KK Group intends to go to Hong Kong for IPO, losing 7 billion in 3 and a half years, franchisees are fleeing
New retail disruptor? Bubbles under the spotlight?
Chengdu Commercial Daily-Red Star News reporter Yu Yao and Liu Mi
If you often use social platforms such as short videos or Xiaohongshu, you must have seen the "figures" in KK Group stores.
On the evening of November 4, KK Group submitted a prospectus to the Hong Kong Stock Exchange. This company is also known as a "trend retail unicorn" by the market.
According to public data, since 2016, KK Group has completed 7 rounds of financing totaling more than 4 billion yuan, and has received support from many star VCs including CMC Capital, JD.com, Shenzhen Venture Capital, Jingwei Venture Capital, and Hongtai Fund.
There are four brands under the KK Group, namely the boutique collection store KKV and KK Pavilion; the beauty collection store THE COLORIST colorist; and the trendy collection store X11.
The most out of the world are colorists from KKV and THE COLORIST. The former has a large shopping space, and the latter has a super high photo background wall, so many netizens are attracted to check in and take pictures.
As soon as the KK Group's IPO news came out, the market received mixed reviews.
Based on its prospectus and public information, the Red Star Capital Board will explore whether KK Group is another disruptor in new retail, or a cluster of bubbles under the spotlight?
A side
KK Group
Store, decoration, product selection, service...
Keep an eye on the young man's wallet
The founder of KK Group was born in 1980s, Wu Yuening, who graduated from Dongguan University of Technology with a major in computer science.
In 2014, Wu Yuening, who has never been in contact with the retail industry, founded an imported goods collection store KK Pavilion in Dongguan, which mainly deals with imported fast-moving consumer goods such as cosmetics, snacks, and personal care in the retail.
In 2015, the KK Hall was upgraded to version 2.0 that integrates catering, coffee, book bars and other multiple formats on the original basis. At the same time, it began to vigorously expand the SKU (stock keeping unit) and upgrade the storefront.
In 2019, KK Group began to try the beauty track, launched THE COLORIST colorist store, and launched a more diversified retail brand KKV.
In 2019, the colorists of the beauty brand THE COLORIST and KKV became popular, and the KK Group entered a period of rapid store expansion afterwards.
In 2019, the total number of KK Group stores was 211, which will increase to 556 in 2020, and to 640 in the first half of 2021.
In 2020, the fastest-growing year, about one store successfully survived by KK Group is born every day.
From the perspectives of KK Group's store location, decoration, product selection, service, etc., all four brands are aimed at young people.
At present, the main store KKV, the store selection covers 18 categories such as food, daily necessities, cosmetics, skin care products and fashion, with more than 20,000 SKUs (a single product); the corresponding area is also larger, from 300 square meters to 3,500 square meters In the decoration, it is matched with the main color yellow of the brand, which is a good combination of cheerfulness and coldness, which is in line with the young people's personality and pursuit of unique aesthetic characteristics.
THE COLORIST mainly sells 12 categories and about 5500 SKUs of domestic and foreign public and light luxury cosmetics. The area ranges from 100 square meters to 2,100 square meters. Among them, the beauty egg rainbow wall has successfully attracted many young consumer groups.
X11 is a new brand that was born in 2020. It sells products in 16 categories and about 5,500 SKUs, mainly covering trendy toys and artworks including blind boxes, dolls, puzzles, figurines, spherical joint dolls, etc., with an area ranging from 150 It ranges from square meters to 5,500 square meters, and is called the second "Bubble Mart" by netizens.
The KK Pavilion mainly sells food and household items, with about 2500 SKUs, ranging from 80 square meters to 900 square meters.
However, the number of KK Pavilion stores is currently decreasing.
In summary, KK Group’s four types of stores are intended to give young consumers a new shopping scene: spacious store area, abundant SKU number, non-disturbing immersive shopping experience and unique decoration style, and then socialize through the Internet. The fission-type spread of the platform has attracted many young consumers to go shopping.
B side
KK Group
72 franchise stores closed after a loss of 7 billion in 3 and a half years
In the past two years, the rapid increase in the number of KK Group stores has also brought about revenue growth.
The prospectus shows that in 2018, 2019, 2020 and the first half of 2021, KK Group's overall revenue was 155 million yuan, 464 million yuan, 1.646 billion yuan and 1.683 billion yuan, respectively, with growth rates of 198.59% and 254.92% respectively. And 235.05%.
In terms of sub-brands, as of the first half of 2021, KKV, THE COLORIST, KK Pavilion and X11 have contributed 62.3%, 27.4%, 7.1% and 2.7% of KK Group's revenue respectively.
At present, the main revenue sources of KK Group are KKV and THE COLORIST.
▶Loss magnification
KK Group's revenue has expanded, and its losses have also been magnifying.
The prospectus shows that from 2018 to 2020, the corresponding net losses of KK Group were 79 million yuan, 515 million yuan, and 2.017 billion yuan respectively; in the first half of 2021, the loss was 4.397 billion yuan, twice that of 2021. More.
Regarding large losses, KK Group explained in the prospectus: “Due to continuous investment in the development of retail brand portfolio and expansion of the store network, the company has continued to lose money, but the company’s profitability is improving, and the adjusted net loss rate is gradually decreasing.”
▶The franchisee flees
The expansion of KK Group's stores adopts the method of joining forces and self-operating.
From 2019 to 2020, the franchisees of KK Group's branded retail stores increased rapidly from 164 to 424, while its own stores only increased by 85 during the same period.
In 2020, KK Group’s franchise stores accounted for 76.3% of the total stores; but in the first half of 2021, its own stores increased by 156, franchise stores closed 72, and franchise stores accounted for 55% of total stores.
After the franchisees left, KK Group used its own stores to top this unstoppable "store expansion".
As for 72 franchisees leaving the KK Group in just half a year, this may also provide insight into the seemingly glamorous trend of new retail, but business is not good.
In fact, the franchise model of KK Group is an important part of the company's short-term rapid growth.
The prospectus shows that from 2018 to the first half of 2021, franchisees accounted for 26.1%, 51.9%, 57.5%, and 42.9% of the total sales of KK Group's goods.
It can be seen that after the launch of the two major brands of KKV and THE COLORIST, starting from 2019, more than half of the KK Group's product sales relied on franchisees; it was not until the first half of 2021 that this data began to fall with the departure of franchisees.
▶Involving illegal lending
The prospectus revealed that KK Group had provided unsecured and interest-bearing loans to franchisees to fund the operations of its related stores (including related store start-ups, decoration-related expenses and costs, and other operating-related expenses).
As of December 31, 2018, 2019, 2020, and June 30, 2021, the loans provided by KK Group to franchisees were zero, 35 million yuan, 272 million yuan, and 258 million yuan, respectively.
According to Article 21 and Article 61 of the "General Rules on Loans", only licensed financial institutions can legally engage in lending business, and loans between companies that are not financial institutions are prohibited.
KK Group stated that although as of the Latest Practicable Date, it has not received any claims or penalty notices related to providing loans to related parties, KK Group cannot guarantee that the People’s Bank of China will not impose any income from loan advance activities on it in the future (I.e. the interest charged) a fine of one to five times.
At present, this "support policy" has come to an abrupt end from June 30, 2021, and the KK Group also announced that it will no longer provide advance payments.
/ News Watch /
Why is KK's trendy retail business not easy to survive?
In fact, in the trendy retail business of KK Group, competition on the track is extremely fierce.
The first is cost control. According to the KK Group’s prospectus, as of the first half of 2021, more than 85% of the merchandise sold in its stores came from third-party brands, which means that KK Group does not have absolute product pricing power and purchase cost control for most products. Right, making the gross profit margin of most products lower.
In addition, due to the large area of KK Group's stores and the large number of SKUs, this means that in addition to paying more rental fees, companies also have higher costs for inventory and management operations.
Secondly, from the perspective of the competitive landscape, KK Group is mainly based on two major sections of KKV and KK Pavilion boutique collection stores and THE COLORIST. Trendy toy stores such as X11 are still in the exploring stage.
So, what challenges are currently facing boutique collection stores and beauty shops?
In the field of boutique collection stores, according to the prospectus, the market share of the top five in the industry accounted for 17.8%. At present, the market share of KKV and KK halls is only about 1.8%, and the KK Group does not occupy a market dominant position.
The biggest competitor of the KKV and KK pavilions is MINSO.US (MNSO.US), which has 4,749 stores. The cost control of MINSO.US is better than that of KKV and KK pavilions. The scale effect is gradually formed under the rapid expansion. .
On the beauty track, in recent years, brands such as Perfect Diary and Huaxizi have relied on the rise of live e-commerce to successfully seize the beauty of Guochao, and continue to occupy the minds of consumers through binding with KOLs (key opinion leaders).
At the same time, Perfect Diary also opened a number of offline experience stores. It is not easy for THE COLORIST to break through the competition.
In addition, since 2019, a number of new beauty collection stores, including HARMAY Huamei, HAYDON Black Hole, WOW COLOUR, etc., have begun to continue to be active in the capital market and are favored by a large number of investors.
Finally, from the perspective of repurchase rate, KK Group has caught the new retail express train and attracted the attention of consumers and capital by catering to the preferences of young people.
But because of this, KK Group's stores are inevitably labeled as "net celebrities".
This label does help the brand become popular quickly. Contemporary young consumer groups are curious about new things, but after the freshness has passed, what does KK Group rely on to retain consumers?
Relevant information shows that the first month of the opening of THE COLORIST relied solely on marketing and drainage, but lacked core product support, so the repurchase rate was extremely low, and various indicators declined from the second month.
summary
Surrounded by capital and franchisees, KK Group seems to have successfully climbed to the top of the building.
But where will the upcoming KK Group go?
The key to this question may be that in addition to the short-term influence of the high-value design driven by the short-term influencer, compared with the traditional department store retail store, where is the difference of KK Group?
Where is the core moat of the enterprise?