Character-building key to Miniso's plan to raise profits – Nikkei Asia

Chinese lifestyle goods retailer cultivates spinoff toy store chain
GUANGZHOU — Nearly every Monday, young executives hustle into a conference room at the headquarters of lifestyle goods chain Miniso Group in Guangzhou.
Each is in charge of one of the 11 product categories carried across the group’s nearly 4,750 outlets around the world and presents potential new items to stock, showing off prototypes and samples from suppliers to make their case.
Ye Guofu, the New York-listed company’s founder and chief executive, makes the final calls at the “goods selection meet,” aiming to settle on around 100 worthy new products each week after two to three hours of discussions.
“On the one hand, we reflect on customer feedback, and on the other, we place orders on the spot based on our years of business sense,” Chief Marketing Officer Robin Liu told Nikkei Asia in a recent interview. “That’s why we now say Miniso is like a fast-fashion brand because of the quick pace we refresh our product lineup.”
Amid Miniso’s shelves of stationery items, phone accessories, cosmetics and toys, there is a growing focus on products linked to well-known characters, like television cartoon cat and mouse duo Tom and Jerry.
Sales of “IP products” — items featuring intellectual property motifs licensed to Miniso or created by it — rose 79% in the April-June quarter from a year earlier, Investor Relations Director Eason Zhang told analysts in August.
This was nearly double the 41.7% growth in revenue posted by the average Miniso store over the period and raised the share of sales generated by IP products for the chain up to 25% for the year ended June 30 from 20% a year earlier.
Meanwhile, Miniso more than tripled its licensing partners to 58 as of June from 17 a year before.
“IP products attract fans, driving traffic to stores and because they create publicity, they help us save on advertising expenditure,” Liu said.
In May, the company launched more than 100 keychains, backpacks and other products featuring logos from U.S. National Basketball Association teams at its stores in China. Another new collection involves 100 mugs, bottles and other items featuring the Coca-Cola logo, while the signature cartoon sisters of Chinese streaming service Bilibili appear on digital devices, beauty products and bags.
Despite the expanded push into licensing, Miniso paid 19.6% less in fees to licensors, or 88.06 million yuan ($13.68 million), in the year ended June 30 compared with the year before.
A spokesman said this was largely due to the latest year being a subdued time for new films from Marvel Studios, a key licensor, after several cinema releases were postponed due to COVID-19. In addition, many of Miniso’s new licensing agreements were signed late in the fiscal year, limiting their impact on fees for the period.
Liu said that by working on its own characters, Miniso hopes to capture higher profits for itself.
In Mexico, Colombia and Peru, for instance, the company launched 18 stuffed toy dogs as well as neck pillows, notebooks and thermoses with the image of Xico, a canine character based on the Mexican hairless Xoloitzcuintle breed and created in collaboration with a local designer.
Self-generated characters are even more important for the Top Toy stand-alone toy stores Miniso launched last December. This unit has its own team of around 30 designers in Beijing to help with creating new characters, Liu said.
Ye told analysts that items featuring the group’s creation Twinkle, a girl encased in an arcade game machine, and Damo, a traditional Japanese daruma doll, now rank among Top Toy’s top 10 sellers and that the company has been making a gross profit margin of 60% on a number of the proprietary products.
This compared to a 43% average merchandise profit margin in the last quarter and a 25.8% gross margin for Miniso overall.
Said Ye, “Going forward, we expect that Top Toy’s gross margin will improve while its operating leverage will be gradually released, driven by the expansion of its scale and the maturity of its proprietary IPs.”
Aside from its own characters, Top Toy also features licensed ones such as Bandai’s Gundam robots, Mattel’s Barbie and some from the hit mobile game Honor of Kings, which was created by Tencent Holdings, a Miniso shareholder.
With an eye on consumers aged between 10 and 40, “blind box” collectibles are a key Top Toy offering. With these, a shopper picks a packaged item off the shelf without knowing which character of a given collection, such as Gundam, is contained inside until after completing their purchase.
“There seems to be something new each time I shop,” said Zhang Jiahui, a Shanghai clerk in her early 20s who decorates her office desk with figurines from the chain. Blind box is a popular feature with Chinese retailers that is spreading beyond toys to stationery and other categories.
“Blind box is a retail method that combines unpredictability and surprise to capture consumers’ psychology,” Liu said. “That is why it is a high-frequency, repeat-purchase item attracting higher unit price and longer shelf-life.”
Hu Yuwan, an associate director at Daxue Consulting, which focuses on consumer sectors, said Top Toy complements Miniso’s mainline stores.
“If Miniso the general merchandise store is for people who look for price-sensitive products randomly, Top Toy is for those who hunt for products with emotional connection in which the price factor is less important,” she said.
According to Ye, customers spend 150 yuan on average when shopping at Top Toy. The chain aims to have around 100 stores by year-end, up from 33 in China as of June 30.
Under its own name, Miniso’s store network extends to nearly 100 countries. Last month, it opened its first store in the New York area, where it listed on the stock market a year ago, and it set up a blind box vending machine in Singapore in July.
For the April-June quarter, Miniso posted a net profit of 111.15 million yuan on a 59.2% rise in revenues to 2.47 billion yuan. It reported a loss of 42.25 million yuan a year before.
“Miniso’s Q4 results beat consensus by a healthy margin and blown away any concerns of a slowdown with accelerated store growth in China and overseas markets,” said Oshadhi Kumarasiri, an analyst with LightStream Research who publishes on the online platform SmartKarma.
But analysts still worry about how well the company can fend off Chinese rivals.
In collectible and blind-box toys, it faces a formidable rival in the form of Pop Mart International Group, which listed on the Stock Exchange of Hong Kong last December. It operated 215 stores in mainland China as of June 30 while also racking up substantial sales through e-commerce platforms and vending machines, with an overall gross profit margin of 63%.
“Miniso has yet to build a particular fortress against competition and its customer loyalty is pretty low,” said Skye Lan of investment research company EqualOcean. “It has to update its products and design faster to keep up with the speed of the young generation in China who barely stick to one brand.”
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