Sinking to a county-level city, will the Red Star Macalline be "unacceptable"?

Article 丨 Chen Xi

Source | Mantis Finance (ID: TanglangFin)

On April 18, Red Star Macalline announced its 2019 financial report. In 2019, Red Star Macalline recorded revenue of 16.47 billion for the year, an increase of 15.66% year-on-year. The net profit attributable to shareholders of the listed company was 4.48 billion yuan, a year-on-year increase of 0.05%. The company decided to distribute a cash dividend of RMB 2.53 (tax included) for every 10 shares, and at the same time transfer one share for every 10 shares to all shareholders with a capital reserve.

From the perspective of revenue structure, home business service industry is still the main source of income of Red Star Macalline, with an amount of 12.501 billion yuan, a year-on-year increase. The construction and design services industry ranked second with revenue of 2.25 billion yuan.


Compared with the same period, the revenue of Red Star Macalline increased, but the net profit was basically flat. Red Star Macalline explained in the financial report that the main reason is that the construction and design services industry with lower gross profit has lowered the overall profit level.

Red Star Macalline also disclosed in its annual report that in 2019, it added 41 new shopping malls, and the shopping malls have sunk into counties in central provinces.

Red Star Macalline's annual report is generally good, but "Mantis Finance" believes that through the annual report, Red Star Macalline has more detailed information that is worth discussing.

1. Combining self-operation + management, Red Star Macalline is still doing its own thing

Red Star Macalline opened its first mall in Shanghai in 2000, and it has been the main source of income for Red Star Macalline to collect rents and management fees from merchants entering the mall.


As of the end of 2019, Red Star Macalline has a total of 87 self-operated malls and 250 commissioned malls across the country. It has operated 12 home shopping malls through strategic cooperation and has also authorized 44 mall franchise rights. There are Macalline or Macalline franchise stores in 212 cities in 29 provinces across the country.

Red Star Macalline's style of play is a combination of self-support + management. The so-called self-employed means that Red Star Macalline operates independently, and the management is almost the same as joining, but Red Star Macalline will send special management personnel to provide partners with site selection, construction, design and decoration consulting services, investment introduction, and daily Introduction of management experience, etc., and then charge consulting service fee and investment introduction fee.

Self-employment requires self-purchased land, self-built shopping malls, and self-management, which are heavy assets. As long as the management is stationed in the management, it is a light asset. Red Star Macalline disclosed in its financial report that the combination of self-employment and commissioned management mode allows Red Star Macalline to have a heavy asset to consolidate its position and a light asset to occupy the market a more unique way of playing: First, in the first-tier developed regions, Red Star Macalline Consolidate its market leadership position through the self-operated business model (heavy assets) and benefit from land appreciation; secondly, in third-tier and other cities, Red Star Macalline quickly expands the mall layout through the managed business model (light assets), and No need to bear large capital expenditures.


The advantage of this is that in the first-tier developed regions, Hongxing Macalline occupies geographical advantages in the form of buying land and building its own shopping malls. It is difficult for other competitors to follow, and Redstar Macalline can obtain extremely high income. In the vast third-tier cities and other urban areas, Red Star Macalline is sinking rapidly, occupying most markets, and its income is also considerable.

This is also reflected in the financial report. All the self-operated Shanghai area and up to 105 commissioned East China areas together contributed more than 50% of revenue. In addition, the Western and Central China regions with a large number of commissions account for nearly 25% of the total revenue.


2. Rapid expansion. Will sinking to county-level cities be “unacceptable”?

According to Frost & Sullivan's statistics, Red Star Macalline's retail sales have a market share of 15.5% in the chain home furnishing and furniture shopping mall industry, and 6.3% in the entire industry including non-chain shopping malls. Market share Ranked first. But Red Star Macalline is still expanding.

According to the financial report, in 2019, Red Star Macalline opened 6 new self-operated malls, 35 managed malls in the country, and closed 2 other self-operated malls, 10 managed malls, and 3 managed malls. Be self-employed.

In one sentence, in 2019, Red Star Macalline added 31 shopping malls, with an average of 2.5 shopping malls opening every month.

Among the new shopping malls in 2019, except one located in Shenzhen, the others are located in second- and third-tier cities, and even sink to the county level, such as Longhui County, Shaoyang City, Hunan Province, Guoyang County, Bozhou City, Anhui Province, and Shangrao, Jiangxi Province The city of Qianshan County and others all enter in the form of commission. This is also in line with the development path of Red Star Macalline, with first-tier cities as the basic plate, and gradually penetrates into third- and fourth-tier cities.

However, with such rapid expansion, will the Red Star Macalline be "unacceptable"? You should know that in the second- and third-tier cities, the home furnishing market is not blank. The local home furnishing market may have occupied a core position. Macalline entered the local home furnishing market with a huge volume to catch up with and fight, and it is likely that the loss will be more serious due to the excessive volume. And once they are unable to attract enough passengers, businesses entering the home market are bound to vote with their feet.

Taking Changsha as an example, Red Star Macalline has four shopping malls in Changsha, but these four shopping malls are not in the core circle of traditional home building materials in Changsha-Wanjiali Business District. Wanjiali Building Materials Home Furnishing Co., Ltd., the home furnishing enterprise in Changsha, still occupies the core position of the business circle. Surrounding the Wanjiali Building Material Home Furnishing Market, there are various ceramic cities, building material cities and building material wholesale markets.

Throughout 2019, Red Star Macalline closed 12 stores across the country, and to some extent reflected the negative effects of excessive expansion.

The stock price in the secondary market also shows that investors have insufficient confidence in Red Star Macalline. Prior to the impact of the epidemic, the stock price of Red Star Macalline had fallen by 40%, and this trend has continued from the second half of 2018 to the present.


3. Can you form an alliance with Alibaba to drive offline income online?

In 2019, Red Star Macalline also completed an important shareholding change, which was to make Ali its second largest shareholder in May. In the A-share market, Ali obtained a 10% stake in Red Star Macalline by subscribing to exchangeable bonds, and in the H-share market, it acquired 3.7% of its shares.

To form an alliance with Alibaba, Red Star Macalline is to obtain Alibaba's traffic and broaden its new customer acquisition channels, hoping to catch up with the new Internet retail.

Then Ali has been stationed for nearly a year, how effective? How much income did it bring to Red Star Macalline?

The result is unknown, and the benefits of cooperation with Ali have not been reflected in the financial report. Red Star Macalline only mentioned in its 2020 outlook that it will "deepen the same-city project with Alibaba, through the online and offline traffic of the same city station + store digitization, and comprehensively promote the new retail transformation of the home furnishing industry."

"Mantis Finance" puts it more bluntly, so that Ali's idea of ​​drainage has not achieved substantial benefits. After all, no product needs more contextualization and a sense of experience than furniture.

Buying a bed, a sofa, and a dining table is not as simple as ordering a takeaway and buying a movie ticket. First of all, it is expensive, tens of thousands. Secondly, the more expensive furniture you need, the more you need to experience it. Only after you have sat on that sofa and slept on that bed can consumers really decide whether they are suitable for you or whether they will order by credit card. In addition, the return of furniture and furniture is far less convenient than buying a piece of clothing and a pair of shoes on Taobao. The huge return shipping fee is an important reason for consumers to stop online shopping.

Therefore, how much traffic Ali can bring to the Red Star Macalline, and how much of this traffic can be converted into sales, still need to play a big question mark.

4. Investment real estate has skyrocketed. Will Red Star Macalline turn to become a real estate company?

Although it seems less reliable from offline to online, another transformation of Red Star Macalline has already been carried out quietly. From the operating income of Red Star Macalline, we can get a glimpse of it.

In addition to the number one home business service industry, the construction and design service industry of Red Star Macalline has quietly leapt to second place, with revenue increasing by 52.1% year-on-year.


Although Red Star Macalline did not disclose in the financial report that real estate will be one of its future development directions, but there are rumors online, Red Star Macalline is actually a real estate company. The investment real estate held by Red Star Macalline has exceeded the real estate leader Vanke.


Moreover, this part of the investment has brought generous returns to Red Star Macalline. In 2019, Red Star Macalline reassessed the fair value of the investment properties it held. The proportion of the total is 25.8%.

Judging from the current change in investment real estate of 6.57 billion yuan, excluding the 1.601 billion yuan change in fair value, Red Star Macalline spent another 5 billion yuan to purchase new investment real estate.


Is Red Star Macalline wanting to enter the real estate market, or is it optimistic about the prospects of the real estate market, "not doing business right", actively hoarding the house, want to earn a wave of housing market dividends? No conclusion can be drawn from the financial report, but whether such a large amount of investment will crowd out the company's main business is worth pondering for investors.

to sum up

In 2020, the impact of the epidemic on the consumer side will be profound. According to data from the National Bureau of Statistics on April 17, the total retail sales of consumer goods in China fell by 19% year-on-year in the first quarter.

The home shopping mall industry where Red Star Macalline is located is located in the key link of the consumer market. On the one hand, home shopping malls need to consider how to give more support to merchants to help them sustain. Once the merchants withdraw their cabinets, the loss of furniture malls depends on It is also unknown whether the rent and management fee income of survival can find other merchants to take over in the short term; on the other hand, home shopping malls also need to rack their brains and think of more ways to attract more people to enter the mall and drive the atmosphere .

When Red Star Macalline actively deployed in the county town and increased the pace of expansion, perhaps it was unexpected that the black swan might be accelerated only by the closure of the store.

However, Red Star Macalline still chose to pay out 898 million yuan at this time to distribute cash dividends, perhaps it still has the confidence to overcome the difficulties.

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