Behind Miniso's Ten Yuan to Ten Billion Success Story
Miniso's advantages lie in its C2M model, efficient supply chain, and lack of e-commerce. To get a competitive edge over its competition, it may need to decide how to use its offline space to collect customer data.
Known as the “10 Yuan Shop”, Miniso (名创优品) has been met with criticism due to its questionable origin and being dubbed the copycat of Japan’s Muji. Miniso originated in Tokyo, and its founders Miyake Junya and YE Guofu (叶国富) are of Japanese and Chinese descent respectively.
In Sept 2018, Miniso received CNY 1 billion strategic investment from Hillhouse Capital Group (高瓴资本) and Tencent. According to China Daily, WANG Guangyong, Miniso’s brand center chief director, said in an interview that “the cooperation with Tencent may result in building smart stores.” NetEase Yeation (网易严选) and Xiaomi’s (小米) products have also received investment from Tencent.
The company also officially launched its IPO project on Jan 17 and signed cooperation agreements with IBM and SAP.
In four years, the retail company globally opened 2600 stores and reached strategic cooperation with more than 60 countries and regions, averaging 80-100 stores a month, according to CMS’ report. Its revenue in 2017 exceeded USD 1.8 billion, an 18% increase YOY. As the industry also saw significant growth over the past decade, Miniso’s in a relatively strong position to grow with the industry.
Part of Miniso’s strengths lies in its IT and product integration, effective supply chain, and surprisingly lack of e-commerce. However, its rapid global expansion caused more harm than good as the company was hit with lawsuits in Canada and internal operation dispute.
Compared to its competitor, KK Guan, Miniso wins in the number of categories. In addition, KK Guan feels more like a one-stop convenience shop while Miniso encourages a consumer to browse. Yet, compared to NOME, the Chinese home retailer is better at using its offline space. In regard to Dollarama, in addition to the arguments made by Seeking Alpha between Miniso and the Canadian company, the latter maintains its price advantage over its Chinese counterpart.
Miniso adopts a C2M model which strategically uses big data to their advantage when designing new products as consumer demand shifts. This boosts Miniso’s competitive advantage and also save costs in resources: users order first then the manufacturer(s) can produce the product.
YE Guofu stressed product quality importance in an interview with CKGSB Knowledge. However, he also wanted to eliminate design complexity, a prevailing problem in the retail market. Therefore, to ensure customers are getting their money's worth, Miniso’s applies C2M which best meets consumer demand for customized products. However, the "high-quality low price" is difficult to prove and is one of the challenges of a C2M business model.
In addition to working with renowned designers to boost product value, Miniso has established a product center to lead R&D work. The company’s team also examines the supply chain and study data feedback to design the best products. Yet, C2Ms often have a long production cycle and may lead to losses for manufacturers as they have to produce and ensure timely delivery.
As consumer preferences shift, the company’s staff develops proposals for new products based on big data they receive from physical stores. This provides a basis for product development. If approved, proposals will be sent to their international design team.
While Miniso has reaped benefits from IT and product integration, more businesses have already jumped or are eager to jump on the trend. Therefore, to remain competitive in a data-dominated market may depend upon strategy, organization, and effective platforms that present real-time data.
According to YE in the interview, Miniso demands an inventory turnover of 21 days “with products updating every seven days so as to keep a novelty feeling for consumers and give them a new surprise every time they come to the store.” In retail sectors, the general turnover ratio is 8.17, much lower than Miniso. However, as different new retail applies different business models, it may vary depending on which a business is using and how it's used.
Some retail companies like NetEase Yeation apply an F2C model which may suffer from logistics issues. While C2Ms also has its disadvantages, it has room for improvement.
Miniso has more than 200 procurement managers to analyze trends “and launch new products every week.”
As of 2018, Miniso invested more than CNY 100 million in product design.
Efficient Supply Chain
On Aug 17, 2018, Miniso held its Ecological Supply Chain Quality Summit in Guangzhou, China. The summit highlighted Miniso’s achievements “on product quality and design, IT innovation and overseas development.”
500 suppliers from different product categories attended the summit, and Miniso reached official agreements with ecological suppliers such as ESENE, KORRUN, and Besiter. Currently, Miniso has business relations with more than 800 global suppliers and partners in 40 countries and regions.
Collaborating with global suppliers while maintaining low prices gives customers an incentive to buy from Miniso. Many new retailers are also implementing this strategy such as NetEase Yeation. However, both companies have suffered from being copycats. In NetEase Yeation’s case, also for copyright infringement. Therefore, product innovation may be a solution to avoid negative backlash.
As Miniso’s mission is to provide “high quality but low prices” to consumers, the company cooperated with SAP to upgrade its enterprise management system and integrate technology into their supply chain.
According to ZHU Linhui, an analyst with Qianzhan Industry Institute to China Daily Hong Kong, Miniso works with an independent logistics company to distribute small batches to more than 2000 stores.
In China, there are more businesses implementing an O2O business model. Therefore, physical stores are still recognized as an important revenue stream. Many businesses use O2O differently; some use it to facilitate offline sales such as the mother-infant retailer, Kidswant. Others use it as a direct sales channel.
Regarding its lack of online presence, YE Guofu hinted in an interview that their “unique business model” will trump e-commerce. In addition to working with international suppliers and product affordability, Miniso banks on delivering strong customer service by having no service. “We hope our customers can freely select the products in the most relaxing way possible,” YE said in the interview.
For e-commerce businesses to be profitable, it must have high user loyalty/stickiness, a goal that Chinese companies strive to achieve using big data. Therefore, to remain competitive, e-commerce and O2O businesses must continue to invest in technology. In China, where technological advancement is rapid, this can be a hefty investment. Additionally, the synergy between technology and business operations may make a company more reliant on technology.
According to McKinsey, there are seven reasons why customers visit stores. Furthermore, the report mentions how to offer differentiation is one of the reasons retailers can see success.
Yet, “the most effective differentiation strategies” lie in a deep understanding of consumer needs which Miniso does as discuss above.
In China, however, e-commerce is rapidly gaining a huge chunk of retail’s market share. Online sales could reach USD 650 billion by 2020, according to McKinsey. Online retail sales are also captured to have more revenue than sales of physical goods at USD 1.33 trillion and USD 1.03 trillion respectively. Yet, online retail sales had YOY increase at 23.90% in 2018 while physical good sales had a marginally higher increase at 25.40% in the same year.
While Miniso is faced with obvious disadvantages, it still plays to the strengths of brick-and-mortar stores. In addition, as more technologies roll out for physical stores, it may eventually become more helpful in collecting customer data. Alibaba’s superstore, Freshhema, has already implemented facial recognition payment.
This section will focus on Miniso’s two domestic competitors (KK Guan and NOME Home) and one western competitor (Dollarama).
While MUJI may be Miniso’s direct competitor, KK Guan (KK馆), a Chinese-based retail brand selling primarily imported skin care products is advancing quickly to perhaps one day surpass Miniso. The one-stop shop’s main advantages lie in its small physical shops and exclusive products/product categorization, and online community.
NOME Home also sells similar products to Miniso. While the Chinese home retailer brand operates similar to Miniso, its main advantage is its efficient use of its offline space.
In Canada, Miniso’s biggest competitor is Dollarama, the country’s largest cheap retailer headquartered in Montreal. According to Seeking Alpha, Dollarama and Miniso target different consumers. In some ways, they could be considered as complements. Additionally, Dollarama is advantageous in its economies of scale and may have a much more efficient supply chain than Miniso–at least in Canada. The Canadian company also has a price advantage over its Asian competitor despite price increases in recent years.
KK Guan completed its USD 400 million Series C funding round in March 2019 led by Alibaba’s eWTP Science Technology Innovation Fund. Other investors include Hongtai Capital (洪泰基金), Matrix China (经纬中国), Bright Venture Capital (璀璨资本), and Shenzhen Capital Group (深创投). This funding round is reportedly used to improve its supply chain, expand its offline channels, and add more product lines.
Similar to other new retail brands in China, KK Guan uses an O2O model; online channels facilitate its offline sales.
According to iyiou.com, the KK Guan opened more than 100 stores in large cities with each store spanning 200 square meters. Some stores have an average efficiency of CNY 8000 per month, higher than the industry average of CNY 2,000 per month and CNY 600,000 in monthly sales.
In 2018, Miniso achieved CNY 17 billion in revenue. Going by what's released to the public, KK Guan may make approximately CNY 720 million in revenue. While this is considerably lower than Miniso's annual revenue, KK Guan adds a back hall to provide a relaxing space where customers can read a book or enjoy a cup of coffee. While this does not translate to direct revenue, it may increase customer loyalty and store differentiation, unlike Miniso.
KK Guan’s recent financing round was to improve its supply chain. According to iyiou.com, the company is aiming for “global customization” in the future, similar to Miniso. Therefore, the brand will develop exclusive products that will only be supplied to the company. Design and packaging will also be unique to the brand. This helps KK Guan to establish differentiated products and provides incentives for prospective consumers.
Part of the company’s online strategy is to create a social circle and guide consumer consumption. The company uses big data to capture user preferences and allow people to share shopping strategies and product demos to create an exchange. In return, KK Guan can accumulate more user data.
NOME Home’s completed its Series B CNY 600 million financing round led by Sequoia Capital (红杉资本), China Renaissance (华兴资本), Tiantu Capital (天图资本), and Capital Today (今日资本) at the end of 2018.
This financing round will be put toward product R&D, brand promotion, and new businesses. The company officially completed three financings, exceeding CNY 1 billion in 2018.
To understand consumer needs, NOME uses store heat maps to gather data. This allows the company to get a better understanding of popular products and product improvement. NOME is a great example of combining its offline space with big data to use to its advantage.
Dollarama and Miniso are similar in their cheap prices. However, the Canadian company still has a price advantage over its Chinese counterpart despite increasing its prices in recent years. Miniso’s minimum average price in Canada is CAD 2.99. On the other hand, the majority of Dollarama’s products are still priced at CAD 1.25 or less.
Miniso’s Continuous Success
While Miniso has its advantages, it needs to provide better incentives to customers to buy from them as more retail businesses jump on the high quality and low-price bandwagon. YE emphasized the importance of product and customer service, but perhaps Miniso’s critical advantage is how it decides to use its offline space to provide convenience, value-added service, and to collect customer data, a unique feature that many new retail stores have yet to implement.