Can Urban Beauty Become A Real Underwear Giant?

All kinds of signs indicate that, Urban beauty A big game of chess is being played.

Following the high-profile introduction of Fosun's shares, it announced that Japan Children's clothing After brand cooperation and the establishment of a cooperation fund with JD, recently, Metropolitan Beauty has established a joint venture with Shanghai Kappa, a wholly-owned subsidiary of China Trends, to layout the movement Underwear In the past year, the action of attracting investment and cooperation of urban beauty has been frequent and eye-catching.

As the domestic underwear market is relatively scattered, this underwear enterprise, which is about to celebrate its 20th anniversary at the end of this month, has raised a guess: Under the condition that the market share of domestic single brands is generally low, can a real underwear giant be born through the operation of M&A to attract capital?

　　 Raising money while expanding

Looking back on the past year, the city beauty has three main actions: attracting investment, cooperation, and entering new fields.

According to World Clothing, Shoes and Hats Network, the net cash flow from operating activities of Metropolitan Beauty in 2016 was -6.93 million yuan, compared with 403 million yuan in 2015. With cash flow tight, Metropolitan Beauty began to seek financial support everywhere.

On May 5, 2017, Metropolitan Beauty introduced Fosun as a strategic investor in a high profile and signed a gambling agreement. According to the agreement, Metropolis Beauty allotted 240 million shares to Shenzhen Qianhai Fosun Ruizhe Asset Management Co., Ltd., a wholly-owned subsidiary of Hong Kong Stock Fosun International, at a price of HK $2.5 per share. After the transaction, Fosun International became a strategic shareholder of the company, holding 11.18% of the shares. In addition, the agreement sets requirements for the operation of urban beauty.

According to the announcement of Metropolitan Beauty, the total amount of funds raised by Fosun subscription is 600 million yuan, which will be used for sales and distribution channel reform, acquisition and merger projects, and working capital supply.

With a certain amount of money, urban beauty embarked on the road of raising money while expanding its territory.

A week later, on May 12, Metropolitan Beauty announced that it had reached a strategic cooperation agreement with KIMURATAN and Qingdao Dadu to market and distribute KIMURATAN's Love Design and BIQUETTE brand products as the exclusive agent in China. This marks that the city beauty, the main underwear, has officially entered the field of children's clothing in China. It said that through this cooperation, it is intended to develop the infant and children's clothing market in mainland China.

In June, Metropolis Beauty announced that its indirect wholly-owned subsidiary, Guangdong Metropolis Beauty Industry, sold 95% of the equity of CLGIII to Guangdong Zhengji Innovation Industrial Park Development with 10.8091 million yuan. The sale of urban beauty is to give blood to underwear and other main businesses.

Metropolitan Beauty, which focuses on fast fashion and middle end underwear brands, also cut off its low-end brand business and moved towards the middle and high-end market. Last year, Metropolitan Beauty sold low-grade business "free time". This brand is a Korean style underwear brand launched by Metropolitan Beauty in 2015, mainly targeting the third and fourth tier city markets, accounting for only about 1% of the group's sales in 2016. Previously, Metropolitan Beauty included the high-end underwear brand "Odiphone" in its bag, thus completing the high-end brand missing in the underwear territory of the enterprise. After losing money for several consecutive years, the latter turned losses into profits in the year of acquisition, thus becoming a new growth point of urban beauty.

Yao Yao, China analyst at Euromonitor International, a market consultancy, told TIME that China's underwear industry is facing growing demand from local consumers. Compared with high-end underwear products, the growth rate of fast fashion underwear with lower prices slowed down in 2017 compared with the past five years. From the perspective of consumers, the rigid demand for underwear is rising, which benefits from the improvement of disposable income and living standards of domestic consumers.

On February 7, 2018, Metropolitan Beauty announced that it would jointly set up a 1 billion yuan fashion industry fund with Jingdong to invest in intimate clothing and upstream and downstream peripheral industry companies. The relevant person in charge of Metropolitan Beauty said that the establishment of the cooperation fund was mainly used for industry mergers and resource integration suitable for the group's business, and then further expanded the group's popularity and footprint in the global intimate clothing industry.

The latest action of Metropolis Beauty is to cooperate with Kappa. Its wholly-owned subsidiary Tianjin Metropolis Beauty and China Trend's wholly-owned subsidiary Shanghai Kappa signed a shareholder agreement to jointly invest 20 million yuan to establish a joint venture. The joint venture company will produce and sell men's personal clothing and women's sports underwear, and the main sales channels are online. In addition, Metropolitan Beauty has been authorized to design, market, produce and sell Kappa products for five years.

So far, the underwear territory of urban beauty with multi-channel and full brand layout has initially taken shape.

　　 The underwear industry is hard to become a giant

Behind the ambition of urban beauty is the status quo of decentralized domestic underwear industry and low brand concentration.

According to the data of market research institute Mintel, the size of China's underwear market doubled in five years, to 18 billion dollars. Euromonitor International predicts that the retail value of China's women's underwear market is expected to reach 25 billion US dollars by 2019, twice that of the US market, and this figure will grow to 33 billion US dollars by 2020.

However, the whole industry is extremely fragmented. Guosen Securities Research Newspaper pointed out that the underwear market structure in China is scattered, and there are many brands, up to more than 3000, but 99% of the brands have sales scale of less than 100 million yuan, and few brands have sales scale of more than 1 billion yuan.

"Metropolis Beauty is the largest underwear company in China at present. By last year, our listed companies and unlisted companies had combined sales revenue of about 10 billion yuan. Metropolis Beauty is the first in the Chinese market, but in fact its market share is around three o'clock. Chinese (underwear) brands are very dispersed, with about 3000 practitioners (underwear brands) There are about (only) 300 names. " On April 19, at a business forum held in Guangzhou, Zheng Yaonan, chairman and president of Metropolitan Beauty (China) Holding Co., Ltd., told the media including journalists.

Yao Yao analyzed the reporter that in the face of such a potential market as China, players in the domestic clothing market all want to seize the competitive advantage and share a share. In particular, many domestic small enterprises have entered the underwear field with lower threshold, which is the reason why the local underwear market in China is decentralized and homogeneous. However, local underwear enterprises have always focused on the richness of product lines and distribution through e-commerce, which has led to the successful penetration of broader brand awareness into China's lower tier cities.

As the leader of domestic underwear enterprises, the development process of Metropolitan Beauty fully illustrates the "ceiling phenomenon" of underwear industry. In 2008, Zheng Yaonan, a security guard and salesman, was keenly aware of the market opportunity of mid end brand underwear and established the brand of "Urban Beauty". At the initial stage of expansion, Zheng Yaonan's "Ten Thousand Stores Plan" made the stores of Metropolitan Beauty blossom all over the country. In 2015, there were 8058 offline stores of Metropolitan Beauty, which is within reach of the goal of ten thousand stores.

However, in 2016, in the face of the squeeze of e-commerce and the challenges of competitors, the performance of Metropolitan Beauty ushered in a turning point of decline, with operating revenue and net profit down 8.9% and 55% respectively year on year. In 2017, the performance of Metropolitan Beauty has recovered, but the number of stores has dropped to nearly 1000 since the peak.

Investing in acquisition and seeking cooperation has become a necessary step for urban beauty.

"In the new year, we will continue to focus on improving the Group's business and core competitiveness. The Group will introduce the" Amiba Management Business Model "and the" Partnership System ", and actively seek suitable opportunities for mergers, acquisitions, equity participation or cooperation, so as to further develop the Group's existing business in the industry adjustment, and seek new breakthroughs and changes." The relevant person in charge of urban beauty told the reporter.

　　 The odds are still up in the air

However, there is still a long way to go to become a real giant in the industry.

Last month, Metropolitan Beauty released its 2017 financial report. Relevant data showed that as of December 31, 2017, the Group had achieved a revenue of 4.542 billion yuan, up 0.7% year on year; Operating profit was 420 million yuan, up 37.4% year on year; The profit attributable to equity holders of the Company was 317 million yuan, up 31% year on year. According to the annual report, the net number of stores of Metropolitan Beauty declined by 362 in 2017.

According to the last year's gambling agreement between Fosun Group and Metropolis Beauty, Metropolis Beauty's year-on-year growth in 2017 was not less than 3%, in 2018 was not less than 6%, or compared with 2016, the growth in 2018 was not less than 9.18%. In terms of profit, after deducting non recurring items, the year-on-year growth in 2017 is not less than 20%, that in 2018 is not less than 15%, or that in 2018 is not less than 38% compared with 2016.

In this way, the first year's performance of Metropolitan Beauty did not reach the standard.

However, the relevant person in charge of Metropolis Beauty said to the reporter, "The agreement signed between the major shareholders and Fosun depends on the two years' operation performance, and the focus is on 2018. If the sales and profits in 2018 are no less than 9.18% and 38% higher than those in 2016, they still meet Fosun's requirements, and the major shareholders do not need compensation".

This means that 2018 is an important year for urban beauty to realize its performance. If it fails to meet the standards, Metropolitan Beauty will have to pay Fuxing HK $100 million as compensation. In addition, it is unknown whether it will be divested.

"I feel very confident." Zheng Yaonan told reporters on April 19 when asked about the odds of completing the bet with Fosun.

In addition, urban beauty is facing increasingly fierce competition in the industry. Dozens of investment enterprises, including Xiangfeng Capital, Zhencheng Capital, Qifu Capital, Huaqiang Capital, Zhenge Fund, Today Capital, Yuanjing Venture Capital and Pengpai Capital, have successively laid out in the underwear industry, which has also boosted new stars in related industries such as NEIWAI, DAREONE, the IPS, etc.

The covetous international underwear giants have also turned their attention to China's underwear market. Victoria "s Secret, which held a Victoria" s Secret show in China last year, has directly moved its product lines in Europe and the United States to China. Up to 30% of the products are ultra-thin, but this type of underwear has only 6% market share in the Chinese market. Italian luxury underwear brand La Perla and German underwear brand Triumph also increased their layout in China.

Will urban beauty win this one?

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