Brand incubation from 1 to N, the fastest growing KK group does this.

New brands, new consumption and new retail tracks seem to have gradually become popular in the capital market. Among them, the much-watched KK Group has completed several rounds of financing. After being spoiled by various capitals, when KK Group entered the capital market has become the focus of attention. Recently, this mystery has been officially unveiled. Zhitong Financial APP learned that on November 4, KK Group submitted an A1 application to the Hong Kong Stock Exchange, officially starting the listing process. In the capital's favorite high-quality track, what is the strength of the company?

Driven by "Aesthetics + Scientific and technological efficiency", with a three-year compound growth rate of 246.2%

According to the prospectus, KK Group, founded in 2015, is a pioneer of trend retailers driven by the multi-brand matrix. The company has successfully incubated four retail brands, namely KKV, THE COLORIST, X11 and KK Pavilion, to provide consumers with more than 20000 SKU trendy products across 18 major categories, including boutique collections, beauty makeup, toys, food and beverages, household goods, stationery and other major core household goods categories. As of the last practical date, the company has a total of 680 stores at home and abroad.

With the expansion of the number of stores, the revenue scale and turnover of KK Group are also increasing day by day. According to the prospectus, KK Group's operating income increased from 155 million yuan in 2018 to 1.646 billion yuan in 2020, and revenue in the first half of 2021 was 1.683 billion yuan, almost the same as last year. Thanks to continued revenue growth and improved cost-effectiveness, the financial performance of the KK Group further improved, with an adjusted EBITDA of 216 million yuan in the first half of 2021, with strong profitability growth.

At the same time, the GMV of KK Group from 2018 to 2020 and the first half of 2021 is 188 million yuan, 652 million yuan, 2.254 billion yuan and 2.213 billion yuan respectively. According to Frost Sullivan, KK Group is one of the top three trend retailers in China in terms of GMV and the fastest-growing trend retailer among the top 10 participants, with a compound annual growth rate of 246.2 per cent from 2018 to 2020.

According to the observation of Zhitong Financial APP, KK Group can win the baton from Watsons and Wanning, the established life collection stores, and win the favor of capital in the rapidly changing retail industry, which has something to do with its "aesthetics + technology" two-wheel drive.

The key to "aesthetics", that is, "aesthetic experience", is to accurately grasp the consumer psychology of the Z era. Millennials and Generation Z (born between 1982 and 2009) have become the main force in many segments of China's daily necessities market, according to Zhitong Financial APP. They tend to pay more attention to the following three experiences when consuming: first, daily necessities design that can reflect personalized preferences, novelty, aesthetics and performance-to-price ratio; second, product diversity and brand image; third, focus on finding surprising shopping experience.

In short, the characteristics of Z-generation consumer groups are that appearance is justice, social interaction is money, and personality is power. Through insight into these three characteristics, KK Group creates store decoration and ultimate aesthetic experience from many dimensions such as space, color, display and so on. Its stylish candy column, make-up egg wall, rainbow stationery tower and other creative features bring a strong visual impact, and instantly become the focus of the mall. More importantly, the good-looking atmosphere attracts many consumers to take photos and clock in, and even spread to social platforms spontaneously. Insight into consumer psychology is the first step for KK Group to "get out of the circle".

With the emergence of new consumer power, a large number of new consumer brands and products for them emerge as the times require. There is a new crowd on one end and a new brand on the other. at this time, the role of the channel is not only a simple "middleman" and traffic channel, but also the need to upgrade the format and constantly select the "popular style" of the new brand that consumers are satisfied. connect the two. The realization of this way is inseparable from the highly intelligent system, that is, data-centric and technology-driven systematic retail operation to achieve excellent operational efficiency.

Since its inception, KK Group has attached great importance to the role of digitization in retail, using cutting-edge information technology to continuously improve operational efficiency. The leading technology not only supports the company to analyze a large number of product sales data, but also effectively helps the company to effectively apply digital and intelligent methods in its daily operations, thus effectively enhancing every link of operation. For example, in the product screening process, with the analysis provided by the product screening system PSS developed by the company, its commodity screening process is systematic and efficient, so that KK Group can flexibly respond to and cater to the preferences of different target customer groups of various retail brands. At the same time, the supply chain management system seamlessly integrates KK Group's 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, ensuring the normal operation of the company's national sales network in 169cities.

With this highly intelligent system, KK Group's five national distribution centers and regional warehouses work in full sync to complete orders from the company's sales channels and enhance its competitiveness in terms of rapid inventory turnover, low logistics costs and short order running time.

In short, driven by "aesthetic experience + technological efficiency" and guided by "Generation Z" users, KK Group has become the fastest growing trend retailer in China.

The profit of KKV is growing rapidly, and brand incubation is from 1 to N

In addition to being familiar with the consumer psychology of Generation Z, KK Group is also one of the few ecological innovative enterprises that have successfully incubated multiple business brands and achieved success.

According to Zhitong Financial APP, after 2019, KK Group has hatched two major sub-brands, KKV and THE COLORIST toner, based on the KK Pavilion, which quickly clamped and gained a firm foothold in the market. In January 2020, KK Group officially launched X11, and in July of that year, the first flagship store landed in Shanghai, creating the first global fashion game collection brand in China.

Whether it is the number of stores or turnover, KKV is eye-catching. As of June 30, 2021, the company operates 281 KKV stores, of which 278 are located in 97 cities in 30 provinces of China, and three are located in Jakarta, Indonesia. From 2019 to the first half of 2021, the GMV of KKV was 97.045 million yuan, 1.156 billion yuan and 1.367 billion yuan respectively, accounting for 14.9%, 51.3% and 61.8% of the total turnover respectively.

The bright number of stores and turnover have led to the rapid growth of KKV's profitability. As of the first half of 2021, it has become the mainstay of the KK Group. From 2019 to the first half of 2021, the revenue from KKV stores was 81.878 million yuan, 835 million yuan and 1.049 billion yuan respectively, accounting for 17.7%, 50.7% and 62.3% of the total revenue in the same period, and achieved an operating profit of 140 million yuan in the first half of 2021. The EBITDA reached 235.7 million yuan, and the EBITDA rate rose from 18.2% in the same period in 2020 to 22.5% in the first half of 2021. The profitability of sales revenue has increased significantly, providing strong support for the continued growth of the Group's performance and the incubation of new brands.

In addition to KKV, KK Group's four retail brands have become market leaders or market pioneers in their respective tracks. According to Frost Sullivan's report, in 2020, the GMV of KKV and KK ranked fourth in the boutique collection category of the trendy retail market, while THE COLORIST ranked third in the beauty category of the trendy retail market.

In addition, KK Group plans to open a total of 290 and 270 retail stores in China in 2021 and 2022 respectively. The exponential growth in the number of retail stores confirms that the company's business model is beginning to mature and stable, and that the company has the ability to incubate brands from 1 to N.

Generally speaking, with the opening of more and more brand stores, KK Group can not only show the advantages of trendy retailers with high-quality shopping experience, so as to build consumer recognition of its brand, strengthen its relationship with consumers, and benefit from economies of scale, both of which can promote sustained growth of its performance.

Hundreds of billions of trendy retail market unlocks the development potential of KK Group

KKV's impressive performance and store network throughout the country have consolidated KK Group's position as a pioneer in the trendy retailer industry. Different from traditional retailers, trend retail mainly targets young customers by making use of the characteristics of fashion and a variety of personalized shopping experiences in shopping choices. Innovative decoration and ingenious presentation provide customers with an adventurous sensory experience, naturally extend their stay in the store and enrich their shopping experience.

The trend market has a broad prospect, and the industry is accelerating forward. According to the Frost Sullivan report, according to GMV, the size of the trendy retail market has expanded rapidly in recent years, from 129.8 billion yuan in 2016 to 195.2 billion yuan in 2020, with a compound annual growth rate of 10.7 percent. It is estimated that the market size calculated by GMV will reach 475 billion yuan in 2025, and the compound annual growth rate from 2020 to 2025 is expected to be 19.5%. More specifically, all segments of the trendy retail market have experienced rapid growth. KK Group as a comprehensive trend retailer built by multi-brand matrix, brand sales have been growing by leaps and bounds in recent years, with a strong performance. According to GMV calculation, KK Group will be the third largest trend retail market participant in China in 2020. In addition, in terms of GMV compound annual growth rate from 2018 to 2020, KK Group is also the fastest growing among the top five trendy retail market participants in China, and is expected to benefit from increased market concentration and profit from the growth space of various segments of the industry in the future.

More importantly, with traffic and channels in hand, KK Group has successfully achieved rapid development based on multi-brand strategy. In this way, the company not only creates positive brand synergy, but also increases its attractiveness to potential brands and commercial real estate owners.

According to the understanding of Zhitong Financial APP, KK Group adopts a buyout business model, purchasing directly from brand suppliers to save backstage costs, which not only greatly reduces the company's sales costs, but also puts forward higher requirements for the company's purchasing ability, that is, how to purchase more "popular styles". This is when the company's "technological efficiency" is making great strides in selecting goods. And more and better products and better space design will also attract more young people to enter the collection stores under the brand of KK Group, bringing a younger new generation of customers to the mall.

In short, thanks to the insight into young consumers, the core strength in product portfolio positioning and good cooperation with third-party brand partners, KK Group has built up a market position as a pioneer in multi-brand retail. In the future, with the continuous expansion of stores, the company is expected to gain more market share and develop its potential.