Chinese manufacturer Xiaomi is planning to amend its franchise agreement to buy out the ownership of exclusive Mi Home stores in India so as to prepare the ground for retail foreign direct investment (FDI), according to executives aware of the matter.
However, FDI may take some time since the government has informed the country’s largest smartphone maker to locally produce all its major products before setting up company-owned stores, the executives said.
Xiaomi manufactures its smartphones and power banks in the country and has indicated it will also start local television production. The Chinese firm is adding the new clause to all the agreements it is entering now for Mi Home stores and may alter the franchisee agreement of the existing stores too, said two senior trade partners of the brand.
The company has 37 franchisee-owned Mi Home stores in the country at present and intends to increase the number to 100 by the year-end by opening new outlets every week. The government has allowed 100% FDI in single brand retail via automatic route and provides five-year holiday in 30% local sourcing.
“Xiaomi is keeping all options open for its company-owned stores in the country and hence, entering the ownership clause,” said a senior executive, who did not wish to be identified. “Retail FDI is going to be a major strategy for Xiaomi since it wants to drive offline sales from these stores the way it has driven in China.
The Centre has told the company to expand local manufacturing under the ‘Make in India’ initiative before it opens its own stores, and the company is working towards that.”
Xiaomi, last month, brought over 50 global smartphone component makers to set up base in India which it estimates may entail $2.5 billion of investment and create 50,000 jobs if it is successful. It has plans to set up 45-50 Mi Home stores each in all the major cities such as Mumbai, New Delhi and Bengaluru. Xiaomi has partnered with leading regional retail chains for setting up these exclusive stores.
Industry executives said Xiaomi also recently reduced retail and distribution margin by 1% whereas the margin for multi-brand retailer is now 4-5%, for distributors it’s 2-3% and for Mi Home stores it is 2-3%. “Once the company-owned stores come up, they will be able to save the 6-8% trade margin which will boost profitability,” said another executive.
Xiaomi wants to double offline sales contribution to overall sales from 20% to 40% by next year and is also expanding its preferred partner multi-brand store network. The company has more than 2,500 ‘Mi Preferred Partner’ outlets.