KK Group sprint Hong Kong Stock Exchange: using DTC to operate retail stores, GMV compound annual growth of 246.2%

"GMV of the KK Group increased by 242.1% in the first half of 2021 compared with the same period last year."

This article is for IPO to know the original.

Author | Stone Jin

According to IPO, trend retailer KK Group formally submitted its prospectus to the Hong Kong Stock Exchange on November 4, with Morgan Stanley and Credit Suisse as co-sponsors.

Since the first KK Pavilion store was opened in December 2015, KK Group has hatched four major retail brands: KKV, THE COLORIST, X11 and KK Pavilion.

As of the latest practicable date, KK Group has strategically established a network of 680 stores in 169cities in 31 provinces of China and one city in Indonesia. As of June 30, 2021, the four retail brands offer consumers a variety of trendy products spanning more than 20000 SKU in 18 major categories, covering major core household items such as cosmetics, fashion games, food and beverages, household goods and stationery.

According to the Frost Sullivan report, in terms of GMV, KK Group is one of the top three trend retailers in China and the fastest growing trend retailer among the top 10 market participants, with a compound annual growth rate of 246.2% from 2018 to 2020. In terms of GMV in 2020, KKV and KK Pavilion jointly ranked fourth in the boutique collection of trend retail market, while THE COLORIST ranked third in the beauty category of China's trend retail market.

Since its establishment, KK Group has received investment from many well-known institutions, such as Deep Venture Capital, resplendent Capital, Matrix Partners, Black algae Capital, eWTP Ecological Fund, Hongtai Fund, Wuyue Capital, CMC Capital, Black Ant Capital, Luoze Capital, Kamet Capital, JD.com and so on.

Continue to incubate and scale new retail brands, GMV in the first half of the year has reached the level of the whole year of 2020

From the perspective of retail brand positioning, KK Group continues to iterate and upgrade itself in the course of six years of development:

Among them, KK, as a modern small supermarket, provides a variety of domestic and imported leisure food, personal care products and other goods, through attractive design and affordable prices.

As an iteration of the KK Pavilion, KKV takes full advantage of the core competitiveness of the KK Library to upgrade its merchandise, store format and target customers, focusing on providing the most popular styles with strong aesthetic appeal. Generally speaking, KKV stores have large store space and are located in the main commercial areas, ranging from 300sq m to 3500 sq m, which in turn brings stronger bargaining power and greater brand influence.

THE COLORIST, which locates cosmetic trend retail stores, helps KK Group to achieve horizontal extension in different vertical areas of the cosmetic industry.

In addition, X11, launched in January 2020, makes customers' shopping experience more personalized by providing a variety of trendy goods, aiming to become a super-large-scale multi-cultural trend play collective retail brand in China.

It is not difficult to see that as the KK Group's business model becomes more mature and stable, the number of its retail stores has increased exponentially-80 as of December 31, 2018, 211 as of December 31, 2019, 556 as of December 31, 2020, and further to 640 as of June 30, 20121. As of the last practicable date, the total number of retail outlets has reached 680.

In addition, the expanding network of stores will also help KK Group benefit from economies of scale.

From 2018 to 2020, the revenue of KK Group was 155 million yuan, 464 million yuan and 1.646 billion yuan respectively, with a compound annual growth rate of 225.5%. In the same period, GMV was 188 million yuan, 652 million yuan and 2.254 billion yuan respectively. In the first half of 2021, the revenue of KK Group was 1.683 billion yuan, which was 235.1% higher than that of the same period in 2020, while the revenue scale of 2020 was higher than that of 2020. In the same period, GMV was 2.213 billion yuan, which is the same as that of 2020. In addition, KK Group's gross profit margin also hit a new high of 36.2% in the first half of 2020.

The profitability of KK Group is being released year by year, thanks to the strong performance of KKV. In the first half of 2021, KKV made an operating profit of 140 million yuan and ebitda reached 235.7 million yuan. The ebitda rate rose from 18.2% in the same period in 2020 to 22.5% in the first half of 2021, providing strong support for the group's continued growth and incubation of new brands.

Adhere to digitalization and intelligence, covering all key stages of consumers' shopping decision-making process

In the operation philosophy of KK Group, "data-centric" and "technology-driven" are two core elements. If you take it apart, you can see:

For product screening, KK Group uses the Product screening system (PSS), which operates in sync with other information technology systems of the KK Group, giving it the ability to process large amounts of raw and decentralized market data, historical purchase records, real-time store inventory returns, and information obtained from third-party social media platforms and convert them quickly and accurately into readable and structured pieces of information. These readable pieces of structured information will be transformed into relevant analysis, providing the basis for commodity screening decisions.

In terms of store management, KK Group has implemented proprietary KPOS, KVCM and other systems in each store of all brands to effectively visualize and manage location evaluation, decoration design, shelf display, order processing, membership and employee status, as well as inventory status, and to help store front-line staff effectively assess individual product popularity and customer preferences to adjust product mix, pricing and shelf arrangement in a timely manner.

On the supply chain side, KK Group's supply chain management system seamlessly integrates its independently developed KPOS and TERP systems with WMS systems, providing management with a high degree of visibility and control over key aspects of the supply chain, including inventory control, logistics and warehousing. Based on this highly intelligent system, KK Group's five national distribution centers and regional warehouses work in full sync to complete orders from sales channels and enhance competitiveness in terms of rapid inventory turnover, low logistics costs and short order run times.

In cross-departmental cooperation, KK Group's Keewood low-code system promotes the development of internal information technology systems by representing each department as a module and visualizing the internal process design, with less coding workload and fast turnaround time. In order to achieve efficient information sharing and close collaboration between different operational departments, a number of systems in use and under development come from Keewood low-code platforms, such as optimized product purchasing, cash management, store development, internal task tracking and cross-departmental information sharing.

Based on the above-mentioned consumer opinions on the transaction data and the selection strategy supported by big data's analysis, KK Group can achieve the effect of "a thousand stores and a thousand noodles" and give the best user experience at all key stages of consumers' shopping decision-making process, thus attracting more consumers to enter the store and even form a marketing advantage of word of mouth.

With the synchronous drive of both supply and demand, China's trendy retail market will usher in faster development.

In terms of market size, the trendy retail market has been developing rapidly in the past few years-according to Frost Sullivan, the size of China's trendy retail market has increased from 129.8 billion yuan in 2016 with a compound annual growth rate of 10.7 percent to 195.2 billion yuan in 2020, and is expected to grow further to 475 billion yuan in 2025 at a faster compound annual growth rate of 19.5 percent.

In terms of the nature of this growth:

On the demand side, the core factors include rising disposable income and a growing middle class population, the strong willingness of the younger generation to shop, the increased demand for surprising and immersive shopping experiences, and the general trend of upgrading consumption in China; on the supply side, the continuous emergence of new brands and technologies, the high demand for operational efficiency and the development of big data are equally important. The two superimposed together have contributed to the rapid development of China's trendy retail market on the supply and demand side.

Of course, there are certain barriers to entry in this fast-growing market:

First, whether it has the ability to choose exquisite products. This requires trend retailers to have an in-depth understanding of supply chain integration, commodity selection, sales and marketing; second, whether there are sufficient capital reserves. Especially when entering the trend retail market, the initial capital investment is relatively high, and it is necessary to adjust the supply, delivery and payment terms to ensure the rapid cash flow of its business partners; third, brand strength and brand promotion ability. Market newcomers must establish brand awareness among customers and establish differentiated store images to expand their customer base; fourth, data-driven marketing strategy. Trend retailers need to use online channels, social media and key opinion leaders as effective marketing tools to spread brand awareness to a wider audience; fifth, supply chain control. New entrants to the market must be able to maintain adequate inventory and logistics control.

In other words, for both the KK Group and other head players, after running through the business model, having a considerable brand reputation and capital accumulation, the possibility of further releasing the head effect and expanding market share is more likely than that of new players in the future.

KK Group said in its prospectus that it plans to continue to expand its national retail network, continue to enhance global product procurement capabilities and bring customers the latest selected product portfolio, further optimize packaging business capabilities and efficiency through data-driven technological innovation, strengthen and enhance existing brand portfolios and launch new retail brands, promote online sales, and expand into global markets to gain international influence.