News analysis

Miniso aims to mimic Muji, not just in feel but IPO value too

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 (S$1.36 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 100-yen stores.

It is 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 is 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 last year.

Thanks to a franchise model, Miniso is 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 s
Thanks to a franchise model, Miniso is 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. PHOTO: MINISO

There is plenty for investors to like, with fast-fashion strategies like frequent stock turnover to keep shoppers coming back. That is 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 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 the 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 is a target worth emulating.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 06, 2019, with the headline 'Miniso aims to mimic Muji, not just in feel but IPO value too'. Print Edition | Subscribe