MINISO was sold short, Ye Guofu’s 10 yuan store is not doing well?

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Author | Tori

Source: Bohu Finance

On July 13, MINISO was listed on the Hong Kong Stock Exchange. At the bell ringing ceremony, Ye Guofu was full of ambition: “Returning to Hong Kong’s dual main listing is another important milestone for MINISO, we stand A more stable platform and a higher new starting point.” However, as soon as the words fell, the Hong Kong stock market broke.

Misfortunes do not come singly. Two weeks later, on July 26, MINISO was attacked by Blue Orca Capital. A 30-page short-selling report directly pointed to the “multiple crimes” of MINISO. As soon as the report came out, MINISO’s US stocks plummeted 15% that night, and Hong Kong stocks fell more than 10% the next day.

(Blue Whale Capital Report Section) (Blue Whale Capital Report Section)

The “Three Deadly Sins” of MINISO

Blue Whale Capital, known as the “killer whale”, has repeatedly made aerial stocks. New Oxygen, China Feihe, Wanguo Data, and Pinduoduo have all been its targets. According to the report of “Killer Whale”, its doubts about MINISO mainly focus on the following three points:

First, the core business model is fraudulent. MINISO claims that 99% of its stores in China are operated by independent franchisees, but after a seven-month investigation, the agency found that more than 620 stores are operated by MINISO executives or those close to the company’s chairman. Privately owned and operated. Blue Whale Capital speculates that MINISO may “undercover” many of the costs of traditional retailers, rather than the asset-light franchise model it promotes.

Second, the chairman embezzled funds. MINISO has established a joint venture with Ye Guofu, with Ye Guofu holding 80% of the shares and MINISO holding 20%. In October 2021, MINISO acquired the 80% stake in Ye Guofu for 695 million yuan, and Ye Guofu never invested any money in the joint venture.

Third, retail sales declined. MINISO’s revenue of 9.072 billion yuan in fiscal year 2021 has shrunk by more than 40% from the peak of 17 billion yuan in fiscal year 2018. And from 2020 to the present, MINISO has reduced the franchise fee from 80,000 yuan per year to 29,800 yuan per year; Brand value is declining.

The core business model of MINISO has continued from the Oops period, and investment promotion is also the basis for MINISO’s rapid expansion. The doubt of the “killer whale” undoubtedly pointed directly to the foundation of MINISO’s development. Although MINISO responded urgently and rejected the first two allegations, its revenue decline is also an indisputable fact.

(MINISO response part) (MINISO response part)

Data shows that from fiscal year 2019 to fiscal year 2021, MINISO achieved revenue of 9.395 billion yuan, 8.979 billion yuan and 9.072 billion yuan, none of which exceeded 10 billion yuan. Compared with the 10 billion yuan, 12 billion yuan, and 17 billion yuan in the 2016-2018 fiscal years, the revenue has shrunk significantly.

The sluggish revenue growth may be caused by the slowdown in the number of stores. MINISO clearly stated in its prospectus that the ability to expand its store network is a key driver of revenue growth. In the past two years, MINISO opened only 497 and 527 new stores each year, far less than the 800 new stores opened in one year during the peak period.

While growth is stagnant, losses are also increasing. From fiscal years 2019 to 2021, MINISO’s net losses were 294 million yuan, 260 million yuan, and 1.429 billion yuan respectively, with a cumulative loss of nearly 2 billion yuan in three years.

Business shrinking, expansion slowing down, and losses increasing, the strategic goal of “hundreds of billions of stores in 100 countries” is gradually drifting away, and the future development of MINISO seems to be stuck. And just a few years ago, Ye Guofu was on stage at Harvard Business School and talked eloquently, and MINISO was once regarded as the “world’s most terrible rival” by established companies such as Muji and Uniqlo. Could it be that all this is a scam?

“MINISO has no secrets”

Ye Guofu once said: “Almost all big dreams come from a small idea, and all retail giants grow up from a small grocery store.”

As a senior grocery store owner, the Oiya jewelry store that was once popular in the streets and alleys is what he left behind. After being violently attacked by e-commerce, he waved thousands of stores and said they were closed. Later, a Japanese distraction gave him the idea of ​​transforming into a “high-quality, creative, and cost-effective” home furnishing department store boutique, which is how MINISO was born in 2013.

(Image source network) (Image source network)

Ye Guofu also has a nickname of “Ye Dabao”. He has been involved in a high-profile gambling game between Jack Ma and Wang Jianlin: 10 years later (just this year), if e-commerce accounts for 50% of the Chinese retail market, Wang Jianlin will give Jack Ma 100 million. If Before it arrived, Jack Ma gave Wang Jianlin 100 million. In 2016, before the betting contract expired, Ye Guofu bought the front page of Guangzhou Daily and other newspapers and shouted to Ma Yun: “100 million, I will give it to you!” Two days later, it was on the front page of Guangzhou “Yangcheng Evening News”. On the shouting Dong Mingzhu: “Chairman + 100 million. Come together, over 100 billion.”

Why is Ye Guofu so crazy?

At that time, Ye Guofu did have crazy capital. It took only 3 years for MINISO to expand from one store to 1,500 stores, achieving sales from 0 to 10 billion, and successfully went overseas and entered many countries such as the United States, Thailand, Australia, and Russia. Ye Guofu, who is full of confidence, put forward the strategic goal of “hundreds of billions of stores in 100 countries” in the second year, and launched the listing plan in 2018. In 2020, MINISO will be listed on the US stock market, with a market value exceeding 10 billion yuan, becoming the first Chinese physical retail brand listed in the US, and the title of “the world’s largest private-brand comprehensive value retailer” has since started.

To sum up the development history of MINISO in the past 10 years, the word “quick” must be taken seriously.

The first is fast opening. Although the expansion rate of MINISO has slowed down in the past two years, it has also reached an average annual rate of 500 new stores, and it is not a problem to have thousands of stores a year during the peak period. Up to now, the number of MINISO global stores has exceeded 5,000, including 3,197 domestic stores, distributed in 360 cities across the country; 1,916 overseas stores, covering about 100 countries and regions around the world.

The rapid expansion of MINISO has benefited from its asset-light franchise model. Taking 2021 as an example, among the 3,168 MINISO stores nationwide, 3,146 are franchise stores, and only 5 are official directly-operated stores. Franchisees can share 38% of the daily turnover (33% for food and beverages), but they need to bear the deposit, store decoration, store rent, staff wages, water and electricity and other daily operating expenses. The distribution and sales of the store are carried out by MINISO. Unified product management. Through this account-sharing model, MINISO has not only achieved rapid expansion, but also realized asset-light operations, reducing operational risks.

(Image source network) (Image source network)

Followed by the new fast. MINISO implements the “711 Concept”, that is, 7 days a week, it selects one out of 10,000 product ideas, and finally launches about 100 new SKUs to keep the products fresh, so that consumers can buy new products every time they enter the store. , increase the frequency of entering the store.

Behind the rapid update is a strong supply chain support. MINISO has its own set of supply chain methodology of “quantity-based pricing, buy-out customization, and no pressure on payment”. It reduces production costs by increasing the order size to reduce the price of goods, and finally improves white-brand products through its own brand power. Commodity premium. Among the suppliers of MINISO, there are many big-name foundries. For some core high-quality suppliers, MINISO does not hesitate to invest to ensure the supply of goods, thus shaping MINISO’s core product advantages of “three highs and three lows”, namely High quality, high appearance, high frequency; low cost, low gross profit, low price.

Superimposed on the scale effect formed by the rapid expansion of stores, MINISO can further reduce product costs, consolidate its price advantage, and expand profit margins. The financial report shows that MINISO’s “low gross profit” was as high as 30.2% in the first quarter of this year, an increase from the 28.1% gross profit margin in the same period last year.

However, the model of offline grocery stores is simple, and you can buy small household goods anywhere. MINISO has never run out of capital after all. With capital betting on the consumer market in recent years, KK Group, NOME, Jiumu Sundries Club, and Hibiscus Life have emerged, competing head-on with MINISO in terms of product positioning and core user groups.

MINISO’s X-strategy, which is trying to diversify its operations, has also been mediocre. The hatched sub-brands include beauty collection store WOW COLOUR, membership collection store ACC Super Decoration, Chaowan collection store TOP TOY and high-end beauty retail stores Among HAYDON, only TOP TOY has achieved performance income, but its market share is only 1.1%, which can only rank seventh in the highly competitive trendy game market.

And due to the repeated outbreak of the epidemic, MINISO’s single-store sales have declined significantly, from 2.7 million yuan in fiscal year 2019 to 1.9 million yuan in fiscal year 2021. However, 90% of MINISO’s revenue comes from offline, which not only affects its product sales revenue, but also severely compresses the profitability of franchisees, which in turn leads to a slowdown in MINISO’s store expansion and a decline in franchise fee income.

To make matters worse, with the peak of online traffic and the rise of Pinduoduo at extremely low prices, veteran e-commerce giants have also started “ten yuan store” business, such as Jingdong’s “Jing made ten yuan store”, Ali’s “Tao Te Ten Yuan Store”.

The book “Minchuang Youpin has no secrets” quoted Ye Guofu’s words: “Starting a business in the Internet age either completely embraces the Internet, or engages in industries that the Internet can’t affect.” Facts have proved that the Internet still affects Ye Guofu’s ” 10 yuan shop” business.

Online or offline, the false proposition of MINISO

As a representative brand of offline physical retail, MINISO has not given up the online channel, and even stated that it will “continue to develop online business” and implement an omni-channel strategy.

MINISO has as many as 2 billion consumers entering the store every year, and has accumulated a large number of fans by paying attention to the official account and sending shopping bags. At present, MINISO has more than 57 million registered members, more than 20 million private domain users, and a retention rate of nearly 75%. And during the worst period of the epidemic in 2020, relying on private domains to achieve 300% online growth.

In addition to making efforts in the private domain, MINISO has also continued to “scan face” on public domain platforms such as Douyin, Kuaishou, Station B, Xiaohongshu and Taobao Live. As early as 2019, it was put on the Weiya live broadcast room, and a variety of products sold nearly 40,000 orders within 1 minute of the broadcast. As of fiscal year 2021, MINISO’s online sales have accounted for nearly 1/10 of its total domestic sales.

Going online also means high traffic costs. From fiscal years 2019 to 2021, as MINISO develops e-commerce and new traffic, its promotion and advertising expenses soared from 86 million yuan to 215 million yuan.

But the results were not satisfactory. It is understood that the two official accounts of MINISO on the Douyin platform, “MINISO Flagship Store” and “MINISO” have 437,000 and 516,000 fans respectively, but there are often only dozens of people online in the live broadcast room. Watch, most of the live broadcasts have a single sales of several thousand yuan, and the sales performance is not even as good as the late-night grocery clearance live broadcast. MINISO’s 2022 Q2 financial report data also shows that the e-commerce revenue in the quarter was 170 million yuan, and the revenue from e-commerce business channels other than private domain mini-programs was less than 60 million yuan, accounting for only 35%.

The reason may be that MINISO, which takes advantage of offline consumption scenarios, cannot successfully break through online with its products. In the price band of 10 yuan to 50 yuan, which is the core of MINISO, there are a large number of “white cards” and small and medium-sized brands rising rapidly through KOLs and KOCs of Kuaishou and Douyin, and these white cards are mostly derived from “good strength” foundry”. Moreover, the quality of MINISO’s products is not strong enough. As of press time, MINISO’s black cats have complained as many as 1,396, and most of the complaints are related to product quality.

(Screenshot of Black Cat Complaint) (Screenshot of Black Cat Complaint)

And MINISO, which uses offline franchisees as partners, is going online, and the endless online discounts and platform activities will definitely make offline bosses “very hurt”. The decline in the profitability of a single store has already made it impossible for franchisees to make money. If things go on like this, it will be a matter of time to quit.

Compared with these problems, the sniping of the “killer whale” is just a trivial matter. After MINISO responded to the short-selling accusation on the evening of the 28th, the secondary market gave a positive reaction and the stock price rebounded. I hope that MINISO, who is about to turn 10 years old, will not be like the past, but only become a short-lived memory of a generation.

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