[Asia Economy Beijing=Special Correspondent Sunmi Park] Luckin (瑞幸, Luckin), a domestic company competing with Starbucks in the Chinese coffee chain market, has admitted that the company's sales were inflated and has launched an internal investigation to identify the facts. Listed on the U.S. Nasdaq market, Luckin faced an aftershock with its stock price plummeting by 85% intraday.
According to the South China Morning Post (SCMP) in Hong Kong on the 3rd, Luckin, headquartered in Xiamen, China, announced in a statement the previous day that it had discovered issues of sales inflation through false transactions internally and has formed a special committee to conduct an investigation.
Luckin reported that COO Liu Jian and employees under him were involved in illegal activities including sales manipulation. It also stated that sales for the 2nd to 4th quarters of 2019 were inflated by 2.2 billion yuan (approximately 309 million dollars), and that the performance from January to September last year could no longer be trusted.
Considering that Luckin previously disclosed sales of 2.929 billion yuan for the first to third quarters of last year, this means that most of the reported sales were inflated figures.
After Luckin’s statement, its stock price listed on the U.S. Nasdaq plummeted by up to 85% intraday. When it was listed in May last year, the stock price was 25.02 dollars per share, but it dropped to as low as 3.96 dollars, down by a maximum of 85% intraday. The closing price was 6.4 dollars, down 75%.
Starting its business in China in 2017, Luckin operated over 3,500 stores as of the end of last year and aggressively expanded its size by attracting large investments both inside and outside China. Due to its aggressive increase in the number of stores within China, it was recognized as a major competitor to Starbucks.
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