Deal focus: Neiwai realizes value offline

Neiwai’s $100 million Series D round – led by The Carlyle Group with participation from Vertex Ventures China and Qiming Venture Partners – comes two years after the Series C. Much has changed in between. Notably, the Chinese lingerie brand has established itself as an omnichannel player, adding an offline presence to its online exposure.

“While many local brands remain in the online operation era, Neiwai has entered the next phase – the brand-building era,” says Ying Xu, a general partner at Vertex. “Its expansion offline, its use of a spokesperson, and the series of short films it released promoting acceptance of one’s body image do not translate directly into sales, but they enhance the brand image.”

Nevertheless, sales rose by more than 260% year-on-year in the first half of 2021. This compares to an annual average of 100% between 2012 and 2019. Neiwai is bringing in more than RMB200 million ($30.8 million) a month, with a repurchase above 50%. Of the five largest brands in the industry, Neiwai claims to be the fastest-growing,

Brick-and-mortar outlets are playing an increasingly important role in the company’s expansion. It now has around 120 stores nationwide, double the 2019 total, and expects to hit 200 by the end of this year.

Average spending per customer is RMB1,500, five times the comparable online figure, while the best-selling products differ between the two channels. Online, it is a free-size bra priced at RMB150-200; more expensive options – richer in design, detail, and material quality – are favored offline, typically in the RMB300-600 range.

The brick-and-mortar presence has also allowed Neiwai to expand into adjacent verticals, as evidenced by the launch of two lifestyle brands covering casual and sportswear. Neiwai Active, a sub-line that focuses on dance clothes, accounts for more than 20% of overall sales.

“I believe the offline development space will be greater than online. Even if it’s wire-free and aimed at comfort, users still need to try it on. Offline is also a necessary step for category extension – it is only through offline stores that you can really display usage scenarios. An online platform can maintain basic SKUs [stock keeping units], not a full product line,” says Xu.

“At the same time, offline stores represent a high barrier to entry because there is limited space in high-end shopping malls.”

Neiwai’s began its offline expansion following a Series B round led by Vertex in 2017. Xu’s team was specifically looking for a lingerie start-up, and they opted for Neiwai because of its differentiated market position as a comfort-first lingerie brand. Xu also found that she and Xiaolu Liu, the company’s founder, were of a common mind regarding offline expansion and product line extension.

“At that time Neiwai had no stores, but we thought going offline should be a top priority. Online and offline operations are totally different. Online, you focus on best-selling SKUs, whereas offline you build a longer pipeline. Sometimes, the two strategies appear contradictory because the speed, rhythm, and personnel are completely different. It is challenging for a start-up to balance the two,” Xu explains.

She recalls offline expansion proposals being rebuffed by multiple founders in 2016 and 2017. They were happy with their online traffic and reluctant to take the risk of entering a new channel. Some investors were also reluctant because the strategy didn’t tally with their expectations of explosive growth.

Today, the situation is different, not least because online traffic is getting more expensive. Neiwai is one of numerous Chinese brands focusing on brick-and-mortar operations, alongside the likes of broad-based retailer KK Group and bakery specialist Tiger Attitude.

Meanwhile, pure online operators are becoming omnichannel. Cosmetics platform Perfect Diary had opened 241 experience stores as of year-end 2020. Harmay, which started out as a Taobao store and moved offline in 2017, now has five large-format, high-concept outlets offering a combination of global and local cosmetics brands.

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• Topics
• Greater China
• Expansion
• Consumer
• Technology
• China
• Vertex Ventures
• The Carlyle Group
• Growth capital
• Qiming Venture Partners