KK Group stated that the average monthly Gross Merchandise Volume (GMV) per store increased by 43.8% from RMB 510,500 in 2022 to RMB 734,000 in 2023. Additionally, the average monthly transaction volume per store rose by 48.4%, increasing from 7,955 transactions in 2022 to 11,803 transactions in 2023. As of October 31, 2023, KK Group’s four retail brands collectively offered consumers over 20,000 SKUs.
In terms of brand performance, KKV, a brand under KK Group, achieved a revenue of RMB 3.27 billion in the first ten months of 2023, with an operating profit of RMB 712 million and an operating profit margin of 21.8%. Simultaneously, THE COLORIST reported a revenue of RMB 756 million, an operating profit of RMB 128 million, and an operating profit margin of 17%. KK Pavilion and X11 recorded revenues of RMB 101 million and RMB 305 million, respectively.
KK Group mentioned in the prospectus that the continuous improvement in operating profit margin is attributed to the growth in revenue after the adverse effects of the COVID-19 pandemic subsided since January 2023. Additionally, optimizing the proportion of product costs in revenue and achieving cost reductions through economies of scale contributed to the higher operating profit margin.
When KK Group submitted its IPO application, questions were raised about the sustainability and growth of its business. In 2020, KK Group had 132 self-owned stores and a significant 424 franchise stores, leading to concerns about the potential impact on profitability if franchisees were to exit. However, by October 31, 2023, the number of self-owned stores had increased to 615, a growth of 48 stores in less than three years. Concurrently, the number of franchise stores had decreased from 424 to 109. The revenue contribution from self-owned stores also rose from 35.5% in 2020 to 78.1%. This indicates that KK Group has successfully mitigated the risks associated with franchisee exits, and the operating profit has turned positive for the first time this year.
The COLORIST achieved a revenue increase of 78% over the past three years
Among KK Group’s four major store types, the performance of its beauty concept store, THE COLORIST, was particularly impressive during the reporting period. The revenue of THE COLORIST surged from RMB 439 million in 2020 to RMB 756 million as of October 31, 2023, marking a remarkable growth of 78%.
According to a Frost & Sullivan report, based on Gross Merchandise Volume (GMV), KK Group was one of the top three offline-driven non-grocery retailers in China’s lifestyle consumer goods sector in 2022. KK Group highlights its uniqueness in having a presence across three major segments in the offline-driven non-grocery retail market: boutique collections, beauty, and trendy toys. According to the Frost & Sullivan report, within the 2022 Chinese offline-driven non-grocery retail market, THE COLORIST ranked third in the beauty segment based on GMV, with a market share of 1.1%, following Watsons and Sephora. THE COLORIST also stood at the third position in terms of the number of stores.
In terms of same-store sales (measured by GMV), THE COLORIST recorded a significant growth from RMB 79.28 million in 2020 to RMB 220 million in the first ten months ending on October 31, 2023, representing an impressive increase of 177%. Simultaneously, in terms of store count, THE COLORIST had 229 stores in 2020, generating a revenue of RMB 4.397 billion, with an average annual revenue per store of RMB 1.92 million. By the first ten months of 2023, the store count slightly decreased by 13 to 216, contributing to a total revenue of RMB 756.3 million. The average annual revenue per store surged to RMB 3.5 million, reflecting an 82.3% YoY growth in average store revenue despite a slight reduction in the number of stores. Additionally, over the past three years, THE COLORIST witnessed a decline in franchise stores from 170 to just 10, while self-owned stores increased from 59 to 209. The growth in self-owned stores has propelled revenue growth, and the efficiency of revenue per store has experienced a significant increase.
To ensure the health and sustainable development of the business, KK Group has outlined strategies for ongoing adjustments and implementation of store network optimization.
Firstly, KK Group anticipates continuing to increase the total number and proportion of KKV, THE COLORIST, and X11 stores within its overall retail network.
Secondly, there will be an emphasis on increasing the number and proportion of self-owned stores. In less than three years, the count of self-owned stores under KK Group has grown significantly from 132 to 615, while the number of franchise stores has decreased from 424 to 109.
Lastly, there will be a focus on further penetrating lower-tier cities. KK Group expresses its plans to tap into the growing purchasing power, increasing demand for personalized lifestyle consumer goods, and relatively low market penetration in lower-tier cities in China.
The beauty retail is poised for a potential recovery
In reality, KK Group’s reapplication for listing on the Hong Kong Stock Exchange and its growth in performance reflect the gradual subsiding of the impact on offline retail in the consumer industry, signaling a potential recovery. This holds for the beauty and cosmetics industry as well.
In the high-end beauty retail sector, LVMH has reported a 25% organic revenue growth for its Selective Retailing division in 2023. The recurring business profit increased by 76%. Sephora achieved a historic year in terms of sales and profits, gaining market share through its unique and innovative product and service offerings. The momentum, particularly in North America, Europe, and the Middle East, has been exceptionally strong. The store network continues to expand, with the successful opening of the first two stores in the United Kingdom and a thriving partnership with Kohl’s in the United States.
In the travel retail segment, DFS benefited from the gradual recovery of international tourism, especially with tourists returning to flagship destinations such as Hong Kong and Macau. The brand plans to open a new Galleria in Hainan, China, by 2026. Le Bon Marché is steadily growing, continually developing innovative concepts, and benefiting from a loyal French customer base and the return of international tourists.
In addition, in the European market, German cosmetics retailer Douglas saw a remarkable 11% surge in its financial performance for the fiscal year 23, surpassing 4 billion euros for the first time and reaching 4.1 billion euros, with offline channels experiencing a growth of 13%. Despite this substantial growth, Douglas is contemplating an initial public offering (IPO) in the first quarter of this year. Insiders suggest that, if market conditions permit, the IPO is expected to take place on the Frankfurt Stock Exchange in March, with an estimated valuation reaching 7 billion euros. This further indicates the positive outlook of the capital market on the recovery of beauty retail channels.
Simultaneously, in the Chinese market, offline beauty retail is also undergoing a recovery. On January 12th, beauty retailer Sa Sa International released sales data for the third quarter ending on December 31, 2023. During the third quarter, Sa Sa International’s revenue grew 36.7% year-on-year to HKD 1.182 billion. In the reporting period, Sa Sa International’s offline sales increased by 35.7% year-on-year to HKD 951 million. In the third quarter, Sa Sa International’s revenue in mainland China was HKD 187 million, a 49.3% increase compared to last year.
In summary, KK Group’s reapplication for listing on the Hong Kong Stock Exchange and its growth in performance reflect the gradual subsiding of the impact on offline retail, signaling a potential recovery in the beauty industry. LVMH’s Selective Retailing division grew by 25% in 2023, Sephora demonstrated strong performance, and DFS benefited from the recovery of international tourism. In Europe, German retailer Douglas surpassed 4 billion euros in new sales for the fiscal year 23 and is considering an IPO in the first quarter of 2024. In the Chinese market, Sa Sa International reported a 36.7% growth in sales for the third quarter, with offline sales increasing by 35.7%. Overall, these performances indicate a revival in the beauty retail sector.
