Che changed his first name from”Jianxing” to “Jianxin” to remind himself of always being “innovative”. “Xin” in Chinese means something new and innovative.
Many years ago, he told his employees: “I hope to carve the following on my epitaph – Che Jianxin was an innovator, a trendsetter of the era.” From a carpenter to the person behind a public-listed company which has a total asset of 200 billion, Che Jianxin never stopped innovating.
When online-to-offline commerce was popular, Che Jianxin followed; while digital marketing was in trend, he started a smart-retail collaboration with Tencent.
Many wonder whether these changes are too rapid for a large, hundred-billion-scale company. Che Jianxin does not think so. He gave himself a nickname “Cheche”, as it makes him seem younger. Although he is over 50, he wishes to keep the mentality, mindset, and imagination of a 28-year-old.
Red Star Macalline Group foundedby Che Jianxin is now 32 years old.
The little carpenter back then now operates assets over 200 billion.
Many changes have happened in 32 years in this industry. In the past, home furnishing had only functional purposes. Gradually, Che Jianxin developed different scenarios for home decorations. From street stands to furniture malls, and now to a chain of home furnishing oriented shopping centers, Red Star Macalline Group has developed horizontally and vertically with an unique business model.
The competition has also been extremely intensive in this 32 years. International giants like Ikea and B&Q also entered the Chinese market, accompanied by other national brands. On the one hand, Red Star Macalline actively learns from the international giants, on the other hand, it also develops its own innovative models, such as scenario-oriented exhibition style, market-oriented operations, and mall-focused management. It purchases the land, builds the mall and also manages its own properties.
By the end of 2017, Red Star Macalline owns 256 malls in China, and keeps a high growth rate reaching hundred billion asset level.
How to keep winning?
Che Jianxin: Everyone keeps moving in this industry. Three years ago, we got listed on Hongkong stock market. This January, we went on A-shares in China. We are a home furnishing mall business and also a listed company on both China and Hongkong stock exchanges. The capital market gave us lots of support. Or so to say, entering the capital market helped us to develop greatly.
As a whole, the home furnishing market has changed a lot in China. During the 80s, furniture only had functional purposes. Right now, our homes are being decorated and fulfill difference scenarios, so you would love your home more. These are step-to-step innovations, from the first to the ninth generations, from innovation to creation, from original “huckster” style business of selling furniture at street stands to today’s scenario-based furniture sales with chain stores all over China and shopping malls. This is both horizontal and vertical development.
Gloria Ai: The biggest difference between Red Star Macalline and other store is its asset-heaviness. And this creates a strong entry-barrier – by owning the land, building the mall itself, and managing its own property. Isn’t that a lot of work? Shouldn’t each firm only focus on its specializations?
Che Jianxin: We can also only make sure that the properties in the first tier and second tier cities belong to us. We currently have 79 properties, 29 are being built, and 200 are rented. It is very important to keep the ownership of the properties for two reasons. One, the way we use this property is unique, and it is not suitable for others to manage it.
Second, after the lease is over, the owner either wants to take the property away or increase the rent. If they increase the rent too much and take away all your profits, you also have to leave. For instance, if you want to build a century-old brand, but you do not own the spot, if they kick you out, you will have no land and no malls. How could you build a century-old store? You can just go home.
Gloria Ai: So you firmly believe that one can only depend on oneself?
Che Jianxin: I think, if you want to make a century-old store, you need to own the property.
Gloria Ai: In the past 30 years, the home furnishing market developed very fast, and also had intensive competitions. Many foreign giants entered the Chinese market, such as Ikea and B&Q. Meanwhile, there were also many domestic brands. How was the competitive landscape in the whole industry?
Che Jianxin: My attitude towards foreign players is to learn from them. Especially regarding how to run a chain business, I learned this from them. But other perspectives of the business was my own creation.
Gloria Ai: What are the unique innovations of Red Star Macalline whice make it so competitive?
Che Jianxin: Arranging our products based on scenarios were our innovation. Market-oriented operations and mall-focused management were also our creations. Also, we run markets and chains. How to run markets and chains at the same time? This was unimaginable back then.
Mentioning Red Star Macalline, the first thing which comes to the minds of both investors and founders is it is rich.
Although China’s economy has been sluggish in 2018, Red Star Macalline still achieved 46.5% of net profit growth in the first three quarters. Che Jianxin explained the reasons behind this: when others are restraining themselves, I want to expand and gain more market share. In both 2008 and 2018, Red Star Macalline doubled its marketing expense comparing with the previous years.
Aside from brand promotion and marketing, Che Jianxin is also willing to spends a lot on design.
15 years ago, Che Jianxin asked himself: is there any high-tech in the furniture industry? His answer was no.Later, he realized that design is the high-tech in this industry. Since then, the employees of Red Star Macalline have been adhering to this concept.
Red Star Macalline spends several times more in design comparing with others. Even some of the designs were not implemented, Che Jianxin still believes they were valuable. “Excluding those bad ones, we know how the good ones look like.” Treating design as R&D and technology, he thinks the money is well-spent.
How to realize counter-cyclical growth?
Gloria Ai: The economy has its cycles, such as the “8-year cycle” that the economy slows down every 8 years. Does Red Star Macalline also feel the pressure?
Che Jianxin: This year’s Chinese economy is very sluggish. For instance, the automotive sales decreased by 20%. The real-estate sales also decreased a lot, but the furnishing market is still doing well, especially our company.
Gloria Ai: Why? Is it counter-cyclical?
Che Jianxin: Our firm has good growth during adverse circumstances. In the first three quarters this year, our net profit growth was 46.5%.
Gloria Ai: What do you think is the reason behind it?
Che Jianxin: When no one is doing promotions, I expand the extent of promotions. In 2008 and 2018, I increased the promotion expenses. This year, I increased the marketing expenses by 200 Million. In 2008, I also increased the expenses by 200 Million.
Gloria Ai: This means, you fear when others are being greedy, and you are greedy when others fear, which is similar to Warren Buffett’s investment philosophy?
Che Jianxin: It is not greed but an investment to gain market shares. When others are saving, I am expanding.
Che Jianxin has been extremely persistent about taking the company public.
Back in 2007, shortly after the company was founded, he launched the plan to go public. In 2012, Red Star Macalline applied to get listed on China A-shares. It was not approved for three years. Eventually, Che Jianxin withdrew the IPO application, and planned to launch its IPO on Hongkong stock exchange instead.
In 2015, Red Star Macalline went listed in Hongkong and raised 7 billion Hongkong dollars. But Che Jianxin also did not forget about A-shares. He reapplied in 2016 and became the first home furnishing retailer in China on both A-shares and H-shares.
Che Jianxin says it is the era which gave him a new label – an entrepreneurial investor. If investment and fundraising activities can be managed well, he believes that capital then has “nuclear powers”. “In the past, your ability to achieve something depends on the amount capital you have. Right now, you only need a story and a business model to gain a lot of money.”
As for invest focuses, Che Jianxin is positive about AI and smart-home business. Red Star Macalline has already invested in smart home, leaders in the upstream industrial chain, home furnishing logistics, and design and interior decorations areas for strategic purposes. It has invested in renowned firms such as Oppein, YunDing Loock, and Uiotto cover the whole industrial chain.
As for the future of entrepreneurship and investment industry, Che Jianxin says he will take the main business as a priority, and capital operations as supplements. “My dream is to grow this enterprise to a fortune 500 company, a fortune 500 company from China.”
How powerful is capital?
Che Jianxin: Capital is very powerful, especially those high-tech firms which got listed in the US. VC and PE are pushing those new products and new economies. The changes of this society are promoted by capital.
For instance, JD has never been profitable, and its market value is 27 billion dollars. Pinduoduo is also not profitable and also has more than 20 billion dollars’ worth of market value. Nio is losing 2.8 billion RMB every month, but it still has a 60 billion dollars of valuation. These all demonstrate the power of capital.
Gloria Ai: What is your opinion about these highly-valued, however unprofitable businesses?
Che Jianxin: You need to look that their market share and their future. There are lots of changes in today’s economy. The biggest change is user traffic and user recognition. Comparing with profitability, this is a different concept.
Today’s economy takes investment as “the nuclear weapon”. In the past, your ability to achieve something depends on the amount of capital you have. It is like a musket, you take down one enemy with one shot. Right now, you only need a story, a business model to gain a lot of money. Having a lot of money is like having “the nuclear weapon”, it is very powerful.
Gloria Ai: An enterpriser like you who came from the real industry, doing traditional furnishing business says “capital is like the nuclear weapon”. This is quite shocking to me.
Che Jianxin: Yes. In the past, how many enemies can be taken down depends on how many muskets we have. You also need to have a good aim, otherwise, you cannot take enemies down. Right now, nuclear weapons are way too powerful.
Gloria Ai: Since you agree so much on the concept of running an enterprise with the power of investment, what are your plans for future investment activities?
Che Jianxin: Mainly we will focus on AI and smart-home investments, and support high-potential upstream furnishing factories, and try to do well in the furnishing industry.