Trendy retail "Unicorn" KK Group recently submitted an application for listing of Hong Kong shares, with $Morgan Stanley (MS.US) $and Credit Suisse as lead underwriters.
One of the three trendy retailers in China
According to the prospectus, KK Group is a trendy retail company for Generation Z. Based on the middle reaches of the value chain of the trendy retail market, the company is mainly engaged in providing trendy products retail services to downstream customers and purchasing goods from upstream suppliers. The company employs OEM and ODM contractors to develop its own brand products and sell them to customers in its stores.
(photo source: company prospectus)
The company was founded in 2015, the establishment of the initial young women-based consumer groups, to launch snacks, makeup, care and other imported fast consumer goods retail community convenience store model of KK. The company then closely followed the make-up, Chao play and other market trends, successively launched makeup collection brand The Colorist toner, Chao play collection brand X11 and other brands.
The KK Group currently owns four retail brands, including KKV, THE COLORIST toner, X11 and KK Pavilion.Four retail brands offer consumers a variety of trendy products spanning more than 20, 000 SKU in 18 major categoriesCovering cosmetics, fashion games, food and drinks, household products, stationery, etc. As of June 30, 2021, the total number of retail stores in the Group and Indonesia has reached 640.
(photo source: company prospectus)
In terms of business model, KK Group mainly generates revenue from the sale of goods (mainly including retail sales in its own stores and sales to franchisees), sales-based management and consulting services.
(photo source: company prospectus)
In terms of industry characteristics, trend retail generally refers to a new retail model characterized by the unique concept and style of products, creative and fashionable entertainment functions in design and immersive shopping experience. Trend retail can be further divided into boutique collection retail, beauty makeup retail, trend toy retail and so on.
(photo source: company prospectus)
Different from traditional retail, trendy retail is characterized by fashion design, personalized shopping experience and a wide range of shopping choices.Mainly target young customers.
The scale of trendy retail market has expanded rapidly in recent years. According to the Frost Sullivan report, the size of the industry as a whole has grown from 129.8 billion yuan in 2016 to 195.2 billion yuan in 2020, with a compound annual growth rate of 10.7 percent, according to GMV. The agency estimatesAccording to GMV, the overall market size will reach 475 billion yuan by 2025.The compound annual growth rate from 2020 to 2025 is expected to be 19.5%.
Each segment is currently in a period of rapid growth. In terms of GMV, boutique collective retail is currently the largest sector, growing from 64.4 billion yuan in 2016 to 91 billion yuan in 2020, with a compound annual growth rate of 9.0 percent. The market size is expected to grow further.From 91 billion yuan in 2020 to 205.9 billion yuan in 2025The compound annual growth rate will reach 17.7%.
(photo source: company prospectus)
In terms of competition patternThe competition in China's trendy retail market is fierce and scattered.
According to the Frost Sullivan report, according to GMV, the total market size of the top five participants before 2020 is 30.5 billion yuan.Accounts for about 15.6 per cent of GMV in China's trendy retail market. Among them, KK Group is the third largest trend retail market participant in China.
(photo source: company prospectus)
Calculated according to the compound annual growth rate of GMV from 2018 to 2020The KK group is the fastest-growing of the top five market participants, with GMV growing at a compound annual rate of 246.2%, but its market share is only 16% of the top one.
(photo source: company prospectus)
A huge loss of nearly 4.4 billion in the first half of this year
On the financial side, KK Group's revenue has maintained rapid growth in recent years, with revenues of RMB 155 million, 463 million, 1.646 billion and 1.683 billion yuan in 2018-2020 and the first half of 2021, respectively, and a revenue compound growth rate of 225.5% from 2018 to 2020.
KK Group is still losing money. During the reporting period, the company's net losses reached 79.5 million, 515 million, 2.017 billion and 4.397 billion yuan, respectively.
However, the huge loss is mainly caused by the change in the fair value of financial liabilities during the conversion of preferred shares into common stock. after excluding the profit and loss of fair value changes, the company's adjusted net loss is 42 million yuan, 77 million yuan, 171 million yuan and 38 million yuan respectively. The loss showed a narrowing trend.
(photo source: company prospectus)
For continued losses, the KK Group said it continued to lose money due to continued investment in developing a retail brand portfolio and expanding its store network, but its profitability was improving and the adjusted net loss rate was gradually decreasing. The company expects to further improve its financial performance and achieve profitability in the future through continued revenue growth and cost-effectiveness, in particular to further expand and optimize its store network.
The KK Group also warned that as consumer preferences continue to changeThe life cycle of the goods offered by the company's stores is getting shorter and shorter. The success of the business depends to a large extent on whether the company can predict the future market trends and consumer preferences of the goods provided in time.
In terms of brands, KKV's share of group revenue continues to expand, from 17.7% in 2019 to 50.7% in 2020, while the revenue share of KK Pavilion continues to decline, from 98.6% in 2018 to 19.5% in 2020.
(photo source: company prospectus)
In terms of goods sales, the company's third-party brand goods account for a relatively large proportion of revenue, accounting for more than 80% in the first half of this year.
(photo source: company prospectus)
KK Group has experienced many rounds of financing before, and historical investors include Deep Venture Capital, Matrix Partners China, CMC Capital, Hongtai Fund, Black Ant Capital, resplendent Capital and so on. According to open market information, KK Group received round F financing in July 2021, led by JD.com Group, followed by New Horizon Capital, CMC Capital and other new and old shareholders, with a financing amount of about 300 million US dollars. Yu Yongfu's Redefine Capital owns 9.8786% through eWTP, while Yu Yongfu is the current local life CEO of BABA. The media quoted industry insiders as sayingAfter the financing is completed, the company is valued at 20 billion yuan ($3 billion).
In terms of equity, the company's founder and chairman Wu Yuening holds 24.0023%, while another co-founder, Guo Huibo, holds 4.3842%. The two are concerted actors, with a total shareholding of 28.3865%, which is the single largest shareholder group. Other institutional investors include CMC Capital (Li Ruigang), Castrol Fund, JD.com Group, CITIC, China Minsheng Banking Corp and so on.
(photo source: company prospectus)
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