MINISO refutes Blue Orca Capital's allegations, says report misleading

Global Chinese retailer MINISO has claimed that the short seller report released by Blue Orca Capital recently was misleading, after the investment firm alleged that MINISO lied about its core business model. 

According to MINISO's public announcement, the retailer said the company believes the report is without merit and contains misleading conclusions and interpretations regarding information relating to the company.

The company’s board of directors, including the audit committee, is reviewing the allegations and considering the appropriate course of action to protect the interests of all shareholders. The board has decided to form an independent committee, consisting of independent directors Xu Lili, Zhu Yonghua and Wang Yongping, to oversee an independent investigation regarding the allegations made in the report at the recommendation of the management of the company and in order to protect the interests of all shareholders. The independent committee may retain independent professional advisors to assist with the independent investigation when appropriate.

According to the report released on 26 July 2022, Blue Orca Capital’s seven-month investigation of Chinese corporate records and store level data indicated that hundreds of stores are secretly owned and operated by MINISO executives or individuals closely connected to the chairman. The firm also said in a tweet that it thinks MINISO has lied about its business model.   The report said: “Through our investigation, first begun in November 2021, we found over 620 supposedly independent franchises, which, according to Chinese corporate records, are registered under the names of MINISO executives or individuals closely connected to the Company’s chairman.” 

Rather than independent franchises manage 99% of MINISO’s stores in China claimed by the retailer, the report believed that such evidence indicated that these stores are secretly owned and operated by the company. 

https://twitter.com/blueorcainvest/status/1551926927337865217?s=20&t=NcN7hxlA-1QndYrSmG-uUA

The report also claimed that Chinese corporate filings revealed that the chairman siphoned hundreds of millions from the public company through opaque Caribbean jurisdictions as the middleman in a crooked headquarters deal. Against this backdrop, archived MINISO website disclosures, former employee interviews and media reports in China indicated that MINISO is a brand in decline, with revenues down 40% from pre-IPO peak, large-scale pre-COVID store closures and franchise fees which have fallen 63% over the past two years.

“At a 2017 conference in China, MINISO’s brand director said in an interview that most MINISO stores in tier one cities in China are owned and operated by the company, and that franchising is only limited to lower tier cities.  In November 2019, another article published by Chinese state-owned media reported that 40% of MINISO stores were owned and operated by the company. This tracks with our investigation, and directly contradicts MINISO’s disclosures to investors.”

“MINISO’s value proposition to investors is that it allegedly operates an asset light, high-margin independent franchise model. Supposedly, this enables the Company to expand quickly while minimising upfront capital costs.  In theory, this also allows MINISO to generate high margins without the operating expenses and complexity which drag down profitability at traditional retailers.  We think that this foundational narrative is a lie,” said the report.  

In March 2022, Chinese retailer MINISO filed an application to list on the Hong Kong stock exchange. The Guangzhou-based retailer has filed its application to the Hong Kong Stock Exchange on 31 March. In October 2020, it raised US$608 million from an initial public offering in New York.

Southeast Asia is also hot on MINISO’s radar. Last month, MINISO launched its first flagship store in Selangor's Setia City Mall. Vincent Huang, MINISO's VP of international business department, told A+M that its Malaysian master licensee's investment in the new flagship store was around RM1.5 million and expects to see a return on investment in two years.

The new store concept, referred to as MINISO 3.0, puts an emphasis on a family-friendly shopping experience and is targeted mainly at the younger audience who are tech-savvy. Hence, MINISO will focus on social media advertising and leverage the influence of KOLs to share stories about the new flagship store. An online to offline strategy is also paramount to attracting footfall. Aside from working Weber Shandwick, it also worked with Lendlease to promote the launch of MINISO 3.0.

Related articles:

Miniso plans Hong Kong stock exchange listing
MINISO donates money to South American NGO for reforestation in the Andes