The industry that responded most directly to the epidemic must be on the list of retail industry, and retail stores have also become the vane of the industry under the epidemic. Before the US stock market on March 3, Beijing time, Minchuang Premium announced its unaudited financial report for the Q2 of fiscal 2022 as of December 31, 2021. Among them, the advantages of effective recovery of overseas business and substantial increase in net profit made its stock price rise by 13.44% after the financial report was announced.
This is more than a year since the founder of Mingchuang Premium, Ye Guofu, proposed "interest consumption", and the outside world can see the development concept of this veteran retail company in many aspects such as product strategy. When the Mingchuang model needs to sink and continue to go global, how can interest consumption understand young people and target consumers in a more complex dimension? This financial report may have explained the joys and sorrows to a certain extent.
Income uncertainty due to sinking and the pandemic has increased
According to the financial report, Mingchuang Premium achieved total revenue of RMB2.77 billion during the reporting period, an increase of 21% over the same period in 2021. This figure exceeded the upper limit of guidance given by the company at the end of the previous quarter. At that time, MINISO Expects Revenue for the Quarter to be between RMB2.5 billion and RMB2.7 billion, up 9% to 18% year-on-year. By region, domestic revenue was RMB2.05 billion, up 12% year-on-year, flat sequentially, and overseas revenue was RMB720 million, up 55% year-on-year.
On the one hand, the situation of domestic revenue shows the positioning of its basic disk, but the obvious gap between the growth rate and overseas also shows the problem: the number of domestic stores in the quarter of Mingchuang Excellent Products increased by 133, but about 63% of the new domestic stores in the quarter came from third-tier cities and below, and the number of stores in third-tier cities and below exceeded 1300, accounting for more than 40%.
CEO Ip Kwok-fu said on the earnings call: "In first-tier and second-tier cities, we will focus on optimizing the profit margins of MINISO stores." This may be to balance the profit performance of the sinking market. In a short period of time, the performance contribution ability of the sinking market will still be a potential problem.
Another uncertainty factor is common to the offline industry. Since the end of October last year, there have been sporadic outbreaks in many parts of the country. It is worth noting that the cities affected so far include key consumer cities such as Shanghai and Chengdu. Although there may not be a clear restriction policy, consumers will be more cautious about traveling and shopping. The operation of offline stores in the future also needs to pay attention to the positioning of affected cities.
However, the omni-channel strategy previously emphasized by Mingchuang Premium has played an important role in resisting the intermittent impact of the epidemic, mainly the joint development of online e-commerce and O2O. The total revenue of E-commerce and O2O business in Q2 of 2022 accounted for nearly 11%, of which the revenue of e-commerce business was 170 million yuan, O2O revenue was 130 million yuan, and O2O revenue was 130% year-on-year. At present, the number of retained users in the private domain of Minchuang Premium product exceeds 14 million, and the number of monthly active users of the official Mini Program exceeds 7.8 million, and repurchase is one of the key points of operation.
As for the tide play business TOP TOY, during the reporting period, TOP TOY achieved revenue of 130 million yuan, an increase of 20% month-on-month, and the number of stores reached 89, including 13 DreamWorks stores and 76 tide play collection stores. In January this year, TOP TOY reached a cooperation with the head esports club EDG to launch a series of mech co-branded products. Although there is also the possibility of being affected by the epidemic, last quarter, CEO Ye Guofu said on a conference call that TOP TOY may reach a gross profit margin level of 50% in the middle of this year. Therefore, its push for profits is more worth looking forward to.
Overall, Miniso Premium achieved a brilliant profit performance in the quarter, with a net profit of 210 million yuan under non-IFRS in the quarter, a year-on-year increase of 155%, and a net profit margin of 7.7%, a new high in the past seven quarters since the outbreak of the epidemic, mainly driven by international business and high gross profit IP products. When the importance of overseas is further highlighted, opportunities and challenges follow.
Profit differences at home and abroad are likely to continue to widen
In the fourth quarter of 2021, Miniso Premium opened its Boston, Massachusetts store, becoming the 5,000th store in the world. According to the financial report data, the number of global stores at the end of this quarter was 5045, including 3168 domestic stores, a net increase of 133; the number of overseas stores was 1877, a net increase of 41, but the overseas store opening plan was over-completed.
However, after a simple calculation, the revenue of a single store in the quarter of Mingchuang Premium was 523,000 yuan, an increase of 3.9% year-on-year, and differentiation occurred here: the revenue of domestic yoy single store fell by about 7.4%, while the revenue of overseas yoy single store increased by 43.7%. This is in line with the previous description, the contribution capacity of the domestic sinking market is not as good as the performance of overseas markets, especially the developed markets in North America. At present, overseas revenue accounts for 26%, which has increased by 6 percentage points over the same period last year.
This can actually be interpreted as saying that if it is more resilient to benefit from better epidemic control at home, now that the overseas recovery trend is unstoppable, the income gap between the two sides may narrow, and the profit gap is likely to be enlarged. According to the GMV caliber, the overall overseas market of Mingchuang Premium products has recovered to the level of 80% of the same period before the epidemic in the quarter, and the United States/Europe/Latin America/Asia has recovered to 140%/160%/85%/70% before the epidemic respectively. The phenomenal performance of the United States and Europe may bring greater benefits to the overseas profits of MINISO.
CEO Ye Guofu previously said that the most important overseas market is North America, "the first consumer market is still the United States." "After all, the purchasing power and product pricing of consumers in developed regions have more room for expansion." However, this also contains similar effects to the domestic sinking strategy, that is, areas with weak consumption capacity are more conducive to the brand image to penetrate the hearts of the people, but profit construction may be a step slower.
In this quarter, MINSO opened its first store in Nicaragua, marking the entry of MINISO into 100 countries and regions around the world. Even in the United States, there are fashion trend-oriented flagship stores in the center of the city, such as the Manhattan SOHO store, and a ten-dollar store that meets the affordable and cost-effective needs of consumers.
The overseas epidemic is a double-edged sword. On the one hand, it affects consumer travel and shopping, but on the other hand, it also reduces the rent of the venue, makes it easier to reverse expansion, and allows consumers to gradually attach importance to cost-effective consumption, which is conducive to the positioning of Mingchuang excellent products. In order to achieve more stable development, the exploration of supply chain localization and other aspects needs to continue. In the natural year of 2022, the target of MINISO Premium's store expansion is 400 in China and 350 overseas. Regional differences in overseas stores will be the core factor determining their overall growth.
Since the profit situation of the sinking domestic market is in contrast with overseas, improving the added value of products has become a means of breaking the situation. Ye Guofu said: "We need to increase the added value of products through design to cover up or make up for the rise in costs. On the issue of price increases, he said: "The adjusted prices may first go to first-tier cities, and third-, fourth- and fifth-tier cities will still do some cost-effective products." Value for money or foundation, is the ticket. Therefore, the question comes to the attractiveness of products to consumers, combined with the earlier determined interest consumption strategy, can Mingchuang Excellent Products make good use of the common characteristics of young people around the world at home and abroad?
Can relying on interest consumption strengthen brand value?
At the earnings call, Minchuang Premium CEO Ye Guofu announced: "After careful consideration, we have decided that 2022 will be the first year of a strategic upgrade of the Mingchuang brand. "Around the theme of interest consumption, the measures include the following three aspects: On the product side, about 70% of the product prices will remain stable, offering a higher premium for more attractive, useful and interesting products." In terms of marketing, a systematic approach is used to first launch brand upgrade activities in first-tier and second-tier cities. In terms of channels, it continues to penetrate the sinking market while optimizing profit margins in first- and second-tier cities.
Regarding the reason for the brand upgrade, Ye Guofu explained it as: "Just by emphasizing affordability and cost performance, we will fall into homogeneous competition, which is not conducive to the long-term development of our MINISO brand." Therefore, we must distinguish the Mingchuang brand from its competitors. "This coincides with the concept of interest consumption: young people in any country are easily dominated by interest, and they pay more attention to cultural attributes and emotional values in consumption, and they chase good-looking, easy-to-use and fun products." Grasping the interest of different consumers will naturally achieve differentiation at the root.
More importantly, in the past, the outside world evaluated Mingchuang Premium Products, often emphasizing its supply chain and digital advantages, which is the ceiling of a retail company. To break the ceiling, it needs to be a brand and idea-driven company, brand means high viscosity, premium capabilities, and a deeper and wider moat than retail advantages.
In the US market, Dollar General, Five Below, which focus on the pure cost-effective brands of one dollar and five dollars, compete with Mingchuang Premium, but the interest strategy of Mingchuang Excellent Product is transmitted to the product, which will fill the different needs of consumers, implant consumer minds, and jointly eat the affordable product area of $1-5-$10. This also explains why MINXP is located in key business districts with greater foot traffic – reinforcing the brand's image of fashion or trends, while Dollar General is generally opened in poor neighborhoods or American townships, and Dollar Tree is accustomed to opening in the suburbs.
However, at present, the interest consumption strategy of Minchuang Excellent Products is, on the one hand, an independent development based on consumer demand and market status, and on the other hand, the use of high-quality IP to jointly expand the market. The more than 80 IP rights it currently works with around the world are both an important factor in its successful growth and an indispensable source of profit. Therefore, there is a high degree of correlation between IP and the performance of Mingchuang premium products. Ye Guofu said: "We adjusted the price of IP products in 2021. The preliminary results of the past few quarters have been very satisfactory. "Whether subsequent IP products can continue to maintain satisfactory results will need to be tested for a long time."
More importantly, in addition to products with stable prices of 70%, whether it is IP products or independent development, can they continue to release the supply chain advantages of Mingchuang Premium? Can we implement the concept of interest consumption to every consumer group in the journey of overseas expansion? These cannot be conclusive in the short term, and to a certain extent, it will also affect the success or failure of the upgrading of the Mingchuang premium brand, and will eventually become one of the criteria for judging whether the Mingchuang premium products stay in the retail company or are upgraded to a brand company.
Perhaps, on the basis of time, short-term caution and long-term optimism will always be the attitude of explorers. For the strategy that has been determined, what is the determination of THE IMPLEMENTATION of MINISO Premium? We'll see.