created a business with annual sales of US$1.2 billion in the year to June 2020 – although this figure underplays its true scale, as Miniso mainly operates through a franchising and distribution partner model.  With its physical retail business undoubtedly affected by the pandemic, Miniso is now looking to diversify its business into new formats and increase its focus on digital channels – including the use of unmanned stores.  Japan-inspired copycat business Miniso was founded by Chinese entrepreneur Ye Guofo and Japanese designer Miyake Jyuny in Guangzhou in 2013. The retailer currently describes its format as “Japan-inspired”, but for many years, it actively hid its Chinese roots and said it was “Japan-based”.  Miniso’s made-in-China product offer can be described as a budget version of Japanese homewares brand, Muji. Its logo pays more than a passing resemblance to that of Uniqlo, while its pricing strategy is very much in line with Japanese variety giant Daiso. Yet regardless of any cultural appropriation, Miniso has found global success with its eclectic and affordable offer, with 1,750 stores in overseas markets.   Growth driven by low costs and franchising  Much of Miniso’s explosive growth has been driven by its “three high and three low” business model: high efficiency, technology and quality combined with low prices, costs and margins. Costs are kept to a minimum through an efficient supply chain and an in-house “design” team – although a cynic might suggest that many products are merely copied rather than designed.      Meanwhile, physical expansion has run at a breakneck pace thanks to its usage of franchising and local distribution partners to manage and open new stores. This means that in early 2021, only 136 of its shops are still directly controlled by the retailer.  Individual franchisees – operating under its Miniso Retail Partner programme – are lured by gross profit margins of 35-37 per cent. That is a high level for a general merchandise discounter – for instance Target in the US achieved less than 30 per cent in its last financial year. Franchisees typically take 12-15 months to earn back their store investment. Not immune to impact of Covid-19 With such a sizable physical network, it is not surprising that Miniso has not proven immune to the effects of the Covid-19 pandemic. In its IPO documents, it noted that sales in Mainland China declined by 5 per cent over the year to June 2020, primarily due to store and warehouse closures in the second half. However, 95 per cent of the network was trading normally again by June 2020.   The performance of its overseas stores has been disrupted for longer and Miniso reported that international revenues had halved over the last three months of 2020, compared to the same period in 2019. This was due to temporary store closures and reduced operating hours in many of its markets. A flat performance in China – which accounts for two-thirds of overall sales – helped to lift its overall sales performance to a decline of ‘just’ 18 per cent.   Investors in the newly listed business will also be concerned about Miniso’s lack of profitability. It has been loss-making over its last two financial years and its losses appear to have widened over the first half of its current financial year. Despite this, the discounter did not put its opening programme on hold, with 184 new shops added in its latest quarter – which is incredible given the current business environment. Unmanned stores and digital channels  Some strategic changes are taking place though to better navigate its recovery in the post-pandemic world. Earlier this year, Miniso unveiled its ‘X strategy’, to help diversify the business into new areas and also increase its focus on digital channels.  As part of this, the group launched a new toy store fascia called Top Toy, which targets children and young adults and has already expanded to nine stores in five Chinese cities. The retailer is also keen to jump on the blind box ‘pop toys’ band wagon – popularised by the Pop Mart chain in China – and announced that this product category will be a strategic focus for 2021.    The retailer has also started embracing its digital channels as a way to offset the impact of Covid-19. Online accounted for only 5 per cent of overall sales in 2020, so the retailer is now in the process of expanding its e-commerce operations in markets such as the US, Singapore, Canada, Vietnam and India. In China, the retailer is strengthening its online presence by working with third parties such as Suning and Gome.  This increased digitalisation has also prompted a move into unmanned stores. While Miniso has remained tight-lipped about this initiative, it has confirmed that it will be opening unmanned stores in China this year. ‘Unmanned’ can be quite a broad definition, so we will need to see whether this will be a full unmanned store, or perhaps focus on key product categories through more of a vending machine-style approach.