Source: Yuanchuan Research Institute

If a company achieves a market cap of 20 billion in ten years, people will consider it a good company; if the company falls from 120 billion to 20 billion, people will think it is a bad company; if later it rises back to 120 billion, it is.$POP MART (09992.HK)$。

Before founding the company, Wang Ning studied advertising at Zhengzhou Siyasi College, where the teacher mentioned that anyone who graduates in advertising should have a net worth of at least 1 million within five years. Wang Ning thought it was impossible. The fact turned out to be true; based on Wang Ning's shareholding ratio in POP MART, his net worth exceeds 50 billion.

Wang Ning's net worth of 10 billion benefits from the growth of POP MART, as well as the lack of investment from capital giants. Venture capital elites, accustomed to big businesses, were quite confused by the trend of collectibles, allowing Wang Ning to retain most of the shares. When POP MART went public, the largest shareholder, Sequoia, held less than 5%.

The controversy in the capital markets regarding POP MART lies in the fact that collectibles are neither a necessity nor a frequent purchase, making the market scale extremely limited, which contrasts with the rapid growth that venture capital usually pursues.

However, collectibles have instead become a lucrative business, complementing the often unproductive discussions at investment committees in high-end office buildings.

When calculated by the size of the consumer group, POP MART has "only" 38.92 million registered members, which in the Internet Industry is definitely a guest under the venture capital institutions. But these members contribute 92.1% of sales revenue and have a repurchase rate of over 50%—this is the repurchase level of the medical beauty institutions.

In an economic cycle with insufficient total demand, businesses with high frequency of rigid demand seem to have stronger risk resistance. However, in the past few years, it has been a group of niche tracks that don’t seem big or complete that have danced gracefully.

For example, companies like Li Auto making family cars and the founder of office wear for financial professionals, Arc'teryx. Large supermarkets have the intention to transform, but unfortunately, their fresh produce varies significantly, and they collectively watch SAM'S CLUB ascend to the altar.

This is an era where small businesses don’t fall; it’s not necessary to engage in large enterprises but rather still earn a lifetime of money that can't be spent.

Divergent demand.

"The Fourth Consumption Era" became popular in China just as the term consumption downgrade was becoming common. The compelling term "low-desire society" is also very suitable for fermentation on Social Media.

However, the problem is that when Japan entered the "Fourth Consumption Era," the per capita GDP reached $40,000, the number of cars per thousand people approached 600, and the total population had not yet peaked. There is still a mighty force among the one hundred million people, and it is not advisable to provoke.

The current consumer market in China is probably more like what the author Miura Noboru calls the "Third Consumption Era":

After the basic consumer goods such as home appliances and autos are popularized, the consumption trend shifts from satisfying basic necessities to projecting self-awareness and pursuit — the so-called "self-pleasure."

Teacher Miura summarizes this characteristic as "from popularization to personalization," while the contemporary Japanese advertising industry offers a more precise overview: from needs to wants.

This means that when social wealth and commodity supply accumulate to a certain extent, the consumption demands of different groups will diversify. Previously, it was about not buying because someone else would, now it is about not understanding because someone else understands.

The logic of basic consumer goods is "demand determines supply":

Cooking requires soy sauce, going out requires drinking water, and summer requires turning on the Air Conditioner, which creates$Foshan Haitian Flavouring and Food (603288.SH)$、$NONGFU SPRING (09633.HK)$、 $MIDEA GROUP (00300.HK)$ These listed companies share a common trait: they have control over the channels, because the demand always exists; as long as the corresponding commodities are produced, consumers will buy them.

However, the characteristic of differentiated demand is that 'supply determines demand':

Before the release of The Legend of Zelda, players did not realize that they liked this type of game; before POP MART made Labubu, consumers also did not think they would queue at the store.

In such cases, only when the corresponding supply is created will consumers 'discover' their needs.

$Lululemon Athletica (LULU.US)$ The secret to success lies in the founder Chip Wilson's keen observation that the new generation of female consumers does not need plus-size women's clothing, but rather yoga pants made with flat-seam technology and high-quality fabrics; at the same time, he clearly realizes that 'if this product does not enhance the aesthetic of women's self-image, no matter how good the quality and technology, they won't glance at it again.'

Chip Wilson refers to Lululemon's user base as Supergirls and summarizes their characteristics:

1. Pursuing a healthy diet and exercising regularly; 2. Having children later in life, thus having more time for dressing up; 3. Owning few clothes, but placing great emphasis on the quality of outfits; 4. Wealthy.

Supergirls will not be the majority in any market, but it has been proven that they are willing to spend three times the price to buy a pair of yoga pants. Lululemon's revenue has never reached half of Adidas, and its user base is probably smaller, yet their market caps are on par.

Demand differentiation will lead to fragmented supply, with various niche markets emerging from the original larger market.

These demands often seem niche, but as the saying goes, nothing is more valuable than pleasure, consumers will accept higher premiums for differentiated demands, thus turning small niches into big businesses.

Therefore, in the era of demand differentiation, accurately meeting demands far surpasses simple scale expansion.

In 2023, Sam's created sales of 84.3 billion in China, and due to not offering membership for shopping, with a member count of 5 million, the average annual consumption per member exceeds 16,000 yuan. Assuming shopping once a month, the single purchase can be as high as 1,400 yuan, making it a true 'thousand-yuan store.'

In other words, with just 48 stores and 5 million consumers, it is possible to become the supermarket with the highest sales in China.

Sam's downside is that the portion sizes are large, while Labubu's downside is that it cannot be eaten as a meal, but this is precisely the characteristic of demand differentiation.

Many people cannot understand why consumers of POP MART would spend 500 yuan on a plush toy, but that's okay because the consumers of POP MART might not understand why some middle-aged people wear Arc'teryx and Patagonia every day, even though they do not go hiking or skiing, just going downstairs.$Starbucks (SBUX.US)$Update the OKR for the second quarter.

Universal commodities must be ordinary; if a product can be accepted by everyone, it is destined to be extremely mediocre.

Ineffective standard.

In 2016, when POP MART was struggling, Wang Ning saw the frequency of meetings with investors increase from two a day to twenty a day, but the latter's concerns were mainly due to the unpredictability of the target audience for trendy toys, in addition to the somewhat traditional nature of offline retail.

The ambiguity of the market size has created the biggest confusion regarding POP MART: what is the 'metric' for its growth potential?

Investment is a game of uncertainty, so market participants use Algo metrics to reduce risk exposure. The so-called rigid demand, pain points, and high frequency implicitly mean that investors can estimate a rough market space and growth multiple based on the corresponding consumer group size.

Help.$HAIDILAO (06862.HK)$Estimating the ceiling for the number of stores was once a popular team-building project in the secondary market. This led to various algorithms such as one store for every 0.5 million city population/coverage of 0.75 billion people, corresponding to 40/20/10 stores in first/second/third-tier cities, and how many Starbucks equal to how many stores.

Regardless of the algorithm used, the goal is to obtain a clear "metric" that simplifies HAIDILAO's growth from complex store operations and corporate governance into a simple math problem.

If this is not exaggerated enough, then remember that a pharmaceutical company once claimed that one in five adult males in China suffers from erectile dysfunction to sell Viagra, resulting in a fine from the China Securities Regulatory Commission.

This pursuit of certainty once ran rampant in the secondary market, where fund managers were keen on searching for things that sounded like.$Aier Eye Hospital Group (300015.SZ)$, it feels like $NONGFU SPRING (09633.HK)$ , upon closer inspection, it is $Foshan Haitian Flavouring and Food (603288.SH)$ , emanating with $Kweichow Moutai (600519.SH)$the aroma of wine from the whole body.

However, the growth narrative of most market segments is a rebellion against universal metrics by consumer brands in an era of demand differentiation.

The so-called "universal measuring scale" often manifests as a "physical scale" beyond emotions, such as a person's gender, age, education, occupation, income, etc. By bringing the corresponding labels of these groups into specific consumer categories, a rough market space can be estimated.

However, this method of division has an implicit assumption: that groups with the same labels share converging personalities and values, leading to homogenized consumer behaviors.

The users of iPhones and Redmi phones can indeed be divided by income, and different occupations and ages might correspond to the audiences for Yadi and Audi, but this division has a key premise: both communications and travel are closely related to basic needs, that is, essential attributes.

But the problem is, college students using Redmi phones and trendy men driving Audi A6s could both be fans of trendy toys, thus rendering the scale composed of "physical measures" ineffective.

When a person wears glasses due to nearsightedness, their "need" is satisfied; but when someone wears plain glasses as part of their outfit, their "desire" is satisfied. Needs can be quickly estimated, but desires are harder to capture.

The further a commodity is from mass attributes, the harder it is to measure with a universal standard. The typical audience for Arc'teryx may be sports enthusiasts, but those buying Arc'teryx are likely to be middle-aged individuals with a "sporty heart."

$ANTA SPORTS (02020.HK)$ Acquired at a 43% premium back then while incurring losses. $Amer Sports (AS.US)$ Certainly, the market share was not estimated based on the penetration rates of skiing and mountaineering sports. It has been proven that the success of Arc'teryx lies in providing the best choice outside of suits for elite professionals.

Many large companies that have emerged in niche markets did not capture some trendy opportunity, but instead accurately identified unmet niche demands.

According to Li Xiang, several partners in the ideal team have an average of three children each, hence they are very familiar with family travel scenarios, and there are no products on the market that meet their needs.

Lululemon's founder, Chip Wilson, keenly discovered that the seam on the inner thigh of athletic shorts can easily cause skin abrasions, which led him to boldly adopt flat-lock stitching on yoga pants, and he himself happened to be a muscular triathlete.

Wang Ning is a fan of trendy toys; he once gave an example: I want to buy something that is 1000%. This belongs to the concept understood by those in the trendy toy circle, that is, 7-8 centimeters is the standard size, so four times that is 400%, and ten times that is 1000%.

However, most investors determine that the measurement of POP MART corresponds to the universal measurement of basic consumer goods, rather than the unique market space within the niche demands. A story referenced in the book 'Because Unique' goes like this:

In the past, investors assessed POP MART by saying: the founder has an average education, has not held a proper job, speaks in a calm and unengaging manner, and there are no elites in the team.

After going public, every investor mentioned that Wang Ning has a calm personality, speaks little, does not show emotions, and possesses many excellent qualities of an entrepreneur in the Consumer Industry.

People may not excel at doing the right things, but they are all good at finding the best reasons for their mistakes.

A diverse era.

In the 1980s, the Japanese also had misunderstandings about 'Consumption Upgrade.' Nestlé Japan invited members of the Belgian royal family to advertise for their premium instant coffee, but the public was not convinced: 'Do aristocrats drink instant coffee too?'

The more consumers a commodity covers, the more its audience becomes sensitive to price, which is a characteristic of basic consumer goods.

In this case, the closer a commodity is to a necessity, the more it tends to become a white label, ultimately evolving into fierce competition in channels and costs.

As a typical product of China's Consumption Upgrade, freshly made milk tea has replaced brewed milk tea, creating a structural opportunity through new raw materials and supply chains.

However, as freshly made tea gradually becomes popular and exhibits the characteristics of basic consumer goods, the focus of competition shifts from product innovation to scale expansion and cost control capabilities, such as HEYTEA and $NAYUKI (02150.HK)$ The growth is slowing down, and the streamlined supply chain of Bawang Chajiji can rise to the top, while those that were first to market are actually falling behind.$GUMING (01364.HK)$and $MIXUE GROUP (02097.HK)$ 。

Most basic consumer goods do not have structural opportunities for category substitution, and the original intention of Consumption Upgrade often leads to the result of Consumption Downgrade.

In other words, in an environment of insufficient overall demand or Consumption Downgrade, businesses with high-frequency demand are more susceptible to economic cycles.

Apart from Consumer Electronics, most basic consumer goods tend to be highly homogeneous— the differences between Kweichow Moutai and Niulanshan are far greater than those between NONGFU SPRING and Baishuishan. In this context, controlling channels and supply chains is crucial, and larger companies with more resource allocation capabilities often prevail in clearing and consolidation.

One of the most obvious features of Japan's "lost thirty years" is also a lack of total demand. From 1990 to 2010, the average monthly clothing expenditure of Japanese households dropped by 20%, yet UNIQLO's business continued to grow.

In 1999, UNIQLO achieved "self-control" over fleece fabric, reducing the price of a 5,900 yen fleece jacket to 2,900 yen, experiencing growth against the backdrop of the Asian financial crisis. During the 2008 financial crisis, UNIQLO was able to thrive through strong cost control capabilities, and in 2009, Tadashi Yanai became Japan's richest man.

Another example is ANTA SPORTS. The rapid growth of ANTA has two reasons:

One can only explain its capital operation ability as extraordinary. Over the past few years, ANTA has successively acquired brands such as Descente (Chinese operating rights), Arc'teryx, KOLON, and Salomon, almost with no failure, putting a number of Analysts in a tough spot.

The second reason is its strong integration operation ability for new brands. When FILA and Amer Sports were acquired, they were both in a state of loss, but ANTA managed to rejuvenate them. ANTA's DTC model sounds like a miracle cure, but the massive acquisition of dealer stores and huge expenses for repurchasing inventory are probably trademarks of big companies.

Interestingly, ANTA's rapid growth comes precisely from accurately capturing a series of segmented demands and demographics, rather than blindly expanding to target the masses with the ANTA and FILA brands.

Consumption downgrade and declining birth rates were once seen as enemies of Sam's Club, because Sam's focuses on family-oriented large packages and high consumption, but the facts have proved otherwise.$Yonghui Superstores (601933.SH)$and RT-Mart.

The impact of changes in the macro environment is bound to be averaged out, as long as you are not macro enough, the macro cannot do anything to you.

POP MART has less than 400 stores, which is about$MINISO (MNSO.US)$1/10 of $Luckin Coffee (LKNCY.US)$ 1/50 of, and 1/100 of MIXUE BINGCHENG; but the single-store revenue of POP MART is 3.5 times that of MINISO and Luckin Coffee, and 5 times that of MIXUE BINGCHENG.

For most ordinary people, the impact of the Eurozone debt crisis on their lives is far less significant than the debt crises of the gym and barber shop at the neighborhood entrance; similarly, if a brand's consumer coverage is less than 1% of China's population, then the economic cycle is not really relevant to it.

Everyone is bound to miss at least one stock code, but it is only the era of big companies that can afford to miss such things.

Epilogue

"The essence of 'small but not broken' is to strip away universal labels and examine the segmented needs of consumer groups through emotional metrics. Because a person cannot have so many high-frequency essentials."

During the transitional period of the era, the Japanese also went through a detour:$Sharp (6753.JP)$It is believed that there should be a television in the bedroom just like in the living room. $Toyota Motor (TM.US)$ It is believed that a family cannot have just one car.$NSK (6471.JP)$The watch advertisement states: Different watches should be paired for work, dates, and sports.

To this day, video sites hope everyone stays up late; meanwhile, chain coffee shops remind you that compared to South Koreans, you are still drinking too little; e-commerce platforms do not want anyone's shopping cart to be empty, while second-hand trading websites urge you to sell all of your belongings at home as soon as possible.

When the choices on the shelves become overwhelming, the choice may bring not joy but a sense of oppression and torment. A paragraph written by Max Weber in 1919 seems like a prophecy for the industrialized era:

Medieval farmers believed that life was an organic circle, where people died in satisfaction after completing it, but modern people cannot achieve this; modern people die feeling weary of life.

Turning a small market into a big business is a kind of business wisdom, while for ordinary people, finding a refuge where they can indulge in self-pity in an era of high demand and pain points is a kind of luck.

Editor/rice