Editor’s Note
APM Monaco, a Monaco-based fashion jewelry brand, has filed for a Hong Kong IPO, with Goldman Sachs and CICC as joint sponsors. Notably, the company’s largest market is China, which contributed over half of its revenue in 2020.
On June 29, the fashion jewelry brand APM Monaco Limited (referred to as APM Monaco) submitted its listing application to the Hong Kong Stock Exchange, planning an IPO on the main board. Goldman Sachs and China International Capital Corporation (CICC) are acting as joint sponsors.
As a jewelry brand from Monaco, APM Monaco’s largest market is actually China. In 2020, sales from Mainland China accounted for 57.2% of its total revenue for the year, leading its management to tell the media that APM Monaco is “half a Chinese brand.”
In 2020, despite the significant blow dealt by the COVID-19 pandemic to global tourism and the physical retail sector, APM Monaco managed to grow against the trend, relying heavily on the strong support of the Chinese market. However, beneath this success, APM Monaco finds itself in an awkward position, troubled by issues of brand positioning and counterfeit goods.
From 2018 to 2020, APM Monaco achieved revenues of HKD 1.441 billion, HKD 1.838 billion, and HKD 1.920 billion, respectively. The revenue growth rates for 2019 and 2020 were 27.55% and 6.13%, respectively. Revenue from Mainland China during these years was HKD 624 million, HKD 862 million, and HKD 1.098 billion, accounting for 43.32%, 46.9%, and 57.2% of total revenue, respectively.
From 2018 to 2020, APM Monaco’s net profits were HKD 152 million, HKD 290 million, and HKD 191 million, respectively. The net profit growth rates for 2019 and 2020 were 90.78% and -34.13%, respectively.
The rise in operating performance is inseparable from the impact of store expansion. Unlike the downturn experienced by similarly positioned affordable luxury jewelry brands like Swarovski and Pandora, APM Monaco maintained relatively high-speed growth in the number of stores over the past three years.
In 2020, news that the jewelry brand Swarovski would reduce its network of 3,000 stores made headlines. Another well-known jewelry brand, Pandora, revealed in its first-quarter report that it would close 20%-25% of its stores in the first half of 2021 and another 5%-10% in the second half.
However, from 2018 to 2020, APM Monaco’s global store count grew from 201 to 300 and then to 344 stores. The growth rates for 2019 and 2020 were 49.25% and 14.67%, respectively. The highest growth in store numbers was in Mainland China, while there was no growth in the number of stores in Europe and North America in 2020.
It is evident that APM Monaco’s dependence on the Chinese market is very high, and this reliance is not without reason.
According to a report by consulting firm Frost & Sullivan, the historical growth performance of Mainland China’s luxury fashion market has outperformed all other regions, with a compound annual growth rate (CAGR) of 25.5% from 2016 to 2019, nearly double the world average of 14.2%. Mainland China’s luxury fashion market grew from USD 40.2 billion in 2019 to USD 49.4 billion in 2020, a growth rate of 23%, while the global market declined by 9.6% in 2020.
Frost & Sullivan forecasts that the CAGR for Mainland China’s luxury fashion market from 2020 to 2022 and from 2022 to 2025 will be 20.5% and 16%, respectively, the highest in the world.
As the world’s largest consumer market, the robust vitality of China’s economy during the pandemic is evident to all. Capturing the Chinese market has allowed APM Monaco to maintain its development momentum despite the overall sluggish market environment.
It should be noted that as a family business, APM Monaco’s actual controller is a foreign national, and seven of its nine directors are also foreign nationals. As a foreign brand operating in China, it is essential to have a deep understanding of China and respect the sentiments of the Chinese people. This may be one of the key factors determining whether it can sustain its performance growth in China.
Comparing the aforementioned financial data, it can be found that although APM Monaco’s revenue increased in 2020, its net profit declined. APM Monaco stated in its prospectus that this decrease was mainly due to a significant reduction in offline store sales caused by the COVID-19 pandemic. Additionally, due to the pandemic’s impact, the expected cash flows generated by the stores decreased, leading to impairment losses on right-of-use assets and property, plant, and equipment recognized under Hong Kong Accounting Standard 36.
However, a closer look at the prospectus reveals that in 2020, an equipment accident occurred at APM Monaco’s Zhongshan factory. A heating rod overheated after running overnight, causing a fire that partially destroyed the Zhongshan factory. Due to the accident, APM Monaco’s electroplating activities were suspended for a week. Subsequently, APM Monaco decided to close the Zhongshan factory, and its subsidiary, Boliden Zhongshan, is applying to the relevant authorities for liquidation and deregistration.
Production safety accidents reflect shortcomings in management, a problem that all family businesses may have to face.
As a jewelry brand, APM Monaco’s positioning is actually quite awkward.
In its prospectus, it defines itself as a luxury fashion brand. However, compared to truly well-known luxury jewelry brands such as Bulgari, Tiffany & Co., Cartier, and Van Cleef & Arpels, APM Monaco, founded just over 30 years ago, lacks a long history and renowned designers to endorse it. Its materials, mostly silver, zirconia, and pearls, also do not offer high value retention.
Even compared to Swarovski, which has similar product prices and market positioning, APM Monaco’s brand recognition and acceptance are relatively lower.
APM Monaco’s advantage over the aforementioned brands lies in its efficient supply chain. Its launch speed of about 30 new styles per month is enough to outpace many jewelry brands.
However, recently emerging accessory collection stores, such as BA Accessories, ACC Super Accessories, and Onion Warehouse, can achieve launch speeds of hundreds of new styles per week. The prices of accessories in these stores are also typically concentrated between RMB 19.9 and RMB 199 per piece.
In comparison, APM Monaco, priced between RMB 500 and RMB 5,000 per piece, finds itself in an awkward position. On one hand, it does not reach the level of a luxury brand and cannot attract higher-income customer groups. On the other hand, its high-premium, no-discount strategy deters younger girls with less disposable income.
Moreover, due to its relatively ordinary production process, counterfeit APM Monaco products are common. Searching for APM Monaco on the Black Cat Complaint Platform reveals many complaints about suspected counterfeit purchases.
In November 2020, Guangzhou Baiyun police cracked a case involving the sale of counterfeit APM Monaco goods through live streaming on Douyin. A counterfeit sales den was dismantled, with the involved amount verified to be nearly RMB 5 million.
The existence of counterfeits is not entirely the brand’s fault, but it not only disrupts the market but also, due to the uncertain quality of fake products, can likely affect consumers’ trust and recognition of the brand.
Whether effective measures can be taken to reduce the appearance of counterfeits and control their impact on the brand may also be an area where APM Monaco still needs to make efforts.
In 2019, a consortium led by the US private equity investment firm TPG acquired a 30% stake in APM Monaco. The consortium list included China Synergy, an investment platform jointly established by TPG and CICC Capital under CICC, as well as the European private equity firm Trail Capital. CICC is also one of the sponsors for this issuance.