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Call with Activation Group
Some insights and some confirmation bias
I had just done a call with Nicole Lau who in charge of IR from Activation Group.
Activation Group (AG) started their business in 2009 just when luxury sales is taking off in China. Nicole stated that the Steve Lau - CEO has always highlighted to the employee that they have been really lucky to start in 2009 in Shanghai. If they have started later, they would not have been successful.
If you looked into the history of some of their most important employee - Christine Low and Ben Chan, they all hailed from APAX Group before working on AG.
Unlike most Chinese firm, their founder consist of a Hongkonger and a Malaysian. Thus the culture of the firm is youngish and more international with employee.
The structure is pretty flat, decentralised and that the management (since they are so young) is keen to continue to grow. All the employees are treated like partners and they address each other with their first name which is pretty uncommon in China.
The visionary and chief communicator in the company is Steve Lau.
Christine and Ben is the main execution team for experiential marketing. They seems to have superstar in other areas like PR which help to bring in the celebrities and various contacts and staffs with good relationship with the Chinese government which helped brought in the IP for Shanghai Design Week.
There seems to be a cost focus within the firm as well with an emphasise on their lean balance sheet where they do not own any property and that their current Shanghai office is not in the most prime area in Shanghai despite serving the luxury brands.
The lockdown in China (especially Shanghai) would hit AG business significantly as there is no event during that period. Even their digital business is significantly affected since supply chain1 came to a standstill in China.
Due to the current situation in China, AG will be maintaining their manpower and will not be hiring additional people for 2022.
AG is the leading experiential marketing firm for luxury firms in China. In total, they have around 550 customers and is the leading player with 9.2% market share in China. Their customers are 70% fashion and 30% automobile with 95% of their customers choosing to continue to renew their contract with them.
Their top 10 brands do not constitute more than 20% of their total revenue. That means that they are highly diversified on the brand basis but not on the customer basis.
AG aims to to work with the middle to high-end range of products and is not willing to entertain brands lower on the spectrum as
there may not be enough marketing spend by them
the margin may be more compressed
AG generally also have very little local brands as the local brands marketing budget is usually a lot smaller than the foreign luxury brands. One of the few luxury brands which AG works on is brands like Cindy Chao The Art Jewel as this one of the up and coming jewellery brands in China.
While most of the contracts need an evaluation-tender process, the customers usually stick with them as long as they continue to provide good idea inputs and strong execution.
The next learning is that the experiential marketing and digital marketing budget allocated by the brands are decided by the spending ( determined by passport and not on the retail location sales) by the Chinese consumers. As long as Chinese consumers continue to purchase foreign high end brands (from any locations in the world), this segment will continue to receive the budget allocation from the major luxury brands.
Since the start of Covid, they have close off their Singapore office and got everyone back into Hong Kong. While they continue to conduct shows in Singapore, AG is flying people into Singapore to handle the shows here.
South-east Asia seems to be attracting an increasing number of shows (especially in Thailand and Vietnam) and their modus operandi is to send in people from Hong Kong to handle the South-East Asia market. Personally, I do not think that is ideal but it could be a temporary measure till their business in South-East Asia justify a proper office again.
Intellectual Property (IP):
We chatted about the IP part of the business. There is not much of an insight here except that the IP business is very much a offline business with events like Tour De France (10 years), La Liga Club (12 years) and Shanghai Design Week (JV) being held yearly.
They are keen to use metaverse to bring some of these IP online but that seems like a stretch so far. AG is also preparing to sell NFT online for their IP. Unlike blockchain, these are usually sold as collectible items hosted by a central entity2.
This area seems to be the least exciting of all until they can get a better brands or events.
Digital marketing consist of 2 businesses and is around 22% of AG's revenue.
T-Mall digital marketing started in 2015
This include the banner ads you see on T-Mall as well the increased brand awareness through the increase online interaction (Estee Lauder was used as an example here).
Douyin (Tik Top) e-commerce started in July 2021
This segment consist of live streaming sales. Unlike the initial press release, AG highlighted that they will not be recruiting Key Opinion Leaders (KOL) or some pretty face to do the streaming sales. AG will mainly work with celebrities.
This is structured as a JV between AG (51%) and Vision Entertainment group (VEG). AG will be in charge of bringing in the brands and the marketing piece while VEG would be in charge of the operational piece as they are the pioneer for marketing in Douyin.
This business did around RMB 487m GMV. The main value AG is bringing to the table is the brands. They have introduced Hermes perfume, Bulgari jewellery pieces and Armani watches. If AG is not in the picture, VEG would never be able to garner such brands for sales.
The JV structure is structured on a cost basis. AG will bare the cost of bringing in the brands, the cost of engaging the celebrities while VEG will handle the operational and logistics portion of the JV.
Most of this operation3 resides in Shanghai and the business is badly affected when lockdown happen between March and May 2022.
There is also chat on the metaverse. It is always a concern when company start using the lastest buzzwords. Nicole assured me that the reason why they have to do this is that metaverse help in promoting their experiential marketing, IP and digital marketing business. So instead of seeing this as a separate business, it is better to see metaverse as an additional way which they can monetise their other core businesses.
They have started doing VR 360 shooting for various brands (Chanel is the example given here where the budget increase by RMB 1m due to the VR component). I do see some promise here since brands would be keen to prepare for the eventual metaverse.
Overall, this is an industry which I am very familiar with. The company is still relatively small and the management seem to have the ambition to continue growing. The luxury market segment will continue to be define by the Chinese consumers. I could not foresee that luxury brands would be willing to cut their marketing budget and allow the chance that the Chinese consumers will forget them.
Who in the right mind would be buying luxury goods when you cannot even get mineral water and vegetable?
Celebrities and the luxury goods warehouse are all in Shanghai