Li Ka-shing is about to win another 100 billion IPO

Author | Wang Xiaojuan

Edit | Zhou Zhiyu

After ten years, Watsons, the most important company in Li Ka-shing's retail business, is about to hit the IPO again.

Recently, Temasek Holdings' Deputy Chief Executive Officer Chia Chung Fai said that the listing plan of A.S. Watson Group still exists, and the goal remains unchanged. It also highlighted that A.S. Watson's overall business performance was good.

Ten years ago, Li Ka-shing planned to list Watsons and then introduce Temasek as the second largest shareholder, but the listing has been delayed.

But there is no doubt that Watsons, which now has 16,500 stores in Asia and Europe, is sprinting for IPO again, which will be a very meaningful scene for the entire retail industry and a feast for capital.

In the past few years, the real estate has been in a downturn, and Li Ka-shing has not been able to avoid the shrinkage of wealth. As an important part of Li Ka-shing's layout in the retail industry, Watsons' IPO is also particularly important to it.

Of course, in front of Watsons, there are also issues such as more fierce market competition, the capital market has not yet warmed, and how its own brand can keep up with consumer trends.

Can this retail giant, which was valued at hundreds of billions of dollars ten years ago, continue to be favored by the capital market? A.S. Watson also needs a big change to meet the challenge.

Super IPO

Ten years ago, when rumors of listing broke, Watsons' valuation was as high as HK$192 billion to HK$312 billion.

Li Ka-shing also directly stated that because Watson's market value is quite large, it will consider dual listings, and Hong Kong must be one of them.

However, the capital market did not wait for Watson's listing. Hutchison Whampoa sold a 24.95% stake in Watsons to Singapore's sovereign wealth fund Temasek for HK$44 billion.

Based on this sale price, Watsons was worth HK$176.4 billion at the time.

With this deal, Temasek became Watson's second largest shareholder, and Li Ka-shing retained control of Watsons while allowing Watsons to pay off his borrowings to Hutchison.

Subsequently, there were several rumors in the market that Temasek was looking for someone to take over and sell its shares in Watsons, but it was not implemented for a long time.

Now, Xie Songhui has shouted directly to the outside world, making the retail giant's IPO attract attention again.

However, from Temasek's purchase of Watson's equity at a discount at that time, to the continuous pressure on performance in recent years, Watson's brilliance is no longer great, which also makes it doubtful whether it can maintain its previous valuation.

Since 2015, Watsons' sales have been declining for several consecutive years, and it was not until 2019 that the decline stopped, achieving a slight increase of 2% year-on-year. However, since then, due to the impact of the epidemic, the performance has not been stable.

In order to save the declining revenue, in 2023, A.S. Watson began to develop a new business model, upgrading 2,200 "O+O" (offline + online) stores in 15 markets around the world.

The "O+O business model" and 16,500 stores also made a lot of profits for Watsons.

According to the 2023 annual report released by the parent company CK Hutchisons, Watson's total sales last year were HK $183.34 billion, an increase of 8% year-on-year.

However, in the Chinese market, sales of only HK$16.453 billion were recorded last year, a year-on-year decrease of 6%.

In addition, Watson's sales and EBITDA in 2023 also recorded the lowest in 9 years, and Watson's single-store sales also fell by 6.6% year-on-year.

Or in order to plan for an IPO, the management of A.S. Watson Group has continued to change blood in recent years.

On 9 April, A.S. Watson Group announced the appointment of Ni Wenling as its chief executive officer, the first female CEO since A.S. Watson was acquired by Li Ka-shing.

Prior to becoming President, she served as Chief Operating Officer of A.S. Watson for 10 years and has been Chief Executive Officer of A.S. Watson Asia and Europe since 2019.

Prior to this, A.S. Watson China and PARKnSHOP (Hong Kong and Macau) have changed their leaders. For the Chinese market, the management changes were the largest, with Chan Chi Ho and Nie Wei appointed as Co-Managing Directors of A.S. Watson China.

Many of the figures in these personnel changes are key players in Watsons' "O+O business model" and digital transformation.

This will also be the focus of Watson's development in the future.

Ni plans to invest US$250 million in the Asian market to open and upgrade 6,000 stores in two years. Watsons can also take advantage of this to give a new look.

Break out of the encirclement

Watsons, which has a history of nearly 200 years, is facing the dilemma of being abandoned by young people, especially in the Chinese market.

A 27-year-old female consumer recalled that when she first came into contact with Watsons in college, she happened to have a preliminary understanding of beauty and skin care. Watsons' membership card has also become a social currency, which is often lent to classmates.

However, after a few years, she found that many people around her, like herself, had not visited Watsons for a long time.

There are also many consumers who believe that Watsons' stores are very unfriendly to i people (introverted people), who used to enter the store sales staff to promote products, but now they are busy adding WeChat, and from time to time they will be accompanied by various "you have skin problems" words.

In recent years, Watsons has lacked self-innovation and is at a disadvantage in the fierce competition.

From the perspective of market competition, for Generation Z, there are too many channels for beauty consumption, and the Watsons brand is aging and the consumer experience is poor, so there will naturally be fewer choices.

Before the rise of live streaming, Watsons would have some discounts compared to the official flagship store. However, after the rise of live streaming, beauty and personal care is the Red Sea track that major anchors are competing for, and brands are no longer competing for Watsons' shelves, but the anchors' pits.

In addition, there are more and more integrated beauty stores with similar positioning to Watsons, and consumers have too many reasons not to choose Watsons.

Compared with Watsons, Sephora is positioned at a more high-end end; Compared with Watsons, colorists take more photos and have more complete categories; Compared with Watsons, WOW COLOUR has more online celebrity makeup brands......

Unlike a number of new integrated beauty stores opened in new shopping malls where young people gather, Watsons opened stores in old shopping malls in big cities and new stores in sinking third- and fourth-tier cities, and the vitality of beauty consumption in these areas is relatively insufficient.

Even on social media, Watsons already has a taste of "tears of the times".

Many people began to avoid Watsons, saying that the experience of visiting Watsons was not good, among them, the most criticized by consumers was the mandatory addition of WeChat.

This is Watson's main means of creating private domain traffic. But in the long run, if you want consumers to pay, you still rely on the product to speak.

The last brand to be a leader in private domain traffic was Perfect Diary.

Around 2019, Perfect Diary achieved a thriving private domain traffic by creating a "Xiao Wanzi" character design, and became the first beauty brand to achieve sales of more than 100 million yuan on Double 11. However, in the past two years, the reputation of the product has collapsed, and it has been eaten up by traffic, and the volume has gradually decreased.

Back to the product aspect, in recent years, there have been fewer brands cooperating with Watsons, and even some brands have begun to withdraw from Watsons' shelves.

In private labels, other products other than distilled water are not well-known, and it is difficult to contribute more sales.

In addition, in 2022, Watsons will also be involved in public opinion controversy.

At that time, Watsons sold a "1 cent promotional mask" in the live broadcast room, but refused to deliver it. In the face of consumers' doubts, the anchor ridiculed consumers as "mad dogs".

For a time, Watsons aroused the disgust of many consumers. It was also in this year that A.S. Watson closed more than 300 stores in the Chinese market.

However, "We are opening more than 1,200 new stores in 2023 and 2024, and at the same time investing in upgrading about 4,800 stores, which means that 75% of our stores in Asia will debut with a new look to provide customers with a new shopping experience." ”

Whether Watsons' upgraded stores can recover the declining performance depends on whether the performance can win the recognition of consumers again.

From the perspective of global performance, A.S. Watson is still a good investment target. However, the beauty retail market has also been turbulent in recent years, and A.S. Watson still faces many challenges if it wants to continue to share the pie in the midst of wolves.

In order to achieve fruitful results in the capital market, Watsons needs to make further efforts.

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