Xiaomi Hang Out Centers, the Next IKEA of China? 

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May 7, 2015 by ...

Hugo Barra says that Xiaomi is creating stores which are not really ‘stores’. After all, they sell nothing and are primarily a place to hang out and maybe get one’s device fixed. 

Optimists claim such hang out zones will be ‘touchy feely-sing kumbiya’ areas, replete with modern day ‘Woodstockers’. Such cozy areas of enlightenment are reported to allow Mi Fans to embrace their inner geek, all from the comfort of spaces like this:

   
 

Although this is a great idea, after all, the majority of Xiaomi consumers belong to the one-child policy demographic and admittedly less socially adept, there still are problems. Such ‘non stores’ would be cost prohibitive. Rent in Beijing is phenomenal and in the downtown area account for 40% of expenses in some businesses such as restaurants. 

Firms such as Starbucks are rethinking where to locate because of such cost pressures. Even Apple has no more than a handful of stores here in the mainland, and they are sitting on piles of cash. How will Xiaomi finance such a move when their profit margins are microscopic?

Stores make $en$e

Pleasure zone stores are a great idea, as a back-of-the-napkin sketch reveals. 

Assuming Xiaomi gets a bargain and pays only $180,000 per year in rent then 

-they need to sell ~15,000 power bricks per month or 500/day 

Or

-tout 1,500 Mi Pads/ month or 50/day

Or 

-peddle 500 communist themed bunnies per week

If they can do this, then Xiaomi could pay its rent alone. Now take all those figures times 3 to appreciate required sales volume required to cover all costs.

Undertaking such a move will increase expenses, which will have to be passed along, robbing their kit of its commercial appeal. Based on this, how do these happy zones square with Xiaomi fiscal might?

Doubts about the move

Another issue that Chinese have brought up is what those hang out zones would actually look like in practice. Theorhetically this would be the case, 

 
But the reality, based on IKEA shopping around the Middle Kingdom looks more like this:

   

  

  

  

As such, Xiaomi would be better served by offering up cots and thick mattresses for dozing residents. Not only would they appreciate the effort, but store patronage would skyrocket. 

Hugo Barra says he wants fans to ‘Feel at home.’ If this is true, then replicate the IKEA model,lean back and relax. Your little palaces will soon be glutted. 

Enough!

Ok, back to the analysis

Great for service

Xiaomi is known for horrendous service. This could be due to the fact that customer touch points are so few. Consumers have little-to-no direct contact with staff. The online only model ensures this. Providing service centers could ameliorate this problem. 

Problems abound

Speaking of problems, such places are expensive. Apple is cash rich and incorporates retail centers into their business model, but can Xiaomi?

Probably not. Xiaomi is growing fast. This means that the majority of their kit is new and under warranty. If true, then such hangout/service centers will be a black hole. Even if they sell accessories, how many $12 power bricks do they need to sell to cover $20,000/month rental costs for one store? After all, the repair work will generate costs not income. 

Lei Jun would be better off shipping defective handsets offsite and minimize expenditures. Another possibility is to continue with their current plan and ignore customer complaints all together. 

Update their business model

The ‘non store – cash black holes’ make sense from a customer intimacy perspective- a thing Xiaomi supposedly values. The problem is that creating new touch points is costly and redefines the relationship.

Historically Mi Fans connected online and every so often at product launches or scattered events. A thing this move would change. It would put Mi Wokers in direct contact with Mi Buyers, and explode Mi Costs. Does Xiaomi have the experience, ability and cash to do this?

Mi thinks not.

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