Source: CHEAA-run China Appliance magazine

At a packed retailer meeting in August 2017, Leng Ling, then President of Aux Home Appliance, excitingly announced: “I invite all the retailers of Aux to join our transformation in the internet era. Let’s break the old distribution mode, and build a highly efficient vertical mode.” After that, Aux, a brand traditionally weak in hierarchical offline distribution, creatively developed a manufacturer-to-retailer mode that cuts middle agents off the chain. This online wholesale mode was later named as “internet direct selling” in 2019.

Entering 2020, home appliance industry dives into live streaming sales to make up for the losses from the coronavirus-hit offline channels. The live streaming craze, in fact, indicates an upcoming trend of a new distribution mode that lessons the importance of middle agents.

Coronavirus speeds up the channel transformation of home appliance industry

Coronavirus battered China’s real economy. Home appliance industry is no exception. Offline channels of home appliances suffer a broad blow that covers key accounts in urban areas as well as franchised stores in rural areas. As of July 2020, the offline channels of Beijing are still in paralysis.

The only channel that has weathered this difficult time and rises high is online platform.

Cornered by leading e-commerce platforms such as, Pinduoduo, Tmall and who extended their reaches into lower-tier cities, traditional stores had been struggling to hold ground in 2019. And entering 2020, the last straw fell when coronavirus hit China broadly.

A top leader who refuses to be named of a home appliance enterprise reveals that, the number of retail stores of e-commerce platforms accounts for nearly 80% of home appliance stores in rural areas. “For home appliance makers, e-commerce platforms’ monopoly on channels is completely unacceptable as manufacturers will be at a disadvantage when it comes to pricing and channel deployment, and will not be able to receive immediate responses of the end market.”

Yet, the truth is the industry’s traditional hierarchical offline channel structure is no longer competitive compared to the highly efficient online channel, which puts home appliance makers into a difficult situation.

The only way out for manufacturers is to cultivate their own Internet-based direct sales systems and let them gain a foothold in the market. Amid the outbreak, industry players have been racing to stage live-streaming sales, groping for a vertical sales system that comes from factory directly to consumers, stores or retailers.

The no-agent mode is born at the right time

The broad coverage of hierarchical channels has been the ground of home appliance sales from the mid-1990s to 2012 when China’s home appliance industry grew fast in scale.

At that time, agents were an integral part of a manufacturer’s distribution system. They undertook multiple critical tasks, from new market development, monthly shipping and payment collection, to warehousing and logistics. For this reason, agents have long been a core part of distribution, even in urban areas where key accounts dominated the market. Agents, with no doubt, have made huge contribution to home appliance industry in its scale-oriented growth.

But the drawbacks are obvious. On one hand, a number of agents settled for the 3%-5% commission fees and the profit from price differences after developing a distribution branch in a region. Staying away from the terminal markets, lazy agents could not offer fast responses to the market. On the other hand, the hierarchical distribution is slow, inefficient and costly in market response, operation as well as management compared with Internet-based, 5G-powered online wholesale mode.

In fact, the traditional agents-based distribution system is not aligned with manufacturers’ pursuit of a highly efficient, consumer-oriented operation mode when they are dedicated to developing high-quality, upgraded products in the internet era.

Given these drawbacks, Aux, with little offline deployment, turned its disadvantage into an edge by calling on retailers across China to adopt its Internet wholesale mode in 2017. However, for traditional heavyweights, the agents-based distribution mode underpinned their rises in their early growth. The deep engagement makes them hard to turn around. To fix the problems of the old distribution system, they need a transformation both internally and externally.

Midea embarked its digital transformation in 2013. As of now, more than 10 billion RMB has been invested. Fang Hongbo, Chairman of Midea Group, believes that, the basic path of digitalization is lean manufacturing, automation, informationization and digitalization. And beyond digitalization will be inteligenization and industrial Internet.

Midea’s efforts in digitalization allows it to achieve full-process digital management that covers factories, distributors and retailers. The traditional agents-based distribution is now transferred to online. At the company’s Meiyunxiao APP(Midea Cloud Sales App) , the whole process is transparent and accurate.

Despite the digital updates of home appliance makers, third-parties that offer services include digital payment, warehousing, logistics and installation also grow fast. The previous functions of agents are replaced by home appliance makers’ directly-owned regional warehouses, digital distribution management systems, and professional warehousing service providers and logistics service providers. The vertical mode allows home appliance makers to directly offer supplies to retailers across the nation without the involvement of agents.

Agents are stepping aside. Amid the covid-19, retailers turn to APPs of manufacturers and live streaming sales to procure products instead of agents, pushing the agent-based distribution mode to an end.

The transformation is painful

The distribution trend that centers on the trinity of manufacturers, retailers and customers is originated by Aux, and developed by Midea and Haier. Currently, Gree makes a foray into it too.

With experience stores opened across the nation, Haier switches its traditional large-scale distribution system to a highly-efficient retailing system to improve operation efficiency. It plans to speed up the integration of online and offline channels when the coronavirus gets contained, connecting all of its clients to its cloud.

Midea Air Conditioner launched a reform with its agents and retailers after it rolled out its Meiyunxiao App (Midea Cloud Sales App). It is learned that a highly efficient, intuitive, flexible distribution management system has been built on the APP. The App is connected with the company’s logistics platform and service platform, and will help agents to adapt to a new role that centers on marketing and servicing.

Midea reveals that Meiyunxiao App-based sales mode is in its infancy. It is learned that several divisions of Midea have been exploring new channel reforms. The company will help its agents change their functions to ease the pain.

The inevitable trend doesn’t leave agents much choice. I learn from multiple sources that there’re two major transformation paths they take.

Some agents choose to be new retailers that procure directly from manufacturers, opening both online stores and offline experience stores. For instance, Palcent, a heavyweight agent of Zhejiang province, has opened direct sales stores on and Tmall and developed its Palcent Cloud Sales App, transforming into a retailer of home appliance manufacturers.

Other agents transform themselves into regional service providers. Many home appliance enterprises are pushing their agents to transform. The essence of the transformation is taking back previous functions of agents such as inventory management, payment management and warehousing, and powering them with new functions such as market management, activity planning, sales promotions and retailer training. The income of agents will come from their services.

The two paths look pretty good. But actually, the transformation is very painful. In fact, agents who have operated in a region for more than 20 years have a large number of loyal retailers, and have a dominating control of regional resources that cover people, goods, logistics and finance. This means, the transformation has to be handled very delicately or the regional market will be at stake. Gree, who grows with the support of its strong agent system, is now undergoing the pain.

The coronavirus makes the industry zooms in on channel transformation. In fact, the establishment of internet direct sale system as well as the painful transformation of agents is inevitable in the 5G era. And this process has just started.

A new era has come.