Li Ka-shing is set to secure another billion-dollar IPO

Author | Wang Xiaojuan

Editor | Zhou Zhiyu

After a decade, A.S. Watson, the most important company in Li Ka-shing's retail business, is gearing up for an IPO.

Recently, Xie Songhui, Deputy CEO of CK Hutchison Holdings, stated that the listing plan for A.S. Watson Group is still in place, with the same goal. He also emphasized that A.S. Watson's overall business performance is good.

Ten years ago, Li Ka-shing planned to take A.S. Watson public, and then brought in CK Hutchison as the second largest shareholder. However, the IPO has been delayed without any news.

Undoubtedly, with 16,500 stores in Asia and Europe, A.S. Watson's renewed push for an IPO will be a significant event for the entire retail industry and a capital feast.

In the past few years, with the downturn in real estate, Li Ka-shing has also experienced a decrease in wealth. As an important part of Li Ka-shing's layout in the retail industry, this IPO is particularly important for A.S. Watson.

However, A.S. Watson is facing more intense market competition, the capital market has not yet warmed up, and how its brand can keep up with consumer trends are all challenges.

Can this retail giant, valued at over a hundred billion a decade ago, continue to attract favor from the capital market? A.S. Watson needs a major transformation to address these challenges.

Super IPO

When rumors of going public surfaced a decade ago, A.S. Watson's valuation was already as high as HKD 192 billion to 312 billion.

Li Ka-shing also directly stated that due to A.S. Watson's significant market value, he would consider dual listing, with Hong Kong being one of them.

However, the capital market did not see A.S. Watson's listing. Hutchison Whampoa sold 24.95% of A.S. Watson's equity to Singapore's sovereign wealth fund Temasek for HKD 44 billion.

Based on this sale price, A.S. Watson was valued at HKD 176.4 billion at that time.

Through this transaction, Temasek became the second largest shareholder of A.S. Watson. While Li Ka-shing maintained control of A.S. Watson, the sale helped A.S. Watson clear its debts to Hutchison.

Subsequently, there were several rumors in the market about Temasek looking for someone to take over and selling its stake in A.S. Watson, but nothing materialized.

Now, Xie Songhui's direct announcement has once again brought attention to the IPO of this retail giant.

However, from Temasek's discounted purchase of A.S. Watson's equity to the continued pressure on performance in recent years, A.S. Watson's former glory is no longer, casting doubt on whether it can maintain its previous valuation.

Since 2015, A.S. Watson's sales have declined for several consecutive years, only stopping the decline in 2019 with a 2% year-on-year increase. However, it has been unstable due to the impact of the pandemic.

To revive declining revenue, in 2023, A.S. Watson began to focus on a new business model, upgrading 2,200 "O+O" (offline + online) stores in 15 markets worldwide.

The "O+O business model" and 16,500 stores have also earned A.S. Watson a considerable profit.

According to the 2023 annual report released by its parent company CK Hutchison, A.S. Watson's total sales last year were HKD 183.34 billion, an 8% year-on-year increase. In the global market, its revenue is gradually recovering from the impact of factors such as the previous pandemic However, in the Chinese market, it only recorded sales of HKD 16.453 billion last year, a year-on-year decrease of 6%.

In addition, Watsons' sales and EBITDA in 2023 also hit a 9-year low, with same-store sales declining by 6.6%.

It may be for the purpose of preparing for an IPO that the Watsons Group's management has undergone significant changes in recent years.

On April 9th, the Watsons Group announced the appointment of Ni Wenling as the CEO, making her the first female CEO since Watsons was acquired by Li Ka-shing.

Prior to becoming CEO, she served as the Chief Operating Officer of Watsons for 10 years, and since 2019, she has also served as the CEO of Watsons in Asia and Europe.

Before this, there were changes in leadership at Watsons China and PARKnSHOP (Hong Kong and Macau). The most significant changes were in the management of the China market, with Chen Zhihao and Nie Wei appointed as Co-Managing Directors of Watsons China.

Many of the individuals involved in these personnel adjustments played key roles in Watsons' "O+O business model" and digital transformation.

This will also be the focus of Watsons' development in the future.

Ni Wenling plans to invest USD 250 million in the Asian market to open and upgrade 6,000 stores within two years. This will enable Watsons to rejuvenate itself.

Breaking Through

With a history of nearly two hundred years, Watsons is facing the dilemma of being abandoned by young people, especially in the Chinese market.

A 27-year-old female consumer recalls that when she first encountered Watsons in college, she had just begun to understand beauty and skincare. Watsons had a wide range of products, with stores mostly located in large shopping malls, a must-visit when shopping with classmates. Watsons' membership card also became a form of social currency, often lent to classmates.

However, after a few years, she found that many people around her, like herself, had not visited Watsons for a long time.

Many consumers also believe that Watsons' stores are very unfriendly to introverted individuals. In the past, salespeople would follow customers into the store to promote products, but now they are busy asking to add on WeChat, occasionally accompanied by various phrases like "your skin has problems".

In recent years, Watsons' lack of self-renewal has put it at a disadvantage in fierce competition.

From a market competition perspective, for Generation Z, there are too many channels for beauty consumption, Watsons' brand is aging, the consumer experience is poor, naturally leading to fewer choices.

Before the rise of live streaming sales, Watsons offered some discounts compared to official flagship stores. However, with the rise of live streaming sales, beauty and personal care products have become a fiercely competitive arena for major influencers. Brands are no longer competing for shelf space at Watsons, but for positions with influencers.

Moreover, there are more and more comprehensive beauty stores similar to Watsons. Consumers have too many reasons not to choose Watsons.

Compared to Watsons, Sephora is positioned as more high-end; compared to Watsons, makeup artists take better photos, offer a wider range of products; compared to Watsons, the internet-famous makeup brand WOW COLOUR has more options...

Unlike many new comprehensive beauty stores opening in new malls where young people gather, Watsons, due to its early entry, has stores in old malls in major cities, while new stores are in lower-tier cities where the beauty consumption vitality is relatively low Even on social media, Watsons has a taste of "tears of the times".

Many people have started to avoid Watsons, saying that the experience of shopping at Watsons is not good. Among them, the practice most criticized by consumers is the mandatory requirement to add WeChat.

This is Watsons' main means of building private domain traffic. However, in the long run, if you want consumers to pay the bill, it still depends on the products to speak for themselves.

The last brand that operated in the private domain traffic was Perfect Diary.

Around 2019, Perfect Diary soared in private domain traffic by creating the "Little Wanzi" persona, becoming the first beauty brand to exceed one billion yuan in sales on Double Eleven. However, in the past two years, the product reputation has plummeted, being backfired by traffic, and the brand's influence has gradually diminished.

In terms of products, in recent years, the number of brands cooperating with Watsons has decreased, and some brands have even started to withdraw from Watsons' shelves.

Among its own brands, besides distilled water, other products are not well-known and are also difficult to contribute more sales.

In addition, in 2022, Watsons was embroiled in public controversy.

At that time, Watsons sold "1 cent promotional masks" in live streaming rooms but refused to deliver the products. Faced with consumer doubts, the host also mocked consumers as "crazy dogs".

For a while, Watsons caused a lot of consumers to feel resentful. Also in that year, Watsons closed more than 300 stores in the Chinese market.

However, Ni Wenling revealed, "We are planning to open more than 1,200 new stores from 2023 to 2024, and at the same time invest in upgrading about 4,800 stores. Approximately 75% of Asian stores will debut in a brand-new look, providing customers with a new shopping experience."

Whether the upgraded stores of Watsons can reverse the declining performance remains to be seen if their performance at that time can once again win the recognition of a large number of consumers.

From a global performance perspective, Watsons is still a very good investment target. However, the beauty retail market has also been turbulent in recent years, and Watsons, in the midst of fierce competition, faces many challenges to continue to share the market.

To reap the rewards in the capital market, Watsons needs to make further efforts in changing leadership and transformation