Singapore's Richest 2019: Massage Chair Billionaire Reads The Luxury Tea Leaves With New Partner KKR - Forbes

[Massage News]

“We are not a commodity. We are focused on the mass-affluent,” says Ron Sim.

Juliana Tan for Forbes Asia

This story is part of Forbes' coverage of Singapore's Richest 2019. See our full coverage here.

Pulling an IPO is generally not a sign of corporate confidence. Ron Sim knew that. It was early 2018, and he was on the brink of relisting the company he had taken private just two years earlier, the company that made him a billionaire. The syndicate of underwriters was lined up, the prospectus was out and Hong Kong’s exchange had given the green light for a listing by his company Vision Three (V3) and its flagship OSIM unit.

Then Sim shut the deal down. “I felt it might not be the best time,” says Sim, 61. His instincts were right: Hong Kong, it turned out, was at the start of an eight-month tailspin that would wipe nearly $600 billion off its market capitalization that year, its worst slide in seven years.

Sim was also confident he could get a better deal. Even as he was arranging the IPO, he was being courted by potential private investors. Last December, KKR emerged as the victor, investing S$500 million ($367 million) for what Forbes Asia estimates is roughly a third of V3. “It took them almost a year to do due diligence,” says Sim in his first one-on-one interview since the deal. “It helps us because it helped to crystalize things, which is good for any business.”

Together, Sim and his executives are working with KKR to get V3 firing on all cylinders. Top priority was OSIM, one of the top 10 massage chair brands in the world, according to U.K.-based research firm TechNavio. With KKR, Sim and his team reorganized OSIM’s network of stores to better tap Northeast Asia’s increasingly urban middle class and souping up V3’s luxury tea brand, TWG, into an even bigger global player. “The commonalities here is that he wanted to grow,” says Jaka Prasetya, a Singapore-based KKR partner who negotiated the deal. “And obviously us being a global player, we provide him connectivity.”

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The goal is to eventually take V3 back to market in an IPO that eclipses the S$1 billion Sim’s company was worth when he took it private in 2016. That would be a fillip to what is already a rags-to-megariches story. Ron Sim Chye Hock—his Chinese given name Chye Hock means “fortune” and “luck”—started out selling household appliances after quitting high school. In 1980, he started R. Sim Trading, which sold an assortment of kitchenware, home goods, wooden massagers, and reflexology rollers, and changed the name to OSIM years later as he began expanding across Asia, narrowing his focus to health and lifestyle equipment.

It was in massage chairs, though, that Sim found his niche, teaming up with Japanese engineers nearly 30 years ago to impart OSIM’s chairs with the sensation of a genuine shiatsu massage and then building a factory near Shanghai to keep costs low. Sim took OSIM International public in 2000, selling just over 25% of its shares in a deal that valued the company at just S$71 million. Today, its top-of-the-line massage recliner, the S$6,199 uLove2, promises to mimic the sensation of having two masseurs, and OSIM is the market leader in massage chairs in Greater China, Malaysia and Singapore.


Courtesy of V3 Group


Sim views his chairs as just part of a wider lifestyle and wellness proposition, and early on began using acquisitions to round out his offerings. In 2003, OSIM branched out into nutritional supplements, paying about S$10 million for a 30% stake in Singapore-based Global Active, which owned the franchise for parts of Southeast Asia for U.S.-based GNC.

V3 today owns 90% of Global Active, now called ONI Global, whose 226 stores in Malaysia, the Philippines, Singapore and Taiwan last year generated S$16 million in profits on S$174 million in sales.

But Sim learned a costly lesson in 2005 when OSIM, Singapore sovereign fund Temasek and Boston-based private equity firm J.W. Childs paid $450 million for Brookstone, the U.S. specialty retailer known for its quirky gadgets. While the move gave OSIM a way to sell its chairs in Brookstone’s nearly 300 U.S. stores, the company failed to transition to online shopping. In 2009, OSIM took a $100 million writedown on Brookstone, which went bankrupt in 2014.

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Sim says the setback helped hone his operational, financial and management skills. “The key principle I learned from the Brookstone acquisition is that I understand the psychology of the financial market and the financial player,” he says.

Two years after its Brookstone writedown, OSIM bought a 35% stake in a luxury tea chain with only three shops in Singapore called TWG Tea. “It was losing S$2 million a year and I got scolded by shareholders,” he recalls. But Sim saw in TWG a luxury experience that would appeal to the same consumers with discretionary spending power he was targeting with his chairs and GNC. He also saw potential in TWG’s cofounder, Frenchman Taha Bouqdib, now its CEO. “Taha is a genius in terms of marketing, he is a creative guy who understands merchandising,” says Sim.

Within a year of OSIM’s purchase, TWG broke even and, over the next two years, OSIM bumped its stake up to 70%. Today, TWG has 70 of its ornate tea salons and épiceries, with their floor-to-ceiling chinoiserie and eggshell tea tins, in more than 18 cities worldwide. Last summer, TWG opened a salon and tea museum in London’s Leicester Square that drew capacity crowds—a ringing endorsement from a country with a long tea pedigree.

“We are getting very strong traction of our tea,” says Sim between sips of TWG tea in his freshly renovated and rebranded V3 headquarters atop OSIM’s headquarters. “We are not a commodity. We are focused on the mass-affluent.” Next stop: North America, where TWG has already established a Vancouver beachhead.


Courtesy of V3 Group


TWG’s biggest source of profits comes not from the boutiques, though, but from selling tea and related merchandise to hotels and other luxury retailers. In 2017, TWG earned S$4.5 million on nearly S$70 million in sales, down from S$7.4 million in 2016 as raw material costs swelled. That should recover, Prasetya argues, as expansion gives TWG greater pricing power. “The economies of scale of each country still needs to be established,” he says.

Even after TWG’s turnaround, though, OSIM relied on chairs for the lion’s share of its revenue. And it’s there that sales were languishing, dragging group profit down 42% in the first quarter of 2016. With OSIM’s shares trading at half their 2014 peak, Sim in April that year used V3 to buy back the 31% of the company he didn’t own in a deal that valued OSIM at S$1 billion. OSIM was delisted from Singapore’s exchange in August.

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Freed from quarterly reporting and other obligations, Sim focused on restructuring the business. In March 2017, V3 bought a 75% stake in Futuristic Store Fixtures, a Singapore-based maker of shelving for global retailers such as Bath & Body Works, Starbucks and Victoria’s Secret. To help pay for Futuristic and pay off the more than S$300 million he borrowed to take OSIM private, Sim began laying plans to list V3 in Hong Kong. Sim’s hope was that V3 could fetch a higher price in Hong Kong than in Singapore.

But even as Credit Suisse, Bank of China’s BOC International and New York-based investment bank Jefferies were lining up potential investors, Sim was being courted by KKR, which offered not only funding, but also a potential solution to OSIM’s sluggish sales. “They have depth in terms of their analytical tools, which is helpful to us because we are business people first, operational second, financial third,” says Sim.


Juliana Tan for Forbes Asia


Led by Prasetya and his team of analysts, KKR mined customer data OSIM had accumulated over four decades—customer surveys, focus group reports and foot traffic—to evaluate its product placement and store locations. Prasetya’s conclusion: “Something was not exactly right in his stores across China.”

Together, KKR and OSIM’s managing director, Teo Chay Lee, mulled over which stores to keep and improve, and which ones to close or relocate. The result was the closure of 112 OSIM-owned and franchised stores and the opening of 27 new ones in different locations. Outlets with smaller footprints made way for larger stores that could display more products for customers to try before they buy.

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So far, the strategy seems to be working. In 2017, the most recent year figures are available, OSIM’s net profit climbed 23% to S$64 million on a 3% increase in sales, to S$594 million. OSIM and its investors say it’s now better positioned to take part in the growth of a global market for luxury massage chairs that TechNavio predicts will grow to 35%, to $1.8 billion, between 2017 and 2022. China, Japan and South Korea lead the global market in growth thanks to the rise of stressed-out, dual-income households, according to Ritesh Kumar, a senior industry analyst at TechNavio.

Time to start revising V3’s prospectus? Sim says another IPO isn’t yet on the horizon. “Certainly not this year. I don’t see next year as a possibility. Maybe 2021,” he says. “I have time, lots of time.”