract is about to expire, and the franchise store model is about to come to an end. 

We understand our partners who are unwilling to upgrade, and we are grateful for our continued support. 

We will organize relevant departments to communicate and negotiate with partners, and launch an orderly and smooth exit process. ."


"For partners who are willing to upgrade but have difficulties, we will try our best to provide training and exchanges in terms of business capabilities, support and assistance in terms of materials, etc. 

The following are the corresponding upgrade assistance content for everyone: 

1. Provide store design services

2. Provide exhibition support

3. Provide furniture and equipment required by the store

4. Provide support for opening and activities."


Obviously, Xiaomi's offline business is preparing to enter a new stage. To keep up with this goal, offline and large channels must accept reforms.


On January 8, Xiaomi executives such as Lei Jun, Lu Weibing and others all released Weibo on "Mi Homes, Thousands of Stores Opened Together", advertising this news that deserves to be celebrated by Xiaomi people and Mi Fans. 

But if you read the comments under Weibo carefully, you will find that more than one person is talking about what the Xiaomi franchise store is experiencing.



From the perspective of the company, this is a reasonable choice. But for those merchants who have followed Xiaomi for many years in their eyes, what they feel is that they are not respected and not worthy-is this the pain caused by the rapid expansion of Xiaomi's home?


Unprepared decision

In fact, on the day Wang Yu encountered the problem, he found the matching city manager to understand the situation.


However, whether it is the city manager or the superior leader of the Xiaomi franchise store in the entire province, the answer to Wang Yu is "can sign", "waiting for the headquarter review", "wait", they are not aware of it. 

You cannot renew your visa without upgrading to the merchant. After a certain period of time, the city manager reminded Wang Yu to follow the requirements as soon as possible.


But Wang Yu later recalled that in mid-December last year, another person in charge of the offline channel of Xiaomi contacted him by phone and asked him if he would like to move the current street shop to the mall to make it the aforementioned A millet store with a cost of 800,000 yuan. 

Wang Yu said at the time that he felt high investment and pressure, but the other party did not respond more later, and did not mention anything about the fact that if he does not upgrade, he will not be able to renew his visa in the next year.


In retrospect, Wang Yu thought that this call might be due to the fact that Xiaomi's offline business department was learning about the willingness of the merchant to upgrade.


This is also a questionable place: 

How did Xiaomi's offline channel-related decisions take shape this time? 

Which level did you reach? Because to a certain extent, the anger and dissatisfaction of the franchisee group is not only because of "dismissed", they also feel puzzled, why such an upgrade method does not communicate in advance, but hit them by surprise?


According to the contract provided by Wang Yu, its Article 12 agreement states, “If either party does not agree to renew the contract, this agreement shall terminate on the date of the expiry of the cooperation period”, provided that “30 days before the expiration of the cooperation period”.


Of course, things have happened. But even if the significance of the investigation is put aside for the time being, and develop according to Xiaomi's thinking-will those upgraded stores definitely succeed?


Wang Yu’s Xiaomi franchise store is located on the street in the commercial circle of a certain city in Sichuan Province. 

The store is about 60 square meters and can sell about 120 Xiaomi phones every month. 

His city manager once told him that it is very likely that he would lose money when he set up a Xiaomi store in the city, because the consumption level here is temporarily unable to keep up.


He learned that there are a total of 175 stores in Sichuan Province. Except for some stores that are already in the town, they will not be affected after they choose to upgrade to authorized stores. 

All other stores whose contracts have expired face the same situation as him.


In Sichuan, except for new first-tier cities such as Chengdu, the probability of success is higher. In other second-, third-, and fourth- and fifth-tier cities, no one can guarantee that the costs will be recovered as they wish to make high-cost investments and move to more gorgeous shopping malls.


But Xiaomi's current demands for businesses are clear. Just recently, a merchant expressed his willingness to invest in renovation and delivery costs and applied for store upgrades, but was rejected on the grounds that "the image of the neighborhood next door is not up to standard."


This colleague felt very helpless, "I can invest money in my own store to remodel the image according to Xiaomi's requirements, do I have to invest money to remodel the store next door also in accordance with Xiaomi's requirements?"-perhaps, to a certain extent The above means that Xiaomi does not have much room for negotiation on the requirements of the store environment after the upgrade.


In the rights protection group, everyone is still discussing two topics. In addition to "what to do with franchise stores", the equally important one is "how to deal with stockpiling". 

Wang Yu expects Xiaomi to recover all its inventory and subsidize its renovation investment and store losses, but he has not received any notice for the time being.


He still has nearly 300,000 yuan in inventory on hand. Compared with some merchants that have continued to lose money, he is lucky that he has basically maintained a breakeven during the past three years. 

If he can continue to sell, he will be able to make some profit after he empties all the last goods.


But whether it can get the rebate is still unknown, and, "Without new products coming in, more and more old models will be sold later, and in the end there may be about 100,000'dead goods' left." Wang Yu said, "That's not easy to sell. Up."


Xiaomi's Offline Path

Prior to this, Xiaomi’s offline channels had four modes: Xiaomi franchise stores, Xiaomi authorized stores, Xiaomi franchise stores and Xiaomi homes.


The Xiaomi franchised store is about to close. It is almost the same as the Xiaomi authorized store in terms of pick-up and rebate policies. Most products are picked up at the reserve price (lower than the original price), and the difference is earned after the sale. 

There is a price guarantee for the products participating in the promotion. And 7% rebate (this policy has undergone a reform. Before 2020, merchants will pick up the goods at the original price and rebate 7% after sales. After the gradual reform, the actual profit of the merchants is higher than in the past).


The difference between the two is that the franchise stores are smaller in scale and the location does not have to be in the core business district-this is the main reason why franchise stores were first transformed.


There is little difference between the Xiaomi Home and the Xiaomi store in terms of store specifications, pick-up and rebate policies. The only difference is that the former is directly operated by the company, and the latter is open to franchise.


As for the franchise stores, the Xiaomi store still implements the policy of purchasing at the original price and 7% after-sales rebate. 

This is also one of the reasons why some franchise store merchants in the urban area are unwilling to upgrade their franchise stores, and their profits may decline after the upgrade.


According to the information conveyed by Xiaomi to merchants, in the future, Xiaomi’s offline channels will only retain two franchise systems: 

Xiaomi specialty stores in urban areas, and Xiaomi authorized stores in towns and villages. This is a big upgrade in the past.


As we all know, Xiaomi took online as its king in the early stage and spent almost all the time learning and making up lessons in the later stage of offline channels.


On September 12, 2015, the first Mi Home entered Beijing Modern Mall, which became an important starting point for Xiaomi offline retail. In February 2016, Lei Jun officially announced at the Xiaomi Mi 5 conference that Mi Home was transformed from a service store to a retail store. 

By the end of the same year, the number of Mi Home stores nationwide exceeded 50.


By 2017, Xiaomi began to try to join the cooperation method to accelerate the development of the offline market.


Xiaomi, who "crossed the river by feeling the stones", also had some episodes during this period. According to the interface news reporter, in 2017, Xiaomi launched a direct supply point cooperation model. 

As long as merchants apply for an account on the Xiaomi platform, they can place an order to pick up the goods at the original price and get rebates after the sale. This model does not require a storefront, and merchants can only sell to relatives and friends.


However, due to the imperfect price protection system, merchants pick up the goods at the original price, and from time to time they encounter discounted prices online, so most of the first-generation merchants are losing money.


Later, the direct supply point model was upgraded to the Xiaomi franchise store model, and the price guarantee policy was provided, but it was required to have a store and to be decorated in accordance with Xiaomi's requirements. A batch of old rice noodles such as Wang Yu chose to join at this time, and the investment costs were all around 200,000 yuan. 

And this model has been maintained for nearly three years, until the occurrence of this channel change.


Almost since 2018, the number of Xiaomi offline stores has entered a stage of rapid growth, breaking through 1,000 in that year. 

As of December 24, 2019, Xiaomi officially announced that the number of Xiaomi offline terminals has exceeded 6000.


However, the "blooming everywhere" of Xiaomi stores does not seem to let franchisees taste the sweetness. 

According to the All-weather Technology Report, many mobile phone distributors report that Xiaomi's profit point is low. Another operator said that the Xiaomi store he opened in October 2018 lost 30,000 yuan a month, which lasted only half a year.

And how common this situation is throughout the country is unknown for the time being.


Not only that, but within five years, the contribution of Xiaomi offline channels to the company's revenue is still unknown. However, combined with multiple sources of information, for Xiaomi, which emphasizes ecology and is rich in SKUs of ecological chain products, offline stores are indeed an excellent exhibition space, allowing Xiaomi to face consumers directly and complete a closed-loop story.


However, even though online channels once dominated the limelight, Xiaomi still has no advantage offline, and even shows signs of lagging behind.


Among Xiaomi's opponents, Huawei OV started earlier. According to reports, as early as 2015, He Gang, then president of Huawei's mobile phone product line, announced the "Thousand Counties Plan", that is, Huawei (including Honor) will enter 1,000 county-level cities to establish experience stores in the next year. The city experience store is also under construction together.


In September 2019, Zhu Ping, vice president of Huawei's consumer business and president of Greater China, revealed that Huawei has more than 7,500 stores in the Chinese market, including authorized stores and directly-operated stores, and the number of offline special areas has exceeded 35,000.


OV also quickly caught up. In 2016, the two jointly launched an offensive and carried out a capillary-like layout across the country through previously marginalized merchants such as street shops. 

By 2018, OPPO has already claimed that the number of offline terminals has exceeded 200,000.


Another important news is that since its independence from Huawei in 2020, Honor has also accelerated its offline layout. At the end of 2019, it announced the glory of opening more than 2,000 offline stores. 

Since September, it has opened new stores in Chengdu, Lanzhou, Wuhan, Xiamen and other cities, and a number of stores have opened one after another. Honor CEO Zhao Ming once said that in the first half of 2020, the proportion of Honor mobile phones offline surpassed online.


Lei Jun's emphasis on offline business is obvious. On June 12, 2019, Xiaomi established an offline business committee, with Zhang Jianhui, vice president of China, as the chairman, reporting directly to Lei Jun.


But at this point in time today, what is the reason why Xiaomi, whose offline scale is not large enough, is anxious to upgrade?

Judging from some signs, this may be related to its desire to seize the offline business trends in advance. According to Caijing Weekly, a Xiaomi store operator said based on personal experience that "the decline of the mobile phone street is the general trend." 

Zhang Jianhui, the vice president of Xiaomi's offline business in China, also believes that it is increasingly difficult to make money in the mobile phone street because of the price chaos and fierce competition, and the loss of customers is also serious. 

"Shopping Mall will become a battleground for mobile phone manufacturers."


At the strategic level of the entire company, it will be a matter of time for Xiaomi to take the initiative offline

In fact, as early as 2015, the market research company GfK had survey results indicating that the explosive period of online channels has ended, and the dividends have also been.



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