MINISO: The origin of the "10 yuan store," the endgame of IP retail bestsellers?

Miniso (Part 1): The Origins of the "10 Yuan Store" and the Endgame of IP Retail Bestsellers? $MNSO(09896.HK)$Miniso(MNSO.US)

As the twin stars of the domestic IP track, many investors study Pop Mart and Miniso together, as both stories revolve around keywords such as "economy of guzi," "going overseas," and "IP diversification."

Dolphin previously analyzed through two articles, "Pop Mart: Just Toys, Why 'Zhen Huan Returns to the Palace'?" and "Pop Mart: Crazy Growth Overseas, This 'Bubble' Can't Burst," that Pop Mart's overseas expansion is:

a) Domestic supply chain driving the basic cost-performance of products;

b) IP going overseas, ensuring appropriate product premium;

c) Offline store expansion driving overseas explosive growth;

The resonance of these three core factors leads to explosive growth and brand premium in overseas markets. Today, Dolphin will further explore another piece of the IP business puzzle through Miniso— the retail overseas business of IP products and private label products.

This article serves as the first part of the Miniso series research, attempting to answer key questions:

What is Miniso's business model?

What are Miniso's core barriers?

Why does Miniso prioritize IP collaborations as a strategic focus?

The following is the detailed content:

1. What kind of business is Miniso engaged in?

1. "Taking" is the way to win, starting at the starting line

Before delving deeper, let's outline the basic situation of Miniso (hereinafter referred to as "Miniso") for further analysis:

Miniso was founded in 2013, during a time when the domestic e-commerce industry was experiencing explosive growth, and traditional offline retail was facing severe impact, with consumers increasingly demanding better offline shopping experiences. In this wave of change, founder Ye Guofu was inspired by MUJI and established Miniso, precisely targeting the unique positioning of "lifestyle product collection store."

In terms of categories, Miniso and MUJI seem to have little difference, covering various fields such as home goods, stationery, beauty and skincare, clothing, and food, with product design styles adhering to the common principles of high quality, aesthetics, and simplicityHowever, unlike MUJI, Miniso follows a budget-friendly route similar to Uniqlo, with prices for stationery, accessories, and home goods mostly ranging between 10-30 yuan, and beauty products rarely exceeding 50 yuan (MUJI is positioned as mid-to-high-end, with prices generally 2-3 times that of Miniso), emphasizing a "No one has better quality than me at a lower price, and no one has a better price than me at a higher quality."

In addition, the store design adopts Uniqlo's open space layout and categorizes products by type, function, color, etc., maximizing the shopping experience for consumers.

The store locations also follow the "standard answer," primarily focusing on the core business districts of first- and second-tier cities, deeply aligning with young people's pursuit of quality living.

It can be seen that Miniso, in its initial stage, essentially followed the "budget version of MUJI" route.

Source: Miniso prospectus, Dolphin Research

2, Seemingly franchised, but actually "direct-operated"

Based on the "standard answer" validated by MUJI, Miniso has created a highly imaginative business model for its franchise method, which includes brand usage fees + product deposit + next-day revenue sharing system. This means that franchisees need to pay a one-time product deposit of 600,000-750,000 yuan + brand usage fees of 50,000-80,000 yuan + renovation costs of 400,000-500,000 yuan (depending on the number and size of the franchise stores). The daily operations are entirely managed by Miniso, and franchisees are basically not involved in daily decision-making, receiving 38% of the previous day's revenue (the rest goes to Miniso).

This model is essentially an "investment style of just putting in money without effort" for franchisees, more like buying a large financial product, with returns tied to the store's revenue, and without bearing various risks of daily operations (subsequent fixed daily expenses, including rent and employee salaries, still need to be paid by the franchisees ).

This investment and operation-separated franchise model attracted a large number of quality franchisees in the early stages, and Miniso's store opening speed soared, with the number of stores increasing to 373 in the second year, surpassing 1,000 stores in 2016, and basically doubling every four years, reaching over 4,000 domestic stores by Q3 2024. (Most are franchise stores, with fewer than 30 direct-operated stores)

For Miniso, this model not only allows for rapid capital recovery (the initial one-time investment from franchisees is much higher than that of other peers) but also helps build the supply chain and bulk purchase from upstream, thereby enhancing bargaining power.The most critical aspect is achieving direct operation effects: Store decoration, supply, inventory management, product selection, marketing, personnel training, and a series of core operational links are all under control, avoiding the "illegal" operations of franchisees in traditional franchise models that damage brand image. After all, the essence of retail is based on standardized large-scale replication, and standardization is key.

According to the analysis above, the key to the success of this business model completely depends on Miniso's own operational capabilities. So the question arises, what are Miniso's core operational capabilities?

3. Efficient supply chain is key to "old business"

In Dolphin's view, Miniso's core operational capability is actually efficient supply chain management. During the early operation of Aiya Aiya (Miniso's predecessor—a women's chain affordable accessories store), the core team had already accumulated a wealth of experience in supply chain management.

a) 711 model, fast product launch speed:

According to the company's external disclosures, Miniso implements a "711" product launch strategy, selecting about 100 new SKUs from ten thousand design proposals every 7 days to continuously attract consumers with new products launched weekly. The speed of product launches and the variety of SKUs far exceed those of peers. (MUJI launches new products seasonally, while Jiumu, KKV, and the green party basically launch new products once a month, with SKUs ranging from dozens to hundreds.)

The premise for the success of "711" is not only Miniso's large team of designers and R&D personnel but also relies on high-quality suppliers and an efficient supply chain management system behind it (which will be elaborated on later).

Source: Galaxy, Dolphin Research

b) "Great effort brings miracles" attracts quality suppliers:

From the very beginning of "Aiya Aiya" to the later Miniso, the company's core management team has very strict standards for selecting and cooperating with suppliers.

As seen in the chart below, Miniso's deeply cooperating suppliers are mainly concentrated in manufacturing powerhouse regions like the Pearl River Delta and Yangtze River Delta, and most of them supply international well-known brands in their respective fields. These suppliers are industry leaders in quality control, cost control, and production efficiency. However, the question is why these quality suppliers are willing to establish cooperation with Miniso? Dolphin believes there are two key factors:

① Massive procurement, price control by volume: Miniso often stocks a huge quantity of single product categories at once, with most single products starting at a million pieces, significantly reducing suppliers' production costs (this is also the core reason why Miniso can lower prices under similar product conditions), while other retailers in the same category can only look up to Miniso in terms of store numbers or procurement scaleIn addition, although Miniso has a large single-category procurement volume, overall, due to the wide range of SKUs operated by Miniso, it reduces the reliance risk on a single supplier. According to Miniso's prospectus, the total procurement share of its top five suppliers does not exceed 10%, thus Miniso has a very high bargaining power over single suppliers.

② Timely payments: In addition to large procurement volumes, Miniso also offers sufficiently "attractive" payment terms. Generally, the procurement payment terms for moderately sized enterprises are around two to three months, while Miniso basically settles cash within 15 days.

Large procurement volumes and no credit naturally make Miniso a "hotcake" sought after by quality suppliers. The reason Miniso can achieve these two points is actually inseparable from the unique franchise model mentioned above (which occupies franchisee funds for rapid cash recovery).

Currently, Miniso has over 1,400 suppliers cooperating deeply worldwide, and its supplier reserves are far ahead (competitors rarely have more than 500 cooperating suppliers).

Source: Guohai, Dolphin Research

c) Efficient supply chain management:

In addition to the fast speed of product launches and a wide and rich reserve of quality suppliers, the most critical aspect is that Miniso also has a digital-driven supply chain management system that efficiently integrates all links of the supply chain:

① Product design & development: First, Miniso's proprietary AI large model (which integrates data analysis and product recommendation functions) can monitor social media hotspots in real-time, automatically and quickly identify emerging trends, and guide product managers and designers in developing and optimizing products.

Moreover, in the early stages of product design, product managers can send design proposals to suppliers through the system, allowing suppliers to view and provide feedback directly, reducing the time and cost of repeated modifications.

② Order & logistics: Once a product is launched, Miniso can quickly receive and efficiently process order information from stores and online channels worldwide. Relying on the system, orders are automatically and accurately allocated to the corresponding suppliers and warehouses. Suppliers can also view order details in real-time, greatly improving the accuracy and efficiency of order processing.

At the same time, the system provides multiple logistics tracking methods and can intelligently optimize logistics plans based on sales data and inventory status, ensuring timely product delivery and effectively reducing inventory costs③ Feedback & Improvement Phase: After the product is launched in the market, the system will closely track the sales performance and consumer feedback information of each SKU, and designers will continuously optimize the SKU based on feedback.

For products with excellent sales performance, the distribution range will be quickly expanded in all stores; if products have poor sales, discount promotions will be initiated in all stores immediately to clear inventory in a timely manner.

Overall, Miniso's supply chain is more deeply integrated in terms of digitalization compared to its peers, not only achieving connectivity of basic orders, logistics, and sales data but also organically combining different links such as designers, product managers, and suppliers, thereby minimizing the product development cycle and enhancing responsiveness to the market.

As a result, this supply chain management system has significantly improved Miniso's operational efficiency, maintaining its inventory turnover days stable at 60 - 70 days, far lower than similar companies like MUJI, Uniqlo, and Pop Mart.

Source: Company announcement, Dolphin Research

Source: Company prospectus, Guangfa;

Looking back at Miniso's business model, it seems more understandable as Miniso's process of monetizing its supply chain capabilities through franchisee stores.

Through the above analysis of Miniso, Dolphin 君 first wants to unify one point of understanding: Miniso was already a chain retail company with an efficient supply chain before shifting its focus to IP collaborations. However, Miniso's real potential goes far beyond this; the real story lies inIP collaborations & going overseas**, and due to space constraints, we will focus on IP collaborations in the following discussion.

II. Riding the Industry Tailwind, Transforming into a "Top IP Mover"?

If Miniso's core is its "supply chain integration" capability, then its other industry dividend logic now mainly revolves around IP retail.

This is reflected in the results; when shopping at Miniso, in addition to the "Miniso" brand that comes after supply chain integration, there are also some colorful "special" patterns on the purchased products. These patterns are special because they are actually copyrighted IPs, and Miniso needs to obtain authorization from IP creators/companies to print these IPs on its products. According to research information, the sales proportion of IP-related products in Miniso has already reached 40%, and the company plans to increase it to 50% by 2025In 2015, the domestic IP economy experienced a major explosion, with consumer demand for IP-related products continuously increasing and a noticeable rise in their willingness to pay for their favorite IP-related products. A survey report from Alibaba Fish shows that over 70% of users consider the IP elements in products when selecting items, which has also promoted the development of the IP co-branding market.

Miniso quickly captured this industry development trend and began exploring the IP co-branding track in 2016. After initial exploration, in 2019, Miniso successfully gained attention through its collaboration with Marvel, igniting a surge in popularity. Since then, it has entered the fast lane of IP co-branding retail. In subsequent years, there have been hit IPs such as the NBA in 2021, Kuromi in 2022, and Barbie & Loopy in 2023, as well as this year's Chiikawa. Almost every year, there has been a breakout IP, and to date, Miniso has collaborated with over 150 well-known IPs, launching tens of thousands of IP-related SKUs, firmly establishing itself as a "co-branding giant" in China.

Source: Company announcement, Zhejiang Merchants;

Source: Company announcement, Zhejiang Merchants;

The motivation behind this is quite easy to understand. You can feel it from the table below: the same product, as long as the corresponding IP elements are integrated, the premium rate can increase by at least 30% due to the "emotional value," and in some cases, it can even double or more. According to Miniso's public communication in Q1 2024, the current product structure has upgraded from 100% cost-effective products to 70% cost-effective + 30% IP products. The increase in the proportion of IP products has also driven Miniso's gross profit margin from 26% to a significant 37%. It is certain that the future increase in the proportion of IP products will become a major focus for Miniso.

So the question is, how did Miniso complete the brand image upgrade from "affordable good products" to "IP co-branding leader"?

1. Dual approach: Collaborating with internationally renowned IPs while closely following current trendsReviewing the collaboration scope of Miniso, it can be basically divided into two categories—internationally renowned IPs and currently popular IPs:

Internationally renowned IPs like Hello Kitty, Mickey Mouse, Ultraman, and Harry Potter possess strong cultural attributes, and coupled with a long market cultivation period, the private domain groups corresponding to these IPs are also extremely large. For Miniso, collaborating with these internationally renowned IPs is essentially equivalent to a "cash cow"; as long as the contract is successfully signed, there is no need to worry about sales, which is a stable happiness. For these IP licensors, the most important factors when choosing retailers are 1. production quality 2. channel breadth, and these two points happen to be Miniso's strengths, allowing Miniso to reach cooperation with a large number of internationally renowned IPs.

Source: Company websites, compiled by Dolphin Investment Research

However, collaborating with internationally renowned IPs also has a significant drawback—high licensing fees. The licensing fees for slightly well-known IPs start at least in the tens of millions, and these internationally renowned IPs usually collaborate with multiple retailers, making it difficult to highlight product differentiation.

Therefore, Miniso's other strategy is to actively explore "niche trendy IPs" following trends. IPs like Chiikawa and Loopy were not widely known globally before collaborating with Miniso, and their dissemination methods were relatively scattered. For these potential IPs, on one hand, Miniso can reach cooperation with IP licensors at a lower price in the early stages, and once they become a hit later on, it will be a significant profit for Miniso. On the other hand, it can also bind these IPs with Miniso's brand perception to create differentiation. But the question is, why can Miniso always accurately discover potential hit IPs?

2. Focus on response, not prediction; focus on odds, not win rates

Many opinions in the market suggest that Miniso has a complete set of IP exploration and operation mechanisms: including selecting world-renowned IPs, researching and investigating IPs for at least one year, providing reports for IPs based on comprehensive social media, private domain, and third-party research data, and formulating full lifecycle development and inventory management plans for each IP, etc.

Dolphin believes that while these are certainly important, for any company engaged in IP collaboration business, these can only be considered basic operations. The real core strength, in Dolphin's view, is Miniso's rapid response capability.

Miniso solicits opinions from fans through a series of social media accounts. For example, on Xiaohongshu, in a post asking "Which IP do you want Miniso to collaborate with?", Miniso quickly captured the high demand for collaboration with Chiikawa through the number of likes and promptly responded by collaborating with Chiikawa. From the initial topic fermentation to preparing pop-up stores, then to pilot promotion in core stores, and finally to large-scale distribution nationwide, the entire process took less than 3 months. In contrast, many peers generally take over six months from making similar decisions to launching products.

Ultimately, the speed from capturing popular IPs to getting them on the shelves is still a competition of supply chain efficiency

Source: Xiaohongshu, organized by Dolphin Investment Research

Source: 2024 Performance Communication Conference, organized by Dolphin Investment Research

On the other hand, research shows that since Miniso launched its IP co-branded products on a large scale in 2019, the actual profitability rate is less than 5%. Most IPs either have too niche appeal or face significant cultural differences, resulting in mediocre sales. Ultimately, when calculated comprehensively, they are basically around the breakeven point or even at a loss. Therefore, the success rate of Miniso's IP co-branding is not high (which indirectly confirms the randomness of IP popularity). However, the remaining 5% of IP co-branding, once it "explodes in orders," can not only significantly compensate for Miniso's losses in other IP co-branding but, more importantly, gradually strengthen the consumer perception of Miniso as synonymous with IP co-branding. Thus, from an economic perspective, Miniso's IP co-branding is a business of "high odds and low success rates."

Finally, from what Dolphin has observed in consumer goods companies, "category equals brand" as the ultimate manifestation of brand power has always been the winning formula for many consumer goods companies to thrive (Coca-Cola & Pepsi in carbonated drinks, Adidas & Nike in sports shoes, Moutai in liquor). This is also why many new consumer companies are trying to explore niche markets and become definers. However, as a "lifestyle goods collection store," Miniso's essence is actually difficult to associate with any specific category. Therefore, to create the effect of "category equals brand," Miniso seems to need to change its brand image. Gradually establishing "IP co-branding = Miniso" in consumers' minds through IP co-branding also becomes very reasonable.

In the next article, Dolphin will focus on discussing Miniso's overseas business and the quantitative assessment of its potential space. Stay tuned!