Chinese firms turn to US and Asia as growth slows at home

BEIJING — Some Chinese consumer brands are looking for growth overseas, in markets like the United States and Southeast Asia.

Take Miniso, a Guangdong-based toy and household goods seller. Sometimes called the Chinese Muji, Miniso opened a flagship store in New York’s SoHo in February.

The store’s gross merchandise value – a measure of sales over time – is about $500,000 a month, with $1 million a month likely by December, founder and CEO Jack Ye told CNBC at the end of June.

More importantly, he said that for directly operated stores in the United States, Miniso’s gross profit margin is well over 50%.

“If we can get a foothold here and build a good business, we won’t have any problems in the United States overall,” Ye said in Mandarin, according to a CNBC translation. Its goal is to become the first “$10 and under” retailer in the world.

Miniso stores began popping up in mainland China almost 10 years ago, with overseas expansion beginning in 2015 in Singapore. In March, the company said 37% of its 5,113 stores were overseas.

Faster growth outside of China

Like many businesses, Miniso has seen sales plummet during the pandemic. More than two-thirds of its revenue still comes from China. But in recent months, data has shown a relatively rapid recovery internationally compared to domestically, due to the varying effects of the pandemic.

In the nine months ended March 31, the company said, its revenue in China rose 11% year-on-year to 5.91 billion yuan, compared with overseas growth of 48% to 1. 86 billion yuan.

Retail sales in China have lagged since the start of the pandemic in 2020. A slump in the housing market hasn’t helped. The propensity of the inhabitants to save, rather than to spend or invest, has reached its highest level in 20 years, according to surveys by the People’s Bank of China.

“Chinese companies expanding into overseas markets will be a major trend in the future,” said Charlie Chen, head of consumer research at China Renaissance. “China has actually entered a relatively wealthy phase with a relatively high GDP per capita.”

He pointed out that for products like air conditioners, penetration among rural households was 73.8% in 2020 – and even higher at 149.6% in urban areas. China Renaissance expects these penetration rates to increase steadily over the next few years.

“There is very little additional volume or additional demand that can be created in China in a short period of time,” Chen said. “For these air conditioner and appliance makers, where they can get more revenue is overseas.”

Miniso opened its first flagship store in New York’s SoHo in February 2022.

miniso

In Southeast Asia, air conditioners have a household 15% penetration rate, according to the International Energy Agency.

Appliance companies Midea, Hisense and Haier Smart Home have entered markets outside of China in recent years. Haier even acquired General Electric’s appliance unit for $5.4 billion in 2016. Hisense’s goal is that by 2025, overseas markets generate half of its total revenue.

These companies are experiencing strong growth abroad, if not faster than in China.

“Certainly if [Chinese companies] want to penetrate foreign markets, [they] need to build their brand, need to fight with existing competitors,” Chen said. “The cost will not be low. Initially, they would not be profitable. But they are investing.”

If Chinese companies are able to build their brand overseas, they can compete with lower selling prices since they own or work directly with factories in China. This has helped companies like Shein become an international e-commerce giant.

Similarly, Miniso’s Ye said its strategy in the United States is to combine the company’s supply chain network in China with the work of New York designers – so that products can move from designs to shelves. stores in about three months.

This process could take six months, or even a year if the design firm needed to find its own factories, Ye said.

“Overseas, what we’re currently missing are local-friendly design ideas,” he said. He said Miniso plans to open its product development center in North America later this year and is looking for office space in New York.

June Extensions

Other Chinese companies have continued to expand overseas despite Covid travel restrictions.

Ant Group, the fintech subsidiary of Alibaba, announced in June that it launched a digital wholesale bank in Singapore after receiving approval from the Monetary Authority of Singapore.

Also in June, Hong Kong-listed toy company Pop Mart tested US waters by opening its first temporary location near Los Angeles. The company sells collectible figure sets – in unmarked boxes. This means that a customer can get a new toy to add to a collection, or the same toy the customer has already purchased.

Like Miniso, Pop Mart stores have become commonplace in Chinese malls. There is even a Pop Mart store at Universal Beijing Resort.

Location challenges

It remains to be seen if the recent overseas growth will last for these Chinese companies.

For commercial or geopolitical reasons, many Chinese companies have not been successful overseas. Take ZTE’s failure to grow its smartphone business in America after US sanctions.

Wildly successful companies like short-video company TikTok, owned by Beijing-based ByteDance, have gone under Pressure from the US government on data security issues.

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Not to mention the inherent challenge of becoming an effective international organization. A CNBC report on Chinese tech companies found that the corporate culture at home — which involves heavy use of Mandarin and long hours — often made its way overseas and discouraged local employees from staying.

But whether in electric cars or home appliances, conversations with many Chinese companies reveal a deep but vague ambition that hasn’t been swayed by the pandemic: to become a global company.

Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.

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