Gentle Monster IPO - A Monster Growth

What Korean brand has been enjoying the best growth globally in the semi-luxury consumer category? The brand is called Gentle Monster, which produces and sells semi-luxury sunglasses. In 4Q16, Gentle Monster hired Mirae Asset Securities to be its lead manager for the IPO, which is expected to occur in 2017. Other joint managers include Shinyoung Securities, Hana Financial Securities, and KB Securities.

Although many Korean companies have attempted to expand globally for semi-luxury and luxury segments in various apparel products, most of them have failed. However, Gentle Monster has the chance to break out of these repeated failures by Korean companies and become one of the most recognized brands globally in the semi-luxury sunglasses segment. The global eyewear segment is estimated to be about US$40 billion in annual sales.

Established in 2011, the company has been posted some monster sales growth in the past few years. The company has yet to provide its detailed financials. However, it was reported that its revenue was nearly US$160 million in 2015. In addition to its retail shops in Korea, Gentle Monster has been able to expand its retail stores presence in key cities globally, including Beijing, Shanghai, New York City, Los Angeles, Vancouver, and many other major cities. The Gentle Monster sunglasses are priced typically around US$200 to US$300, although there are higher priced ones in the US$300 to US$500 range. It is estimated that about 70% of its sales are direct through its retail stores and 30% are completed wholesale.

Tipping Point - The tipping point for Gentle Monster sunglasses came when a famous Korean actress, Jun Ji Hyun started wearing Gentle Monster sunglasses in a wildy popular Korean TV drama called 'My Love from the Star' which aired from December 2013 to February 2014.

Over a year ago, my wife also bought a Gentle Monster sunglasses. Back then, I didn't think much of it, other than than ask her what motivated her to purchase this Gentle Monster brand sunglasses. She basically responded that "It is very cool and fashionable. The other branded upscale sunglasses do not tend to have the fashionable style that Gentle Monster's sunglasses provide."

Further research suggests that there are some key features of the Gentle Monster sunglasses that have helped its tremendous growth. Notice that price is not included as one of its competitive advantages. Its price point is relatively affordable for many consumers globally but is not a key differentiating advantage since there are many other sunglasses brands with similar price points:

• "Coolness" - In Asia, consumers tend to be more swayed by star marketing than in the US/Europe. With many stars such as Jun Ji Hyun and Psy wearing Gentle Monster sunglasses, the Gentle Monster sunglasses brand has become a symbol of "coolness" for many Asian consumers.
• Nose Fit - Many Asians do not have high nose bridge. Asians in general have a greater need for lower-bridge nose fitting for their sunglasses due to their natural shape of their noses (In Korea, there is a huge amount of nose lifts, but nonetheless the majority of the people tend to have a need for lower-bridge nose fits for their sunglasses. For many years, Asians wearing sunglasses complained that their sunglasses don't fit well. Plus, many Asians have slightly higher than average cheekbones. Especially for these consumers, Gentle Monster's sunglasses tend to fit better on their faces, and slip down less from their noses. A sunglasses that fit well reduces the chances of acne!
• "Small face compliment" - In Asia, having a "small face" is typically a compliment, especially to a women. Wearing oversized sunglasses gives a visual appearance of having a "smaller face." Although Gentle Monster provides many different kinds of sunglasses, it tends to provide a greater variety of oversized ones.

Final Thoughts

We look forward to the IPO prospectus in the coming weeks. The global semi-luxury apparel segment is a highly competitive market that few Korean companies have been able to succeed. The growth of Gentle Monster is certainly monstrous, but for equity investors, every growth has a price.

http://kr.gentlemonster.com/