It is IPO Season. And my favorite among all the fashion houses that are IPOing Prada, Moncler, Ferragamo is Milan Station.
Milan Station, a familiar name amongst HongKong fashionistas and a prominent 2nd hand reseller of used luxury handbags in Hong Kong, recently listed its stock on the Hong Kong stock exchange. The company raised about USD35million overall, and the issue was oversubscribed by 2100 times (yes, two thousand one hundred times!!). The company has been in existence for just over a decade, and buys used luxury handbags at nearly 70% of the market price, and sells it at slightly less than the market price – pocketing the difference as net profit. This simple business model yielded a revenue of nearly USD100million in 2009, and a net profit of USD8million. When we consider that all their stores in Hong Kong are rented, and that rents increased nearly 40% last year in Hong Kong, this is an amazing performance. Read more in Reuters.
As fashions and seasons change, consumers want to possess different bags in different bags in various colours and sizes. Mr. Yiu, the entrepreneur, seized upon this idea to launch his unique business in Hong Kong. In HongKong there are two clear segments that Milan Station targets. The Tai Tai Peak fashionista who needs a bag a day and want to be caught repeating her bags . This segment are sellers of bags to Milan Station as they only wear the newest in season. The second segment are the aspirants of luxury who will save up or even skip meals to have Louis Vuitton bag and regularly exchange to upgrade their fashion quotient.
Why did investors queue up to buy this stock? After all, Hong Kong is a mature market and has a stable population of only 7million. The secret is to the north of Hong Kong! The company wants to open several new stores in the Mainland China market, and will use the IPO proceeds to establish its operations. Whilst the wealthy Chinese buy luxury products in Paris, Milan and Hong Kong, the next 3-4 tiers of consumers need to be enticed into the luxury world through a model that affords cheaper prices. However here the Chinese prefer to buy newer models Chanel, Prada, Hermes are preferred to older models of Gucci or Louis Vuitton. Moreover, these consumers can also sell back their goods to the same stores and recover a good chunk of their investment. Calculated on a usage per day basis, the math turns out to be a win-win situation for both the store and the buyer. What may be interesting is how Milan Station keeps up with the supply of NEW BAGS. The Chinese are traditionally not second hand goods buyers and this will be key to the success of Milan Station’s operations in China. The stores are always keen in products labeled Made in Italy/France, but for the buyers it is Made in Heaven!!