MINISO Group Holding Ltd.    MNSO $16.50-$18.50 30.4 million ADSs Underwriters: Goldman Sachs, BofA Securities   Co-Managers:  Proposed trade date: Week of 10/12 They are a fast-growing global value retailer offering a variety of design-led lifestyle products.

MINISO Group Holding Ltd.    MNSO

• 30,400,000 ADSs to be offered between $16.50 and $18.50 per ADS
• Underwriters: Goldman Sachs, BofA Securities Co-Managers:
• Proposed trade date: Week of 10/12
• Rating = 4

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1815846/000119312520265256/d32239df1a.htm

Company Overview

They are a fast-growing global value retailer offering a variety of design-led lifestyle products. Within seven years since they opened their first store in China in 2013, they have built their flagship brand “MINISO” as a globally recognized retail brand and established a massive store network worldwide. As of June 30, 2020, they served consumers primarily through their network of over 4,200 MINISO stores, of which they directly operated 129, including over 2,500 MINISO stores in China and over 1,680 MINISO stores across over 80 countries and regions in the rest of the world. Their revenue reached RMB9.0 billion (US$1.3 billion) in the fiscal year ended June 30, 2020. The aggregate GMV of products sold through their network reached RMB19.0 billion (US$2.7 billion) in 2019, making them the largest global branded variety retailer of lifestyle products, according to the Frost & Sullivan Report.

Aesthetically pleasing design, quality and affordability are at the core of every product they deliver. In the fiscal year ended June 30, 2020, they offered consumers a wide selection of approximately 8,000 core SKUs, the vast majority of which are under their flagship brand “MINISO.” These products span across 11 major categories, including home decor, small electronics, textile, accessories, beauty tools, toys, cosmetics, personal care, snacks, fragrance and perfumes, and stationery and gifts. In the fiscal year ended June 30, 2020, they launched an average of over 600 SKUs per month. They continually and frequently roll out products of high appeal, high quality and high affordability, promoting a relaxing, treasure-hunting and engaging shopping experience that appeals to all demographics regardless of their cultural background and geographical location.

They pair value concepts with a touch of appeal, creativity and innovation, focusing on long-term sustainability instead of short-term profits. Their highly effective approach to retail, which mainly encompasses dynamic product development, co-branding collaborations, and an efficient supply chain, are critical to the success of their business.

Dynamic product development.    The collective efforts of product managers, designers and suppliers help them achieve dynamic product development. Their highly experienced product managers are responsible for identifying trends, co-creating product designs in collaboration with their designers, coordinating with suppliers on production and bringing the finished products to market. They have made significant investment in their design capabilities by maintaining a dedicated and capable in-house design team and partnering with capable third-party designers, and have established their MINISO Design Academy to fully integrate these design capabilities to create trendy, attractive and quality products. Their philosophy is to launch approximately 100 new SKUs, every 7 days, carefully selected from a large library of 10,000 product ideas, which they refer to as the “711 philosophy.” They believe their efficiency and speed-to-market at large scale are difficult for competitors to replicate.

They have accumulated in-depth operational know-how based on their deep insights into consumer tastes and preferences developed from serving millions of consumers on a daily basis. They use such know-how to optimize and systemize key aspects of MINISO store operation from welcoming ambience and friendly staff, to easy-to-navigate store layout, and precise product curation. Their technology augments their operational know-how by giving them deeper insights into consumer preferences. Their smart-store systems allow them to customize merchandise mix and product curation on a store level based on the analysis of consumer behavioral patterns. Their focus on delivering distinct value propositions within a relaxing and engaging shopping environment generates excitement and encourages frequent visits, allowing them to build a large and loyal base of consumers mostly from the younger generations. In the fiscal year ended June 30, 2020, there were a total of about 416 million visits to the MINISO stores equipped with their smart-store system, over 30% of which resulted in purchases. During the same period, over 80% of the consumers visiting MINISO stores in China were under the age of 40 and about 60% of them were under the age of 30.

Their path to success in their home market, China, depends on the effectiveness and scalability of their MINISO Retail Partner model. Under this innovative model, MINISO Retail Partners mobilize their resources to open and operate MINISO stores at optimal locations and shoulder the associated capital expenditure and operating expenses, while they let them use their brand and provide them with valuable guidance on key aspects of store operation in exchange for a pre-agreed portion of in-store sales proceeds. The MINISO Retail Partners keep the remaining sales proceeds and they retain inventory ownership until in-store sale to consumers. The MINISO Retail Partner model aligns the interests and creates mutual benefits between them and the MINISO Retail Partners, where they achieve rapid store network expansion with consistent brand image and consumer experience in an asset-light manner, and their MINISO Retail Partners attain attractive investment returns. Based on a survey conducted by Frost & Sullivan, their MINISO Retail Partners generally recover their store investment in a period of 12 to 15 months after store opening. Their MINISO Retail Partners are also motivated to maintain a loyal relationship with them. As of June 30, 2020, 488 of their 742 MINISO Retail Partners had invested in MINISO stores for over 3 years.

Their playbook, underpinned by a relaxing shopping experience full of delightful surprises, is designed to resonate with business partners, distributors and consumers across the globe. Since they opened their first MINISO store in China in 2013, they had expanded to over 1,680 MINISO stores in over 80 countries and regions outside of China as of June 30, 2020. They accomplished such international store expansion under flexible models tailored to local conditions, including direct operation, the MINISO Retail Partner model, and partnership with local distributors. Their insights into local consumer tastes and preferences and their sourcing capabilities enable them to meet the local demands in each international market. As a testament to their expanding international operation, their revenue from markets outside of China accounted for 32.3% and 32.7% of their total revenue for the fiscal years ended June 30, 2019 and 2020, respectively.

IPO Detail

This is the initial public offering of MINISO Group Holding Ltd., and no public market currently exists for its common stock. MINISO Group Holding Ltd. is offering 30,400,000 ADSs as described in the prospectus. The company expects the initial public offering price of its ADSs to be between $16.50 and $18.50 per ADS. The company has applied to list its ADSs on the New York Stock Exchange under the symbol “MNSO.”

Each ADS represents four Class A ordinary shares

Their ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. In respect of all matters subject to a shareholder vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to three votes, voting together as one class. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

Use of Proceeds

They expect that they will receive net proceeds of approximately US$504.2 million from this offering or approximately US$580.8 million if the underwriters exercise their over-allotment option. The primary purposes of this offering are to create a public market for their shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives and obtain additional capital. They plan to use the net proceeds of this offering to expand their business operations as follows:

Competition

The global branded variety retail market is intensely competitive and fragmented. While we do not believe there are many variety retailers competing with us at the global level, we face fierce competition from variety retailers in local markets. In addition, we also face competition from traditional retailers, including specialty retail stores, supermarkets and department stores, and online retailers, that sell lifestyle products.

Market Opportunity

The lifestyle products market in China experienced a rapid development over the past two decades. According to the Frost & Sullivan Report, the size of China’s lifestyle products market by GMV increased from RMB2.6 trillion (US$368.0 billion) in 2015 to RMB3.7 trillion (US$523.7 billion) in 2019, representing a CAGR of 9.4%, outpaced the CAGR of 8.3% for China’s retail market during the same period. As a result of such rapid growth, China’s lifestyle products market has become one of the fastest growing markets across all retail segments.

According to the Frost & Sullivan Report, the lifestyle products market can be divided into three sub-markets by different type of retailers: (i) branded variety retail market; (ii) specialty retail market; (iii) groceries and general merchandise retail market. Branded variety retailers of lifestyle products generally refer to those retail companies that sell self-branded lifestyle products that cover a wide range of product categories primarily through their brick-and-mortar stores. For purposes of this prospectus, a retailer that derives over 50% of its total GMV from selling self-branded lifestyle products is referred to as a branded variety retailer.

As customers’ consumption behaviors become more rational, quality lifestyle products at affordable prices are gaining popularity. Also, consumers, especially younger generations, increasingly prefer products that could reflect their individualized preferences. These trends present substantial market opportunities and potential for branded variety retailers. According to the Frost & Sullivan Report, the size of the branded variety retail market by aggregate GMV increased from RMB50.3 billion (US$7.1 billion) in 2015 to RMB100.5 billion (US$14.2 billion) in 2019, and is estimated to further increase at a CAGR of 15.3% from 2020 to 2024.

The global branded variety retail market has also grown steadily over the past two decades. According to the Frost & Sullivan Report, the size of the global branded variety retail market by aggregate GMV increased from US$32.9 billion in 2015 to US$52.0 billion in 2019, and is estimated to continue to grow at a CAGR of 11.6% from 2020 to 2024.

Target Markets

Expand and Upgrade Their Store Network They believe there is still huge potential for market expansion in China, and they plan to further expand their store network in China. They intend to take a disciplined approach in store network expansion to capture opportunities in lower-tiered cities in China and further penetrate the cities they have covered. In addition, they plan to add more MINISO stores of a bigger size in the future, which tend to have a larger product selection and lead to a better shopping experience, and they will also capitalize on locations with proven consumer traffic and high sales potential.

In overseas markets, they plan to actively identify and collaborate with the right business partners and local distributors to open more MINISO stores. They will continue to apply their flexible store operation models to further expand their store network based on local conditions in each market. Moreover, they will continue to develop and more deeply penetrate strategic markets, most notably North America and India.

Enhance Product Development and Supply Chain Capabilities They will maintain and improve the value propositions of their products. They will further enhance their dynamic product development strategy and enrich their product offerings by launching more SKUs in the existing categories, timely adjust their merchandise mix catering to consumer preferences across the globe, and expand to new adjacent product categories within the lifestyle segment. Furthermore, they plan to deepen their relationships with existing co-branding partners and foster new co-branding collaborations to drive product innovation.

They will further develop their supply chain by strengthening their cooperation with existing qualified suppliers, attracting new capable suppliers and further developing their global sourcing capabilities. They will also more deeply integrate suppliers through their supply chain management system to achieve shorter lead time and faster reorder, ultimately increasing efficiency of the whole supply chain.

By enhancing their product development and supply chain capabilities, they aim to buttress their products’ extreme value-for-money, frequent renewals and broad selection to make their products attractive to global consumers.

Deepen Consumer Engagement and Drive Omni-channel Experience They will continue to take initiatives to deepen consumer engagement and drive omni-channel experience, where consumers may engage or shop with them via both online channels, which encompass store-based channels and e-commerce channels, and offline channels. Building on their existing strong consumer affinity, they will continue to improve their membership program, through which they will expand their membership base and accumulate valuable insights into consumer preferences and behavior to further improve operational efficiency, merchandise mix and shopping experience. They will continue to launch innovative marketing initiatives leveraging popular social media platforms to reinforce consumer outreach efforts and increase their brand awareness. They plan to expand their online offerings and broaden their online sales channels by further developing their own e-commerce channels and collaborating with more third-party e-commerce platforms. They will also leverage their network of store-based consumer communities on WeChat to allow consumers to conveniently place orders with their MINISO stores of choice, providing them with a seamless omni-channel shopping experience. In international markets, they similarly plan to cooperate with more local e-commerce platforms to expand their online sales channels.

They believe that offering additional channels of consumer experience will enhance their brand awareness and consumer loyalty, which drive increases in store traffic and in-store purchases. For example, consumers who have purchased their products online may well be impressed and become interested in visiting MINISO stores offline and making purchases in store. This may lead to higher revenue and profitability for MINISO stores.

Strengthen Technological Capabilities They aim to increase operational efficiency by further developing and upgrading their technological capabilities. In particular, they will further utilize data analytics throughout their operation to facilitate product design and their supply chain process, tailor merchandising to consumer needs, optimize inventory management and otherwise digitalize operation.

Strategically Explore Investment and Acquisition Opportunities They plan to strategically explore investment or acquisition opportunities to strengthen their market position and enhance their competitiveness. They will consider targets based on their synergies with their business and financial performance. As of June 30, 2020, they did not have any specific acquisition targets and were not in negotiations with any specific acquisition targets.

 Leverage Competitive Strengths to Explore New Business Opportunities They plan to capitalize on their key competitive strengths—their strong business partnerships, best-in-class supply chain capabilities, excellent product design and development capabilities, and a technology-empowered operation—to explore new business opportunities, such as launching new brands.

Company's Unique Strengths

Fast-growing Global Value Retailer Offering Design-led Lifestyle Products They are a fast-growing global value retailer of lifestyle products as evidenced by the speed of expansion of their store network globally. They opened their first store in China in 2013, and they had become a globally proven retail concept with more than 4,200 stores worldwide as of June 30, 2020, including over 2,500 stores in over 300 cities across China and over 1,680 stores across over 80 countries and regions throughout the rest of the world. They have the most extensive retail network for lifestyle products in terms of countries and regions covered globally, according to the Frost & Sullivan Report. In 2019, they generated GMV of RMB19.0 billion (US$2.7 billion) globally, which makes them the largest global branded variety retailer of lifestyle products, according to the same source.

In a tireless pursuit of an optimal balance of appeal, quality and price, they strive to deliver the right merchandise, adapt to evolving consumer needs and preferences and maximize consumer value. For the fiscal year ended June 30, 2020, they offered approximately 8,000 core SKUs across 11 categories under their flagship brand “MINISO,” which represent extreme value-for-money globally. In the fiscal year ended June 30, 2020, more than 95% of their products had retail prices under RMB50 (US$7.08) in China. Their product pricing in overseas markets is also competitive by local standards. Their balanced approach has made their products have high quality and high appeal in addition to high affordability, which constitute hard-to-replicate, enticing value propositions that attract constant consumer spending globally. They believe their products and the associated value propositions contribute to their robust growth and resilience through economics cycles.

Frequently-refreshed Product Assortment with Universal Appeal Their frequently-refreshed assortment of products have universally appealing design and increasingly feature elements from popular brands in collaboration with them, which make for an engaging treasure-hunt shopping experience for consumers and drive organic store traffic and frequent visits.

Their products reflect designs of mass appeal, and they are also frequently refreshed to satisfy the evolving needs and preferences of consumers. Their highly experienced product managers work closely with their designers and suppliers in product design to ensure that their product designs are innovative, trendy, feasible and appealing to mass consumers. As of June 30, 2020, they had won a total of 28 reputable international design awards, including iF Product Design Awards, Red Dot Design Awards, European Product Design Awards, K-Design Awards, A’ Design Awards and Red Star Design Awards, which attest to their strengths in product design. Their “711 philosophy”—every 7 days, to launch approximately 100 new SKUs, carefully selected from a large library of 10,000 product ideas—drives their speed to market and adds to the diversity and trendiness of their product assortment. In the fiscal year ended June 30, 2020, they launched an average of over 600 SKUs per month.

Co-branding with IP licensors signifies their effort to frequently refresh their product assortment. Collaborations with IP licensors owning popular brands allow them to capitalize on cultural phenomena or influential trends in mass media by featuring their elements in their product design, adding exciting diversity to their products and attracting more consumers to MINISO stores as a result. Their agreements with IP licensors typically have a term of less than three years. Under these agreements, they are licensed to manufacture, sell and promote co-branded products within licensed territories. The royalties they are obligated to pay their IP licensors typically consist of fixed minimum of royalties and royalties equal to a certain percentage of sales of co-branded products. Their co-branding collaborations with 17 IP licensors who own many popular brands such as Marvel, Disney and Hello Kitty, are a strong testimony to their brand value and product competency. They believe their co-branding collaborations elevate their brand equity and awareness by unlocking new possibilities of product design. Leveraging their in-depth know-how, they actively explore collaboration with popular brands that resonate with a broad group of consumers globally, invoking a feeling of trendiness and fun. For the fiscal year ended June 30, 2020, they offered approximately 2,300 co-branded core SKUs across 11 product categories.

Highly Efficient Supply Chain Delivering Extreme Value-for-Money Their deeply cultivated supply chain differentiates them from other industry players and allows them to offer an evolving assortment of quality products at exceptional value. Leveraging China’s unmatched massive supply chain in the lifestyle product sector, they source their products from over 600 suppliers. These suppliers are mostly highly qualified manufacturers in China, with some having extensive experience in supplying to other global brands, and they are able to meet their sophisticated demand cost-effectively and efficiently. They carefully nurture their mutually beneficial relationships with their suppliers by procuring in large volumes directly from manufacturers, being punctual with their payment to them, and guiding them towards better production efficiency and enhanced cost control.

They excel in supply chain management as a result of their efforts in deeply integrating suppliers within their product development and supply chain process. Their designers, product managers and suppliers collaborate closely to rapidly roll out popular products catering to changing consumer tastes and preferences across global markets. Furthermore, almost all of their suppliers are digitally connected with them through their supply chain management system, and the system can give suppliers access to real-time sales data on their end. This enables them to synchronize with suppliers to dynamically optimize production planning and minimize inventory risk.

Their highly efficient supply chain has allowed them to achieve production flexibility, fast inventory turnover, rapid product launches and procurement cost advantages. They had average inventory turnover of 63 days and 78 days in the fiscal years ended June 30, 2019 and 2020, respectively. Their procurement cost advantages have also enabled their competitive pricing strategy. In the fiscal year ended June 30, 2020, more than 95% of their products had retail prices under RMB50 (US$7.08) in China.

In-depth Know-how and Digitalization Driving Operational Excellence They have accumulated in-depth operational know-how from extensive experience and deep consumer insights developed through their interaction with millions of consumers visiting MINISO stores on a daily basis. They place strong emphasis on optimizing and systemizing every key aspect of store operations using such know-how to create a relaxing and engaging shopping environment. The standardized layout, decoration and lighting, modestly priced products, and the friendly staff in a MINISO store all contribute to a welcoming ambience for store visitors, who will also find the store easy to navigate due to its optimized product arrangement and display.

Their technological capabilities further augment their operational effectiveness and efficiency on a store level. Their smart-store systems allow each equipped MINISO store to track consumer profiles, n-store behavioral patterns and product sales trends to customize store-level merchandise mix and product curation and enable in-time inventory replenishment and re-allocation among stores, minimizing inventory risk.

They have been developing omni-channel consumer engagement that goes beyond consumer interaction in their store network to the online space. They first launched their membership program in China in August 2018. As of June 30, 2020, they had rapidly accumulated 22.3 million members who had made purchase at least once during the past 12 months. They also provide shopping options via a variety of online channels by allowing consumers to place orders through their WeChat Mini Programs and third-party e-commerce platforms. Furthermore, store managers of MINISO stores in China run WeChat groups of store visitors to further engage with consumers who would like to learn more about their brands and products on a more regular and personal basis.

Highly Effective and Scalable MINISO Retail Partner Model They employ their innovative MINISO Retail Partner model extensively in China as well as in certain overseas markets, such as Indonesia, to facilitate store network expansion. Their MINISO Retail Partner model disrupts the status quo of the traditional store operation models, allowing them to quickly and effectively expand their store network in an asset-light manner while maintaining consistent brand image and consumer experience across MINISO stores.

Under the MINISO Retail Partner model, MINISO Retail Partners join their store network by mobilizing their resources to open and operate MINISO stores at optimal locations, shouldering the associated capital expenditure and operating expenses. On the other hand, they guide the MINISO Retail Partners in key aspects of store operation while maintaining ownership of store inventory before it gets sold to consumers in exchange for a pre-agreed portion of sales proceeds. This model creates an attractive investment opportunity with robust cash flows for their MINISO Retail Partners. Based on a survey conducted by Frost & Sullivan, their MINISO Retail Partners generally recover their store investment in a period of 12 to 15 months after store opening. Their MINISO Retail Partners are also motivated to maintain a loyal relationship with them. As of June 30, 2020, 488 out of their total 742 MINISO Retail Partners had invested in MINISO stores for over 3 years.

Their in-depth operational know-how allows them to provide valuable guidance to MINISO Retail Partners in store operation in the form of store management and consultation services. The store management and consultation services optimize and unify store operations in key aspects, mainly including store layout and decoration, interior design, staff training, pricing, product curation and inventory replenishment, to maintain consistent brand image, consumer experience and product pricing across MINISO stores. Since they have direct access to key operational data from MINISO Retail Partner stores, they can help their MINISO Retail Partners systematically customize merchandise mix and product display down to the store level and coordinate inventory management on a real-time basis.

Globalization Capabilities Fueling Expansion at Scale Their globalization capabilities, coupled with their compelling value propositions to consumers, allow them to penetrate into the vast under-served markets and explore the significant potential of the global lifestyle product market. They believe their value propositions to consumers are universal, and products of high appeal, high quality and high affordability with frequent renewals speak to consumers across the globe.

In expanding their global footprint, they tailor their merchandising strategy to local conditions of each destination market. Their local consumer insights and collaboration with international design partners have allowed them to promptly introduce products catering to local needs with designs reflecting local tastes and preferences in international markets. They have also developed local sourcing capabilities to boost their localization efforts, including to source products that are uniquely local or cannot easily be sourced elsewhere.

They have adopted a range of flexible store operation models, including direct operation model, MINISO Retail Partner model and the distributor model, as they expand their global footprints. Their brand attraction, operational know-how and proven track record have well positioned them to be the partner of choice for overseas business partners who wish to join their store network.

According to the Frost & Sullivan Report, in only seven years since the opening of their first MINISO store, they have become the largest branded variety retailer of lifestyle products globally as measured by GMV and had the most extensive global store network, consisting of over 2,500 MINISO stores in China and over 1,680 MINISO stores overseas as of June 30, 2020. Their revenue contribution from overseas markets was 32.3% and 32.7% in the fiscal years ended June 30, 2019 and 2020, respectively. Their store network expansion and their revenue have been negatively affected by the COVID-19. Their operations have been and may continue to be affected by COVID-19 pandemic” for more information on the impact of COVID-19 on their revenue and their store network expansion.

Company's Unique Risks

The growth and profitability of their business depend on the level of consumer demand and discretionary spending. A severe or prolonged economic downturn in China or around the world could materially and adversely affect consumer discretionary spending and therefore adversely affect their business, financial condition and results of operations.

If they are unable to offer their products at prices that are highly appealing to consumers or maintain competitive prices, their business and results of operations would be materially and adversely affected.

Expanding product offerings may expose them to new challenges and more risks.

They primarily rely on their retail partners and distributors to expand their store network. If they are unable to expand their store network successfully, their business, results of operations would be adversely affected.

Their operations have been and may continue to be affected by COVID-19 pandemic. B

Their revenue per MINISO store has experienced, and may continue to experience, significant fluctuation from period to period.

They rely on third-party suppliers to provide products to them. If they fail to manage or expand their relationships with third-party suppliers, or otherwise fail to procure products on favorable terms, their business and growth prospects may suffer. They source their products from third-party suppliers. As of June 30, 2020, they had over 600 domestic and overseas suppliers. Their suppliers work closely with their designers and product managers in product design and manufacturing so that they can seamlessly provide consumers with ever-changing merchandises across the globe.

They have undertaken strategic collaborations with IP licensors. If they fail to expand or maintain their collaboration with IP licensors, or their existing collaboration with any of their IP licensors is terminated or curtailed, or if they are no longer able to benefit from such business collaborations, their business and results of operations may be adversely affected.

They may need to defend themselves against patent, trademark or other proprietary rights infringement or unfair competition claims, which may be time-consuming and would cause them to incur substantial costs. They may also suffer from negative publicities relating to intellectual property infringement claims.

Changes in international trade policies, or the escalation of tensions in international relations, particularly with regard to China, may adversely impact their business and operating results.

Changes in China’s economic, political or social conditions or government policies could have a material and adverse effect on their business and results of operations.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and them.

Litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory scrutiny of them and negatively impact the trading price of the ADSs and could have a material adverse effect upon their business, including their results of operations, financial condition, cash flows and prospects.

PRC regulations relating to offshore investment activities by PRC residents may limit their PRC subsidiaries’ ability to increase their registered capital or distribute profits to them or otherwise expose them or their PRC resident beneficial owners to liability and penalties under PRC law.

Failure to make adequate contributions to various government-sponsored employee benefits plans as required by PRC regulations may subject them to penalties.

The audit report included in this prospectus is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, their investors are deprived of the benefits of such inspection. In addition, various legislative and regulatory developments related to U.S.-listed China-based companies due to lack of PCAOB inspection and other developments due to political tensions between the United States and China may have a material adverse impact on their listing and trading in the U.S. and the trading prices of the ADSs.

The concentration of their share ownership among executive officers, directors, and principal shareholders and their affiliated entities will likely limit your ability to influence corporate matters and could discourage others from pursuing any change of control transaction that holders of their Class A ordinary shares and ADSs may view as beneficial. Their executive officers, directors, and their affiliated entities together beneficially own over 85.7% of their outstanding ordinary shares on an as-converted basis prior to this offering. Upon the completion of this offering, their executive officers, directors, and their affiliated entities together will hold approximately 85.2% of their total voting power, assuming the underwriters do not exercise their over-allotment option, or 84.3% of their total voting power if the underwriters exercise their over-allotment option in full, without taking into account the ADSs that the existing shareholders or their affiliates may purchase in this offering. As a result of the concentration of ownership, these shareholders will have considerable influence over matters such as decisions regarding mergers and consolidations, amendments to their constitutional documents, election of directors and other significant corporate actions

Their proposed dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of their Class A ordinary shares and the ADSs may view as beneficial. Immediately prior to the completion of this offering, they will have a dual-class ordinary share structure. Their ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to three votes per share. Upon the completion of this offering, Mr. Guofu Ye and Ms. Yunyun Yang will beneficially own an aggregate of 328,290,482 Class B ordinary shares and 461,114,579 Class A ordinary shares, and Mr. Guofu Ye is authorized by the holders of 92,586,048 Class A ordinary shares to exercise the voting power on their behalf, which, in aggregate, will represent 82.2% of their total voting power, assuming the underwriters do not exercise their over-allotment option, or representing 81.4% of their total voting power if the underwriters exercise their over-allotment option in full. Therefore, upon the completion of this offering, Mr. Guofu Ye and Ms. Yunyun Yang will continue to have decisive influence over matters requiring shareholders’ approval.

The dual-class structure of their ordinary shares may adversely affect the trading market for the ADSs. S&P Dow Jones and FTSE Russell have previously announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices.

Bottom Line

Their revenue decreased by 4.4% from RMB9,394.9 million for the fiscal year ended June 30, 2019 to RMB8,979.0 million (US$1,270.9 million) for the fiscal year ended June 30, 2020. Their gross profit increased by 8.8% from RMB2,511.0 million for the fiscal year ended June 30, 2019 to RMB2,732.5 million (US$386.8 million) for the fiscal year ended June 30, 2020. Their gross margin improved from 26.7% for the fiscal year ended June 30, 2019 to 30.4% for the fiscal year ended June 30, 2020. Their loss for the year decreased by 11.6% from RMB294.4 million in the fiscal year ended June 30, 2019 to RMB260.2 million (US$36.8 million) in the fiscal year ended June 30, 2020. Their adjusted net profit, a non-IFRS financial measure, increased by 11.7% from RMB868.8 million for the fiscal year ended June 30, 2019 to RMB970.8 million (US$137.4 million) for the fiscal year ended June 30, 2020.

They are a fast-growing global value retailer offering a variety of design-led lifestyle products. As of June 30, 2020, they served consumers primarily through their network of over 4,200 MINISO stores, of which they directly operated 129, including over 2,500 MINISO stores in China and over 1,680 MINISO stores across over 80 countries and regions in the rest of the world. The aggregate GMV of products sold through their network reached RMB19.0 billion (US$2.7 billion) in 2019, making them the largest global branded variety retailer of lifestyle products. Their products span across 11 major categories, including home decor, small electronics, textile, accessories, beauty tools, toys, cosmetics, personal care, snacks, fragrance and perfumes, and stationery and gifts. In the fiscal year ended June 30, 2020, they launched an average of over 600 SKUs per month. They have made significant investment in their design capabilities by maintaining a dedicated and capable in-house design team and partnering with capable third-party designers, and have established their MINISO Design Academy to fully integrate these design capabilities to create trendy, attractive and quality products. Their co-branding collaborations with intellectual property (“IP”) licensors owning popular brands allow them to capitalize on cultural phenomena or influential trends in mass media by featuring their elements in their product design and adding exciting diversity to their products. Leveraging China’s unmatched and massive supply chain, they source directly from highly qualified manufacturers in China that can meet their sophisticated demands. Their smart-store systems allow them to customize merchandise mix and product curation on a store level based on the analysis of consumer behavioral patterns. In the fiscal year ended June 30, 2020, there were a total of about 416 million visits to the MINISO stores equipped with their smart-store system, over 30% of which resulted in purchases. During the same period, over 80% of the consumers visiting MINISO stores in China were under the age of 40 and about 60% of them were under the age of 30. Their path to success in their home market, China, depends on the effectiveness and scalability of their MINISO Retail Partner model. Under this innovative model, MINISO Retail Partners mobilize their resources to open and operate MINISO stores at optimal locations and shoulder the associated capital expenditure and operating expenses, while they let them use their brand and provide them with valuable guidance on key aspects of store operation in exchange for a pre-agreed portion of in-store sales proceeds. their MINISO Retail Partners generally recover their store investment in a period of 12 to 15 months after store opening. Their MINISO Retail Partners are also motivated to maintain a loyal relationship with them. As of June 30, 2020, 488 of their 742 MINISO Retail Partners had invested in MINISO stores for over 3 years. Since they opened their first MINISO store in China in 2013, they had expanded to over 1,680 MINISO stores in over 80 countries and regions outside of China as of June 30, 2020. They accomplished such international store expansion under flexible models tailored to local conditions, including direct operation, the MINISO Retail Partner model, and partnership with local distributors. their revenue from markets outside of China accounted for 32.3% and 32.7% of their total revenue for the fiscal years ended June 30, 2019 and 2020, respectively.

the size of China’s lifestyle products market by GMV increased from RMB2.6 trillion (US$368.0 billion) in 2015 to RMB3.7 trillion (US$523.7 billion) in 2019, representing a CAGR of 9.4%, outpaced the CAGR of 8.3% for China’s retail market during the same period. As a result of such rapid growth, China’s lifestyle products market has become one of the fastest growing markets across all retail segments. As customers’ consumption behaviors become more rational, quality lifestyle products at affordable prices are gaining popularity. the size of the branded variety retail market by aggregate GMV increased from RMB50.3 billion (US$7.1 billion) in 2015 to RMB100.5 billion (US$14.2 billion) in 2019, and is estimated to further increase at a CAGR of 15.3% from 2020 to 2024. The global branded variety retail market has also grown steadily over the past two decades. the size of the global branded variety retail market by aggregate GMV increased from US$32.9 billion in 2015 to US$52.0 billion in 2019, and is estimated to continue to grow at a CAGR of 11.6% from 2020 to 2024.

They believe there is still huge potential for market expansion in China, and they plan to further expand their store network in China. They intend to take a disciplined approach in store network expansion to capture opportunities in lower-tiered cities in China and further penetrate the cities they have covered. In overseas markets, they plan to actively identify and collaborate with the right business partners and local distributors to open more MINISO stores. Moreover, they will continue to develop and more deeply penetrate strategic markets, most notably North America and India. They will further enhance their dynamic product development strategy and enrich their product offerings by launching more SKUs in the existing categories, timely adjust their merchandise mix catering to consumer preferences across the globe, and expand to new adjacent product categories within the lifestyle segment. They will further develop their supply chain by strengthening their cooperation with existing qualified suppliers, attracting new capable suppliers and further developing their global sourcing capabilities. They will continue to take initiatives to deepen consumer engagement and drive omni-channel experience, where consumers may engage or shop with them via both online channels, which encompass store-based channels and e-commerce channels, and offline channels. They will continue to launch innovative marketing initiatives leveraging popular social media platforms to reinforce consumer outreach efforts and increase their brand awareness. They plan to expand their online offerings and broaden their online sales channels by further developing their own e-commerce channels and collaborating with more third-party e-commerce platforms. They aim to increase operational efficiency by further developing and upgrading their technological capabilities. In particular, they will further utilize data analytics throughout their operation to facilitate product design and their supply chain process, tailor merchandising to consumer needs, optimize inventory management and otherwise digitalize operation. They plan to strategically explore investment or acquisition opportunities to strengthen their market position and enhance their competitiveness. They will consider targets based on their synergies with their business and financial performance. As of June 30, 2020, they did not have any specific acquisition targets and were not in negotiations with any specific acquisition targets. They plan to capitalize on their key competitive strengths—their strong business partnerships, best-in-class supply chain capabilities, excellent product design and development capabilities, and a technology-empowered operation—to explore new business opportunities, such as launching new brands.

They have the most extensive retail network for lifestyle products in terms of countries and regions covered globally, according to the Frost & Sullivan Report. In 2019, they generated GMV of RMB19.0 billion (US$2.7 billion) globally, which makes them the largest global branded variety retailer of lifestyle products, according to the same source. Their product pricing in overseas markets is also competitive by local standards. Their balanced approach has made their products have high quality and high appeal in addition to high affordability, which constitute hard-to-replicate, enticing value propositions that attract constant consumer spending globally. Their frequently-refreshed assortment of products have universally appealing design and increasingly feature elements from popular brands in collaboration with them, which make for an engaging treasure-hunt shopping experience for consumers and drive organic store traffic and frequent visits. Collaborations with IP licensors owning popular brands allow them to capitalize on cultural phenomena or influential trends in mass media by featuring their elements in their product design, adding exciting diversity to their products and attracting more consumers to MINISO stores as a result. For the fiscal year ended June 30, 2020, they offered approximately 2,300 co-branded core SKUs across 11 product categories. Leveraging China’s unmatched massive supply chain in the lifestyle product sector, they source their products from over 600 suppliers. They excel in supply chain management as a result of their efforts in deeply integrating suppliers within their product development and supply chain process. Their highly efficient supply chain has allowed them to achieve production flexibility, fast inventory turnover, rapid product launches and procurement cost advantages. The standardized layout, decoration and lighting, modestly priced products, and the friendly staff in a MINISO store all contribute to a welcoming ambience for store visitors, who will also find the store easy to navigate due to its optimized product arrangement and display. They employ their innovative MINISO Retail Partner model extensively in China as well as in certain overseas markets, such as Indonesia, to facilitate store network expansion. Under the MINISO Retail Partner model, MINISO Retail Partners join their store network by mobilizing their resources to open and operate MINISO stores at optimal locations, shouldering the associated capital expenditure and operating expenses. Since they have direct access to key operational data from MINISO Retail Partner stores, they can help their MINISO Retail Partners systematically customize merchandise mix and product display down to the store level and coordinate inventory management on a real-time basis. Their globalization capabilities, coupled with their compelling value propositions to consumers, allow them to penetrate into the vast under-served markets and explore the significant potential of the global lifestyle product market. In expanding their global footprint, they tailor their merchandising strategy to local conditions of each destination market. Their revenue contribution from overseas markets was 32.3% and 32.7% in the fiscal years ended June 30, 2019 and 2020, respectively.

A severe or prolonged economic downturn in China or around the world could materially and adversely affect consumer discretionary spending and therefore adversely affect their business, financial condition and results of operations. If they are unable to offer their products at prices that are highly appealing to consumers or maintain competitive prices, their business and results of operations would be materially and adversely affected. Expanding product offerings may expose them to new challenges and more risks. Expanding product offerings may expose them to new challenges and more risks. Negative impact of COVID-19 on their business operations in China has resulted in a decrease in their revenue. Their revenue generated from China decreased by 5.0% from RMB6,364.0 million in the fiscal year ended June 30, 2019 to RMB6,044.1 million (US$855.5 million) in the fiscal year ended June 30, 2020. Their revenue generated from China as a percentage of their total revenue also decreased from 67.7% in the fiscal year ended June 30, 2019 to 67.3% in the fiscal year ended June 30, 2020. While the duration of the pandemic, disruption to their business and related financial impact cannot be reasonably estimated at this time, they currently expect that their consolidated results of operations for the rest of 2020 calendar year will be significantly affected with potential continuing impact of COVID-19 in subsequent periods. If they fail to expand or maintain their collaboration with IP licensors, or their existing collaboration with any of their IP licensors is terminated or curtailed, or if they are no longer able to benefit from such business collaborations, their business and results of operations may be adversely affected. They may need to defend themselves against patent, trademark or other proprietary rights infringement or unfair competition claims. Changes in international trade policies, or the escalation of tensions in international relations, particularly with regard to China, may adversely impact their business and operating results. Changes in China’s economic, political or social conditions or government policies could have a material and adverse effect on their business and results of operations. Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and them. Litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory scrutiny of them and negatively impact the trading price of the ADSs and could have a material adverse effect upon their business, including their results of operations, financial condition, cash flows and prospects. PRC regulations relating to offshore investment activities by PRC residents may limit their PRC subsidiaries’ ability to increase their registered capital or distribute profits to them or otherwise expose them or their PRC resident beneficial owners to liability and penalties under PRC law. Failure to make adequate contributions to various government-sponsored employee benefits plans as required by PRC regulations may subject them to penalties. Various legislative and regulatory developments related to U.S.-listed China-based companies due to lack of PCAOB inspection and other developments due to political tensions between the United States and China may have a material adverse impact on their listing and trading in the U.S. and the trading prices of the ADSs. . Upon the completion of this offering, their executive officers, directors, and their affiliated entities together will hold approximately 85.2% of their total voting power, assuming the underwriters do not exercise their over-allotment option, or 84.3% of their total voting power if the underwriters exercise their over-allotment option in full, without taking into account the ADSs that the existing shareholders or their affiliates may purchase in this offering. Their proposed dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of their Class A ordinary shares and the ADSs may view as beneficial. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to three votes per share. Upon the completion of this offering, Mr. Guofu Ye and Ms. Yunyun Yang will beneficially own an aggregate of 328,290,482 Class B ordinary shares and 461,114,579 Class A ordinary shares, and Mr. Guofu Ye is authorized by the holders of 92,586,048 Class A ordinary shares to exercise the voting power on their behalf, which, in aggregate, will represent 82.2% of their total voting power, assuming the underwriters do not exercise their over-allotment option, or representing 81.4% of their total voting power if the underwriters exercise their over-allotment option in full.