Miniso Gets Dressing Down in Online Brouhaha

The Japanese-inspired operator of a chain of small, knickknack-selling stores apologizes after netizens accuse it of trying to hide its Chinese roots

Key Takeaways:

• Miniso’s shares are down 17% since it was accused of mislabeling a Chinese-clothed doll as Japanese, and more broadly of trying to hide its Chinese roots
• The attack represents a relatively unique risk faced by both foreign and domestic companies doing business in China  

By Doug Young

Its logo is red with a distinctively Japanese look. But these days trendy brick-and-mortar retailer Miniso Group Holding Ltd. (MNSO.US; 9896.HK) is seeing a lot more pink.

The company, which we’ve often mocked for trying to make its stores resemble popular Japanese brands like Muji and Uniqlo, has spent much of the last month trying to convince the public that it’s really a very Chinese company. The brouhaha has taken a bite out of Miniso’s stock, which is down about 17% since it first put out a statement July 25 clarifying its status.

We’ll examine the ruckus in more detail shortly, including its origins and Miniso’s response. But from a broader perspective, we should note that this kind of tussle represents a relatively unique risk to doing business in China, especially for well-known consumer brands. Such brands can quickly and unexpectedly become the target of angry buyers who believe the company has done something unethical, unjust or outright illegal.

Those consumers then vent their frustrations online through social media, whipping others into a frenzy that at a minimum can result in reputational damage, and at worst can end in boycotts and even regulatory action. The Miniso case involves an increasingly influential group of nationalistic Chinese known locally as “little pinks,” who typically rail at anything they see as unpatriotic.

When subjected to such online assaults, companies typically use the same playbook by quickly issuing an apology and telling what steps they will take to rectify the situation. That’s exactly what Miniso has done in this situation too. But the damage is already done, and often it can take months or even years to recover.

To understand this particular story, we need to delve quickly into Miniso’s history and describe its trademark stores that have become a mainstay on China’s retailing scene. The company was founded in 2013 by Ye Guofu, who came up with the brand’s concept during a family trip to Japan, after being impressed by local specialty stores selling high quality yet affordable products made in China. He even hired a Japanese designer, Miyake Junya, to lead his company’s design team.

The company’s well-known logo features a red background with the English name “Miniso” in white, ending with a stylized smiley face made to look like Japanese letters. Until recently that logo graced most of its more than 5,000 stores worldwide, including roughly 3,000 in China and the rest outside.

The recent brouhaha began when the company’s Spanish Instagram account featured a doll from its Disney Princess Blind Box Series labeled as a Japanese geisha. But as some “little pinks” in China were quick to point out, the doll was actually wearing a traditional Chinese-style qipao dress, and not Japanese clothing, despite the label.

All that drew attention to Miniso’s broader efforts over the years to appear Japanese. In fact, we’ve previously written that Miniso may even want Chinese consumers to believe its stores are Japanese, in a bid to tap the popularity of Japanese brands like Muji and Uniqlo in the country. We’ve also pointed out that Miniso’s style could potentially make it vulnerable to lawsuits by some of the Japanese brands it’s trying to imitate, though we never spoke of the threat from online Chinese critics.

Letter of contrition

As the online chatter criticizing Miniso heated up, the company issued an official apology on July 25. “After receiving feedback from netizens, Miniso headquarters immediately asked the Spanish agency team (in charge of the Instagram account) to delete the post, and imposed penalties on the local social media agency, immediately terminating the cooperative relationship,” it said.

To show it was really taking action, it followed up on Aug. 4 by posting its letter formally firing the agency, noting the agent “lacked the basic knowledge of Chinese culture when operating the Miniso Spain official Instagram account.” It added that Miniso itself would take over management of the account, saying “we sincerely apologize for this misunderstanding and we will reflect on the damage this has caused to our Chinese friends and all Miniso fans.”

Finally, it issued a post last week detailing the corrective actions it was taking, including stripping out Japanese elements from its stores and overhauling the logo for its Chinese stores. It explained that it had promoted itself as a Japanese-inspired brand in its early days, but now has realized that “this was a deviant path.”

The apology alone was viewed nearly 2 million times on Weibo, China’s equivalent of Twitter, and received 428 comments, showing how widely the topic was followed on social media.

The crisis was the last thing that Miniso needs these days, as the company has come under assault on a number of other fronts as well. Those include a short-seller attack in July, alleging the company misled investors because many of its franchised stores were actually owned by entities with close ties to Miniso’s top management. Miniso later issued its own rebuttal denying the report and calling its conclusions misleading. But the stock still fell 15% the day the report came out.

Then there’s the more serious issue of the company’s business, which isn’t looking very good these days due to widespread forced store closures as China tries to bring numerous Omicron outbreaks under control under its “zero Covid” policy. The company is set to announce its latest quarterly results later this week for the three months to June. But it previously announced its revenue in the first three months of the year grew just 5% year-on-year due to Covid disruptions, and forecast the figure would contract for the first time ever by about 9% in the three months to June.

Despite all the woes, analysts and investors remain surprisingly upbeat on the company. Among nine analysts polled by Yahoo Finance, two had “strong buy” ratings on the company in July, while six had “buys” and only one had a “sell.” Perhaps that’s partly because the company’s shares are down more than 40% this year, even though most of the issues it’s currently facing are temporary.

The company also boasts a relatively strong price-to-earnings (P/E) ratio of 21, which is quite high for a traditional retailer. That’s ahead of a 14 for Ryohin Keikaku (7453.T), operator of the real Muji brand; and also better than the 18 for trendy U.S. retailer Target (TGT.US).

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