Banking & Finance

Smartening up

Two IPOs that underscore China’s ‘consumption upgrade’ trend continues

Breo w

Want an eye massage?

The debate about whether Chinese consumers are upgrading or downgrading their lifestyles is a never-ending one (see WiC515). The nearly 4% contraction in consumer spending last year, for example, is widely cited as evidence that the government’s plan to shift its economic engine to domestic consumption is not that straightforward. Opposing views, however, point towards the ever improving quality of goods and services that the Chinese are demanding as signs that their march toward sophistication is inexorable. In fact, consumers’ demand for a better lifestyle is so strong that it is spawning two domestic initial public offerings.

The first is by portable massage equipment maker Breo, which is seeking to raise Rmb500 million ($77.3 million) through a flotation on Shanghai’s STAR Market. The company has been recording steady growth since its establishment in Shenzhen in 2000. Its net profit tripled between 2017 and 2020 to Rmb63 million on the back of a quintupling in revenue that reached Rmb820 million last year.

Breo’s growth is partly driven by its partnership with Alibaba. By leveraging the artificial intelligence technology developed by the internet giant, Breo managed to improve its flagship product, a portable eye massager. The latest versions can be controlled by speech – whether to switch between massage modes or introduce features such as temperature control.

These innovations have enabled Breo to stand out from approximately 3,300 competitors, seizing 5-7% of the domestic market for massage appliances, and 13-15% for the portable segment. The company now generates the majority of its sales from its own brands, with only 6% coming from its original design manufacturer (ODM) business in 2019. Over half of the funds raised from its IPO are earmarked for expanding the footprint of its self-operated outlets, as the 153 offline stores it now owns accounted for 36% of its sales.

The other IPO is set to be launched by Xingji Yuedong, the parent company of oral care brand Usmile. The Guangzhou firm is best known for its range of electric toothbrushes priced between Rmb200-400 per unit. According to Jiemian, a local news outlet, Usmile was the second most popular electric toothbrush brand on Tmall in the first nine months of 2020, meaning that its sales trailed behind only Philips from the Netherlands.

Aside from using a patented technology that provides almost 40,000 vibrations per minute, it offers different cleaning modes that include an advanced blue light therapy for teeth whitening.

As for its products catering to children, Usmile created different brush heads targeting different oral stages, and connects them to a mobile app that helps parents keep track of their children’s brushing habits.

Beyond the practical aspects, Usmile toothbrushes all come with visually appealing designs. For one special edition it hired designer Nathalie Sokierka, who has worked with luxury brands Hermès and Louis Vuitton. It also partnered with New York’s Metropolitan Museum to print masterpieces by Van Gogh and other artists on its toothbrushes.

Founded in 2015 by Procter & Gamble alumnus Chen Jianqun, Xingji Yuedong is said to have achieved profitability within its second year of operation. Its sales of electric toothbrushes on e-commerce platform Taobao more than tripled to Rmb5.7 billion between 2017 and 2019.

Both Breo and Usmile face rising competition given that the budding trends of the ‘smart home’ and internet-of-things (IoT) are luring both traditional home appliance firms and tech giants to roll out competing offerings. Xiaomi, for one, has not only launched its own products in both fields, but also incubated start-ups that could potentially disrupt the market further. Soocas, a Shenzhen-based grooming appliances maker that Xiaomi has been backing since 2016, is also preparing for an IPO, for instance.

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