Trendy Retailer KK Group was Fined for Selling Fakes

Recently, KK Group, a trendy Chinese retail company, was exposed that in its “K+ Membership” APP, the sold product “Dior 999 Legendary Red 3.5g” is a fake.

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According to reports, some consumers bought 20 lipsticks on the KK Group's APP "K+ Member", and the lipstick was identified as a fake. So consumers found KK Group and wanted to deal with the matter, but KK Group asked the consumer to sign a non-disclosure agreement to resolve it. As a result, the consumer took KK Group to court.

According to public information, KK Group owns four self-incubating retail chain brands, KKV, THE Colorist, X11, and KK Hall. Its product portfolio covers major categories such as beauty, fashion, food and beverage, household goods, and stationery, driven by China's leading multi-brand matrix.

In May 2022, the Intermediate People's Court of Dongguan, Guangdong Province ruled on the case: the lipsticks sold by KK Group, the parent company of "K+ members", were identified as "fakes", and Guangdong Kuaike E-Commerce Co., Ltd, the parent company of KK Group, stated that the identification report was meaningless. Therefore, Guangdong Kuaike E-Commerce Co., Ltd was judged to assume the responsibility of "one-for-one compensation for ten" in accordance with the agreement, refunding the consumer $775 of the purchase price and compensation of $7,749.

It is worth mentioning that the operator of the APP"K+ Member", Tengke Network, has also been administratively punished for allegedly selling lipsticks that infringe on the exclusive rights of other registered trademarks. In December 2020, the Dongguan Administration For Market Regulation of Guangdong Province sent the Dior lipsticks purchased by consumers to the LVMH Group Asia-Pacific region and the authorized person of PARFUMSCHRISTIANDIOR, the registrant of the "Dior" trademark.

Then it received the "Appraisal Report and Price Certificate", and the appraisal result showed that the lipstick was a fake, that is, "these samples are not produced by PARFUMSCHRISTIANDIOR, nor are they produced by a company authorized by us". After that, in July 2021, the Dongguan Administration For Market Regulation ordered it to stop selling infringing goods.

In addition to selling fake lipsticks, KK Group was fined $44,900 in May this year. It is reported that in the process of opening the franchise, KK Group lacked regulations and violated the "Regulations on the Management of Commercial Franchise", and was fined 44,900 US dollars by Shenzhen Administration For Market Regulation.

According to the regulations, a franchisor engaged in franchising activities shall have at least 2 directly-operated stores and have operated for more than one year. That is to say, the franchisor needs to open two directly-operated stores that have been operating for more than one year before opening a franchise store.

However, since August 2018, when KK Group launched the franchise activities of three brands including KK Hall, KKV, and THE COLORIST, although it already owned at least 2 directly-operated stores, the operation time did not exceed 1 year. In other words, KK Group violated the regulations by opening franchise stores in violation of regulations.

Not long ago, KK Group also submitted listing application materials to the Hong Kong Stock Exchange, preparing to be listed on it. At present, the prospectus was "invalidated". According to the relevant regulations of the Hong Kong Stock Exchange, if a company to be listed fails to complete the hearing or listing process within 6 months, the prospectus and other materials will automatically become invalid. However, this does not mean that the company has failed in its listing. The listing process can be restarted by supplementing the latest financial report within 3 months.

It is reported that from 2018 to the first half of 2021, the total assets of KK Group were $37 million, $217 million, $466 million, and $778 million, while the total liabilities for the same period were $52 million, $324 million, and $871 million, respectively. The net debt in the first half of 2021 was $1.044 billion.

Serious losses, high debt, and much negative information are the reality in front of it. Under such circumstances, it remains to be seen whether KK Group can be recognized by the market.