Muji wannabe's US$1b IPO tests power of mimicry

[HONG KONG] Miniso is testing the power of mimicry. The brash Chinese version of minimalist retailer Muji is considering an initial public offering worth up to US$1 billion, according to media reports. The fast-growing chain cultivates a Japanese feel. The challenge will be to convince investors that its valuation belongs with slick Tokyo peers, not pile-em-high 100-yen stores.

It's easy to understand why shoppers conflate the purveyor of toys, T-shirts and gadgets with well-known Japanese brands. Down to the Uniqlo-like red-and-white logo, Miniso is more Tokyo than Guangzhou, where the company opened its first store in 2013. The formula works: according to Euromonitor, it is number one in China among so-called variety stores.

Thanks to a franchise model, it's expanding swiftly too, with more than 3,500 outlets in about 80 countries and regions, adding more at a rate of 80 to 100 shops every month. Volume is important, given low margins, and the group targets 10,000 stores by 2022, in 100 countries. By comparison, Muji had 975 outlets in 2018.

There is plenty for investors to like, with fast-fashion strategies like frequent stock turnover to keep shoppers coming back. That's critical for a chain with minimal online presence. It has big name backers too, after private equity firm Hillhouse and Internet giant Tencent invested one billion yuan (S$197.1 million) last year, an investment that according to CB Insights valued the company at US$2.2 billion.

Yet Miniso has spawned a handful of its own copycats, and has hefty existing competitors, from Japan's Daiso to mainland beauty retailer KK Guan. Breakneck expansion may also strain the model set up by Chinese entrepreneur Ye Guofu and Japanese designer Miyake Junya.

The key will be convincing investors that the Japanese aura, design and growth should mean a premium, perhaps akin to US$5 billion Muji, despite gaudier merchandise. Indeed, no-frills retailers such as Shimamura and Pan Pacific, which owns bargain chain Don Quijote, trade at a discount to expected revenue for the next year.

Yet Muji parent Ryohin Keikaku fetches 1.2 times forecast sales. Assume Miniso's US$2.5 billion of revenue last year grows at about the same 40 per cent rate again. On Muji's multiple, it would be worth more than US$4 billion. It's a target worth emulating.

CONTEXT NEWS

Chinese budget household and consumer goods retailer Miniso is seeking an initial public offering that could raise around US$1 billion, Bloomberg reported on June 25, citing sources. Refinitiv publication IFR reported on June 25, citing people with knowledge of the matter, that Miniso was considering raising US$500 million with an IPO. The company has not commented.

Tencent and Hillhouse Capital invested one billion yuan in 2018. The company also said it aims to enter 100 countries and regions by 2022, with an annual revenue of 100 billion yuan and 10,000 stores worldwide.

The market for "variety stores" in the Asia-Pacific region was worth US$38 billion in 2018, according to Euromonitor International.

REUTERS