LUXE.CO 2016 China Fashion and Lifestyle Industries Investment Trends Report

Since the beginning of 2016, Luxe.CO has been closely following investments and financing in the areas of fashion and lifestyle in China and has published 49 issues of the Luxe China Investment Weekly Report. Based on these reports, we have drafted the 2016 China Fashion and Lifestyle Industries Investment Trends Report, demonstrating the distribution of capital in China’s emerging consumer industries through a detailed analysis of the data.

A）2016 Equity Investments in China’s Fashion and Lifestyle Industries

According to the Luxe.CO database:

The number of equity investments in 2016 equalled 376, and the total volume of equity investments totalled 35.1 billion RMB (roughly 5.2 billion USD)

Note:

* Calculation is based on transactions with disclosed amounts; transactions with undisclosed amounts were not included.

* For statistical purposes, the exchange rate of RMB to USD is set at 1:0.15.

The graph below shows the number and total volume of investments in 2016:

Hottest Investment Areas

Based on the number of investments, the top three areas in 2016 were:

1. Hospitality and tourism
2. Food and catering
3. Creative and entertainment

Based on the volume of capital invested, the top three areas in 2016 were:

1. Vertical e-commerce
2. Sports and fitness
3. Hospitality and tourism

Hospitality and tourism became the hottest investment area in 2016. Driven by the prospering experiential tourism market, customised travel and accommodation booking platforms offered abundant investment opportunities. Food and catering became the second most popular investment area. In contrast to the Western trends of healthy and natural eating, Chinese consumers were looking for tasty food and diverse flavours. Cuisines with strong regional features and trendy restaurant brands blossomed across the country. Investors also favoured cross-border e-commerce platforms and content communities, pushing this category into second place. The booming creative and entertainment industry can attribute its success to content producers and IP operators. Quality audiovisual content and core IP continued to be favoured.

Main Investment Stages

In 2016, investment in the fields of fashion and lifestyle mainly took the form of angel investments or Series-A financing: about 30% of projects were at the seed or angel stage, while pre-Series A, Series A and Series A+ projects took 51%. In general, series B investment and beyond focused on four main areas: online platforms featuring tourism products or accommodation booking; e-commerce services for maternal and child products, as well as overseas shopping; fitness apps; and entertainment content production companies.

Equity Investment Projects with the Highest Financing

The biggest receivers of domestic financing in 2016 were LeSports (1 billion USD), Babytree (around 450 million USD) and MoFang Apartments (300 million USD).

Highlight 1: Experiential Tourism is the New Trend

With the ongoing upgrade in consumption, more and more Chinese tourists are beginning to place emphasis on the quality of their travel. Their choices are shifting from fleeting sightseeing tours to holiday and leisure tours, and from large group tours to small boutiques or independent tours. Accommodation, as one of the critical elements in the tourism industry, has also adapted to the “experiential” trend, and the focus has shifted from traditional hotels to diversified short-term holiday rentals. Many local residents have opened their doors to join the home-stay business. In 2016, experiential tourism and accommodation platforms became the hottest investment areas, featuring, among other things, special tours and programmes customised for the individual traveller.

Highlight 2: Taste is the Best and the More the Merrier

According to Luxe.CO’s database of overseas investment and financing, nearly 40% of investments in the food and drink industry in 2016 were related to healthy dining, with ‘organic’, ‘green’, ‘additive-free’ and ‘local’ being the keywords. On the other hand, in China’s domestic market, regional flavours and trendy restaurant brands were the favourites of investors. For Chinese foodies, taste is the ultimate deciding factor. Investors also favoured cross-border e-commerce, focusing on easier and more diverse foods, as well as content platforms for food and cooking. The trendy projects of 2015, such as O2O and kitchen sharing, were rarely seen.

Highlight 3: Revolution of the Traditional Gym?

The latter half of 2016 saw a few large investment mergers in the traditional gym business. Large-scale and integrated fitness chains emerged as eye-catching new models of operation in the industry.

Although the number of participants in sport is still small in China, the fitness industry is relatively mature. The large fitness chains that entered the industry early on have developed valuable assets by locking down physical property and forming firm customer bases, despite the various efficiency problems in their operations. As a result, they have become the targets of a capital rush in the sports industry. New gym brands born with an integrated Internet-usage element are catching up and have started to be appreciated by investors.

Of course, the sports investment trend has also spread to niche areas, especially outdoor sports. Cycling, horse riding, skiing, tennis and so on have all flourished. However, there is still a long way to go in educating domestic customers about the benefits of a healthy lifestyle.

Highlight 4: Creative and Entertainment—Both High Brow and Low Brow are Flourishing

Investments in the creative and entertainment industries mainly centred on three sub-areas: film, TV and other entertainment programme production companies; manga, anime and games (MAG) cultural platforms; and art trading platforms.

No longer can one TV show rerun last the entire summer holiday. Today’s audience favours content that is more entertaining and more responsive to current events. Both video streaming websites and traditional TV stations are striving to introduce quality content. The successes of AcFun and Bilibli have made young MAG fans one of the most sought after communities in the eyes of investors.

Highlight 5: Celebrities-Turned-Entrepreneurs

Celebrities are becoming the new angel investors and entrepreneurs. Many lifestyle projects feature celebrities, either in a front-of-house role or behind the scenes.

FILL, an earphone brand founded and developed by rock musician Feng Wang, and Funye, a spicy sauce brand founded by singer Allen Lin both received funding in 2016. In February, Jianzhi Shidai, a platform for fitness programmes, received pre-Series-A financing of 30 million RMB. Celebrities Yu Xia and Hong Yuan both provided investment, as they are both fitness fans. MelleTech, the skin-care tech product brand, also received tens of millions of renminbi angel investment in April, including some from international film star Ziyi Zhang. The fitness and weight management mobile app, Qing+, has received Series-B financing of tens of millions renminbi, with film star Yuanyuan Gao providing some of the funds. Gao has also invested in Huadian Shijian, a weekly flower delivery subscription service.

Highlight 6: Industrial Capital Entering the Markets is Accelerating

In the past, industrial capital has become engaged in early-stage investment activities by becoming a limited partner of funds. Chinese companies have become more and more passionate about investing industrial capital. They either co-invested as a general partner of funds, or invested directly. For example, Luolai Home Textile invested in an overseas household product e-commerce website, Ujipin, as well as in MovieSeek, a brand-promotion company that uses product placement. The apparel company La Chapelle Fashion Co. invested in the mid-to-high-end fashion brand Tanni, while Plateno Group acquired some equities in the accommodation platform, Pengyoujia.

It can be predicted that after gaining experience from investing, companies providing industrial capital will build investment strategies that work best for them. They will also recruit more and more investment talent to complement their skill sets and play a bigger role in the early-stage investment market.

The Start-Ups that Grew Fastest in 2016

Compared to the international market, the Chinese fashion and consumption market is growing more rapidly. Three start-ups received three rounds of investment in 2016 and 21 received two rounds.

Those that received three rounds of funding were:

• AcFun: a bullet-screen video website
• Wandougongzhu (The Princess and the Pea): an overseas e-commerce site featuring online shopping for the Japanese
• Yuezw.com: a home furnishings and decoration e-commerce website

Those that received two rounds of funding were:

• 6renyou: a website offering customised mid-to-high-end travel
• Grana: an online fashion company based in Hong Kong
• MAGMODE: a menswear designer brand incubator
• KKday: a Taiwan-based online travel discovery platform
• Wake: a yoga coaching brand
• FitTime: a fitness platform for content, communities and e-commerce
• Daling: a B2C e-commerce platform for fashion buyers
• Funye: a spicy sauce brand founded by celebrity Allen Lin in 2014
• Gegejia: a cross-border e-commerce platform
• FlowerPlus: a flower subscription e-commerce website featuring direct delivery from the producing areas
• Juzi Entertainment: a new media platform of multiple-genre entertainment
• Illumina: a visual effects company
• Meiba Show: a social media platform for the visual arts
• Gin SPA: a health and spa chain
• Cheer U Holidays: a customised tourism service platform targeted at the middle-class
• Day Day Cook: a production company for cooking videos
• Saohuo: a cross-border e-commerce website for snacks
• Tuibianhezi: an e-commerce website featuring underwear for teenage girls
• Weifengbuluo: a travel service platform targeting university students
• Master Xing: an Internet-based catering brand
• Pumpkin Coach: an O2O platform for hairdressing

B）2016 Mergers and Acquisitions in China’s Fashion and Lifestyle Industries

In 2016, there were only a few M&A cases in the Chinese fashion and lifestyle industries. The merger of Mogujie and Meilishuo was the most significant. Moreover, Tujia merged with Mayi (a short-term rental brand owned by 58 Group) and purchased the accommodation rental branches of Ctrip and Qunar.

1) The merger between Mogujie and Meilishuo

On 1 January, the women’s wear vertical e-commerce websites Mogujie and Meilishuo reached a strategic merger agreement. The transaction will be achieved through an equity swap. The new company is valued to be worth 3 billion USD. This merger is a reflection of the general trend for reintegration in the e-commerce industry, where e-businesses are coping with the intensified competition by merging with each other.

2) Tujia merges with Mayi, Ctrip and Qunar’s apartment and accommodation business

In June, Tujia and Mayi reached a strategic merger agreement. In October, Tujia purchased the apartment and accommodation businesses Ctrip and Qunar. Tujia’s online business now includes Tujia.com, Mayi.com, and the apartment and accommodation businesses Ctrip and Qunar; its offline businesses include Sweetome, a self-run accommodation brand for holiday rentals, and its newly released villa resort brand, Tu Villa.

B）2016 IPOs in China’s Fashion and Lifestyle Industries

Eight Chinese fashion and lifestyle companies completed their IPOs in 2016.

On 18 February, women’s footwear company Top Score was listed on the Shanghai Stock Exchange (SSE), raising a total of 686 million RMB. After Belle, Daphne, C. Banner and ST&SAT, Top Score has become the fifth women’s shoe company to go public domestically.

On 11 April, the Hong Kong fashion e-commerce business Hypebeast went public on the Growth Enterprise Market of the Hong Kong Stock Exchange (HKEx), raising a total of 65 million HKD.

On 5 August, Hong Kong catering chain Dining Concepts Holdings Ltd. was listed on the Growth Enterprise Market of the HKEx. The private equity firm Prometheus Capital, owned by Sicong Wang, the son of Wanda Group CEO Jianlin Wang, holds 10.1% of Dining Concepts’ stock, making it one of the main shareholders.

On 22 August, Internet glasses brand, Inmix’s mother company, Mingtongsiji, was listed on China's New Third Board market and became the first eyewear company to go public in China. Founded in October 2009, Inmix has since sold over 1.2 million pairs of glasses. In 2015, its revenue exceeded 100 million RMB, with a repeat purchase rate of over 20%.

On 12 October, snack retail chain Shanghai Laiyifen Limited was listed in A-share market, making it the first stock in the Chinese snack industry.

On 31 October, Chinese design brand JNBY went public in Hong Kong. JNBY was founded in 1997 in Hangzhou and currently includes women’s wear brands (JNBY and less), men’s wear label CROQUIS) and children’s wear brands jnby by JNBY and Pomme de Terre.

On 11 November, the marinated-duck snack brand Zhouheiya was listed on the HKEx, reaching a market value of 15.4 billion HKD on its opening day.

On 28 December, Handu E-commerce Group Ltd. (838711.OC) was listed on the new OTC market. Since starting out as low-end womenswear retailer on Taobao, Handu has become the first ‘Concept Stock of the Tao Brand’ to be listed on the new OTC market.

（Image sources：brands’ official websites, Pixabay and Xinhuanet）

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