FNF's 'MLB' Penetrating the Chinese Market

Sequential Opening of Stores in China from the Second Half of the Year
Considering Store Opening Speed and New Regions, Agency Sales

[Asia Economy Reporter Lee Seon-ae] F&F is gearing up to aggressively target the Chinese market with its brand MLB. Although the expansion of its business in China was inevitably delayed in the first half of this year due to the impact of the novel coronavirus disease (COVID-19), the company plans to gradually open stores starting in the second half of the year.

According to F&F on the 22nd, MLB plans to expand to 5 directly operated stores and about 50 wholesale buyer stores in the Chinese market by the end of this year.

F&F acquired the Chinese distribution rights for MLB in February last year and officially started selling MLB products on Tmall from June. Through this, it recorded sales of 3.2 billion KRW in the third quarter of last year (MLB China sales). Subsequently, MLB’s sales in China in the fourth quarter doubled compared to the previous quarter, reaching 6.4 billion KRW. The industry evaluated this as a remarkable sales growth achieved even without F&F fully expanding MLB’s business in China.

Until the first half of this year, F&F sold MLB only through online channels (Tmall) and three department stores and shopping malls. Although it planned to expand stores, the unexpected obstacle of COVID-19 made business expansion inevitable to be delayed. Recently, it opened one directly operated store in China and started wholesale buyer operations by opening two wholesale buyer stores. The choice of wholesale buyer operations is due to higher profitability as there are no store operation costs, and it is advantageous for entering new regions, allowing faster store openings, which raises future expectations. Currently, MLB operates a total of 5 stores in China.

However, F&F is drawing a line on rapid expansion of stores in China. This is because rapidly expanding MLB’s business in China could negatively affect domestic duty-free channel sales. As of last year, about 60% of MLB’s sales were generated from duty-free shops. F&F plans to open MLB stores in China focusing on balanced growth to prevent mutual cannibalization between domestic duty-free shops and local Chinese channels.

Meanwhile, most of F&F’s sales come from the two brands Discovery and MLB. Among them, MLB is showing remarkable sales growth. The proportion of MLB brand sales in total sales increased from 53.6% in 2018 to 61.6% in 2019, and securities industry forecasts expect it to rise to 65.2% this year.

Han Nuri, a researcher at Meritz Securities, said, "F&F is actively expanding its local sales network in China," and added, "Sales in China could reach 100 billion KRW next year." Park Ha-kyung, a researcher at Korea Investment & Securities, also said, "The popularity of MLB, which started at Korean duty-free shops, is leading to increased sales on the Chinese online channel Tmall," and predicted, "Overseas sales will decrease by about 5% this year due to sluggish duty-free sales, but next year’s sales will increase by more than 40%."