MUMBAI (NewsRise) -- China's Xiaomi is making a foray into India's rural areas and small towns with a chain of stores to cement its leadership against South Korean rival Samsung Electronics as its online sales growth is plateauing. But the retail expansion may hurt its price competitiveness in a cost-conscious market, say analysts.
Xiaomi, which already has more than 500 flagship Mi stores across smaller towns and cities in 14 Indian states, plans to have 5,000 such outlets by the end of next year, Manu Jain, managing director for Xiaomi India, said in an e-mail to NewsRise.
"We are using our own distributors who will work towards ensuring the smooth distribution of our products to all Mi Stores, and also help minimize operational costs," Jain said. "We try to price the product as close to the cost of making as possible, by reducing operational, distribution and marketing expenses."
The handset maker entered India in 2014 selling phones exclusively on the internet. It tops the country's smartphone market with a 27% share at the end of September, according to data from Counterpoint Research. Samsung ranks second with a 22% share, the agency said.
Xiaomi has been steadily expanding its market share in India on the back of its affordable pricing. The company also rode on the success of India's booming e-commerce market led by Flipkart Internet and Amazon.com. Smartphones are among the most sought-after products by Indian online shoppers.
In the fiscal year ended in March, Indian consumers spent 500 billion rupees ($7.14 billion) to buy Chinese smartphones of Xiaomi, Oppo, Vivo and Huawei Technologies, The Economic Times reported in October.
At the end of last year, Xiaomi toppled Samsung from the top of India's smartphone market for the first time. But the growth of online sales has now hit a ceiling, analysts say.
"Xiaomi has reached a point where if it wants to grow in 2019, it will have to penetrate further into the market," said Jaipal Singh, associate research manager at IDC. "Online retail as a channel has some limitations."
Earlier this year, Xiaomi entered into partnerships with distribution companies to sell through brick-and-mortar stores and opened exclusive offline retail stores called Mi Homes throughout the country.
The new strategy helped the company break into Samsung's forte, creating a network of distributors across smaller towns and cities. Still, multiple layers of distributors mean additional costs that will eat into Xiaomi's wafer-thin margins, derailing the fine pricing balance between online and offline sales channels, according to analysts.
"If Xiaomi is selling at a particular price point on Amazon and the local dealer is not getting products at that price, there will be a backlash," said Neil Shah, a research director at Counterpoint.
--Dhanya Ann Thoppil