The Long Road to IPO: The Rise and Struggles of KK Group, MINISO’s Biggest Competitor

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The biggest competitor of MINISO once again launched a charge to go public.
Recently, KK Group, the parent company of KKV, a trend collection store brand, once again submitted a prospectus on the Hong Kong Stock Exchange. This is the third submission of the KK Group following the failure of the two submissions in November 2021 and January 2023.
From the perspective of data, the revenue of KK Group has almost doubled in the past few years. From 2018 to 2021, the revenue of KK Group was 155 million yuan, 464 million yuan, 1.646 billion yuan and 3.524 billion yuan. However, by 2022, KK Group’s operating income will only be 3.551 billion yuan, a year-on-year increase of only 0.7%.
KK Group mainly has four self-owned brands of retail brand KKV, beauty retail store brand THE COLORIST, trendy art brand X11 and mini store KK Pavilion. These four brands account for more than 90% of the total revenue. Among them, the retail brand KKV The revenue accounted for nearly 70%, and the yellow KKV stores that can be seen everywhere in shopping malls have always been regarded as the strongest competitor of MINISO.
“No one can walk out of KKV empty-handed.” With its highly saturated “candy-colored” style, container-like space layout, and SKUs that fit the trendy aesthetics of young people, KKV was once known as “the real version of the worry-free grocery store.” “. In this space of hundreds of square meters, thousands of products including beauty makeup, trendy toys, food and beverages are covered, and the store is not equipped with shopping guides and promotions, and only a few employees maintain daily operations.

It has a similar plot to the Mattel Company that produces Barbie dolls in “Barbie”.
Although she majored in computer science, Wu Yuening from the “Hometown of Bosses” has never held back her desire to start a business after graduation. After working as a product manager at Yiju.com for a year, Wu Yuening resigned to start a business with a college classmate and founded Dingke.com with RMB 100,000. And combined with the Somali pirate incident at that time, a small game was planned overnight. This suddenly popular small game allowed Wu Yuening to successfully earn the first pot of gold, but was forced to stop the project due to lack of financing.
Although this venture ended in failure, it made Wu Yuening start to rethink the possibility of a business model empowered by the Internet. In the later period of time, “he stared at the developments in Silicon Valley almost every day to see what new things they had made, and we could learn from them.” In 2013, Wu Yuening, who had never been in contact with the retail industry, keenly discovered a new outlet for the retail of imported goods.
In 2013, Wu Yuening entered the retail market in the form of a community convenience store, so a “KK Pavilion” opened in the community came into being, and this was also the predecessor of the KK Group. The store is mainly responsible for the purchase and sale of imported fast-moving consumer goods such as snacks, beauty makeup, and personal care. Over the past year, four KK restaurants have opened, with a total loss of tens of millions.
After analyzing the reasons, Wu Yuening classified it as an error in site selection, and then upgraded the KK store to the Shopping Mall (shopping mall), and upgraded from a community retail store to a collection of imported products, catering, coffee shops, and book bars. An integrated leisure and entertainment venue. But the good times didn’t last long. Wu Yuening found that the cost of this type of business was huge and the payback period was extremely long, so he stripped off redundant business types such as catering and coffee shops, and completed the third upgrade of KK Pavilion.
After trial and error, Wu Yuening found a way that seemed to work. In 2019, KK Group was officially established and launched two new brands, KKV and THE COLORIST. The two new brands represent a new retail format, which is to upgrade from the traditional link of “people-goods-field” to “people-field- Goods”, relying on the good looks, curated display and explosive design of offline stores to attract consumers to enter the store first, and then pay for the products. KK Group also took advantage of the trend and won the largest financing in the retail field that year, with a brand valuation of more than US$1 billion, and won the title of “New Retail Unicorn”.
In 2021, KK Group won a financing of 300 million US dollars led by JD.com, and the post-investment valuation reached 3 billion US dollars. In this year, the low-key Wu Yuening entered the “Fortune” with the eighth place. In the “List of 40 business elites under the age of 40”, Wang Ning, the owner of Bubble Mart, is behind him.

No loss after closing 22 stores in the first quarter
Wu Yuening, who had a twists and turns in his entrepreneurial journey, did not go smoothly on the road to leading the KK Group to go public. In 2021, when JD.com won financing, KK Group submitted an application to the Hong Kong Stock Exchange for the first time. However, because the hearing or listing cannot be completed within 6 months, the prospectus will automatically become invalid.
At the beginning of 2023, when KK Group submitted the prospectus again, it had become “heavy in debt”. The prospectus shows that from 2019 to October 31, 2022, the total liabilities of KK Group rose from 2.164 billion yuan to 13.81 billion yuan, an increase of more than six times in three years.
However, the updated prospectus shows that the KK Group, which has been losing money for three consecutive years, has finally ushered in a profit. From 2020 to 2022, the adjusted net profit of the KK Group will be -171 million yuan, -304 million yuan, – 412 million yuan, and in the first three months of this year, its adjusted net profit was 86 million yuan, turning losses into profits.
The reason is that KK Group abandoned the high-speed expansion model that led to its high debt.
In 2018, KK Group opened its franchise for the first time, and the number of stores experienced rapid growth. In the second year after the opening of franchising, KK Group had 164 franchised stores and 47 directly-operated stores, and franchised stores accounted for 51.9% of its revenue, surpassing its own stores for the first time.
However, starting from 2021, there has been a large-scale wave of store closures for brands under the KK Group. During the 10 months of 2021 and 2022, the number of franchised stores will decrease by 67 and 212 respectively. The reason is that the performance of franchised stores is not as expected, and the group chooses to close or convert some franchised stores into its own wholly-owned stores.
In the first quarter of this year, KK Group only opened 4 new stores and closed 22 stores. The proportion of directly-operated stores is nearly 80%, setting a new high in the past three years.
In addition, some industry insiders analyzed that the big store model that KK Group has always advocated has invested heavily in itself. If it relies on increasing the unit price of customers to drive gross profit, it will be difficult to tell a story as highly cost-effective as MINISO. For many consumers, the prices of commodities in KKV stores belong to “expensive” MINISO products. In terms of gross profit margin, MINISO’s gross profit rate is around 40%, while KK Group’s gross profit rate can be as high as 46%.

However, judging from the updated prospectus, the improved performance in the first quarter may be the confidence for KK Group to decide to go public again.
In the first quarter of this year, KK Group’s average monthly GMV per store and average monthly transaction volume per store achieved growth of 39.1% and 39% respectively, and the company’s revenue increased by 47.85% year-on-year. On the other hand, net cash from operating activities, which barely turned positive at the end of last year, also increased to more than 600 million yuan in the first quarter, and liabilities also decreased from 13.7 billion at the end of last year to 13.5 billion yuan.
I just don’t know if Wu Yuening can realize his dream of going public in the third sprint for IPO?

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