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Nu Skin's remarkable store opening plans in China

September 05, 2014 | About:
Bronte Capital

Bronte Capital

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Several people did not get the significance of my last post. This post showed a remarkable lack of correlation between the location of the Chinese population and the sales of Nu Skin in China.

Western China - even if you include the populous provinces of Sichuan and Yunnan is still only a small percentage of the Chinese population - and it is a smaller percentage of Chinese disposable income.

But Western China looms large in Nu Skin's China sales. China hands I talk to know no other consumer company that has sales so weighted to the West.

For most companies (and over the whole industry) almost all Chinese retail sales come from populous and relatively rich Eastern Provinces. China Business Review published a reasonable summary. To quote:

Because of the wide disparities among China’s regions and the country’s rural-urban income gap, purchasing power and retail demand vary greatly. According to the PRC National Bureau of Statistics, 42 percent of China’s total retail sales in 2008 came from (by rank) Guangdong, Shandong, Jiangsu, Zhejiang, and Henan—most of which are prosperous eastern provinces. In comparison, Tibet, Qinghai, Ningxia, Hainan, and Gansu had the lowest retail sales that year.

The old-hands think Nu Skin's sales distribution is very unlikely. But according to Nu Skin's auditor it is profitable in China.

Nu Skin is - at least according to their presentations - actively opening stores in the most unlikely places in Western China. Here - from November last year is a store-opening plan:

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There are no stores planned in Tibet, but plenty in other poor and thinly populated provinces. Indeed there are several in Chinese high-altitude desert where there are no permanent settlements, only pastoral nomads.

Nu Skin's sales distribution figures in China seem implausible but the aggregate sales are audited - so they should be believed.

Moreover the company's plans are indicative of their past-success in Western China. They are (proudly) setting up shops where nobody lives.

Not only are they good at selling to Uyghur women, but they also appear to have big plans to introduce network marketing to pastoral nomads.



John


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Comments

trader_ak12
Trader_ak12 - 3 months ago

There are several problems with your hypothesis:

1. All these stores are planned and not included in the current results. So the implication that they are making money selling to no one doesn't hold.

2. NuSkin's existing stores already cover the major population centers and half of the future stores are also located in the areas with dense population.

3. I don't see anything wrong in opening stores in remaining parts of tChina when they've saturated the population centers. They may not make as much money per store but the sales will still add to revenues and profits. By the same logic there should not be a MCDonalds in most parts of USA.

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