China's KAPA opened 507 stores in the first half of the year

China Mobile has just announced its interim performance report. The company reported operating revenue of 1.868 billion yuan, marking a year-on-year increase of 33.5%, and net profit of 722 million yuan, a year-on-year rise of 9.9%. According to China Dynamics, Kappa's China operations remain robust. In the first half of the year, sales reached 1.674 billion yuan, accounting for 89.6% of the group's total sales. The gross profit margin stood at 64.1%, maintaining industry leadership. During the first half of the year, Kappa brand stores increased by 507, bringing the total to 3,315. In the first half of the year, China Mobile received government subsidies amounting to 22.01 million yuan, compared to 11.4 million yuan in the same period last year.

In the first half of the year, the average selling price of Kappa's garments was 126 yuan, a year-on-year increase of 4.1%, with total sales reaching 9.78 million pieces, up 28.2% year-on-year. The average selling price of footwear was 170 yuan, a decrease of 3.4% year-on-year, with total sales of 1.7 million pairs, up 26.9% year-on-year. China Dongxiang’s China segment focuses on wholesale of Kappa-branded products. In the first half of the year, it achieved sales revenue of 1.678 billion yuan, a year-on-year increase of 24.9%, accounting for 89.8% of the company's total revenue.

The Japan branch sells sports-related products under the Kappa and Phenix brands, achieving sales revenue of 190 million yuan, accounting for 10.2% of the company's total revenue. On May 1, 2008, China Dongxiang completed the acquisition of a 91% stake in Phenix in Japan. Phenix’s two main brands are ski and Outdoor Sportswear brand Phenix and football, sports, and golf apparel brand Kappa.

Clothing is the main product of the Kappa brand in China, accounting for 73.4% of total brand sales, followed by footwear at 21.9% and accessories at 4.7%. In 2006, China Mobile acquired the full rights to the Italian brand Kappa in mainland China and Macau, with the help of Morgan Stanley, transforming from a franchisee to the brand owner.

Related reports: Kappa's Brand Success

Mr. Qin Dazhong is the CEO and executive director of China Dongxiang Group, responsible for the group's overall strategic planning and management. Mr. Qin joined Beijing Trend as general manager in October 2002 and has over 10 years of experience in managing sportswear companies. From 1997 to 2002, he held various positions at Beijing Li Ning Sports Goods Co., Ltd., overseeing corporate planning, international business, and financial monitoring. Trend Group was originally a standalone unit of the Li-Ning Group since 2002. In 2005, due to business expansion needs, the Li-Ning Group was spun off and successfully listed in Hong Kong on October 10, 2007. The group's current brands include Kappa's rights in China and Japan, Phenix, INHABITANT, and XNIX. Among these, Kappa has created a "brand marketing myth" by growing 200 times in six years in the Chinese market.

Mr. Qin Dazhong briefly outlined Kappa's brand success story. The first step was seizing the crisis of the original Italian brand owners, leveraging the international capital market's interest in China, and collaborating with financial giants like Morgan Stanley to acquire the lifetime regional usage rights of the Kappa brand. Complete ownership not only eliminates the risk of the brand being reclaimed once it matures but also provides ample autonomy and flexibility in market operations and brand management. Additionally, being an internationally renowned brand significantly reduces the risk of brand failure.

Secondly, the company chose not to focus on professional sports but instead specialized in sports fashion. While acquiring Kappa, the company recognized its limitations in terms of strength and resources compared to top-tier brands like Adidas and Nike. Thus, identifying a niche market and accurately positioning the brand became crucial. In China, instead of following Kappa's European appeal, they repositioned it as a fashion sports brand. By stripping away low-value-added parts and focusing on fashionable sportswear, they gained consumer recognition. This strategy not only avoided direct competition with global giants but also carved out a new market segment, pioneering sportswear fashion.

Thirdly, the company focused on building sales channels and strengthening distributor relationships. Kappa has only 43 distributors nationwide, far fewer than Adidas and Nike. Mr. Qin Dazhong explained that having too many distributors could lead to profit dilution and affect customer profitability, while frequent discounting could harm the brand's value. In January 2009, Dongxiang Group became a minority shareholder in several key distributors, fostering closer cooperation and enhancing influence over them. Restricting but not managing channels is another operational advantage.

Regarding the future direction of the group, Mr. Qin Dazhong emphasized continuing to expand the sales network, strengthening marketing strategies, improving internal efficiency, and stabilizing the multi-brand strategy. Under the philosophy of single-brand internationalization and regional brand diversification, the company aims to build the best sports brand management team in China, guided by values of confidence, pragmatism, and innovation. Based on diverse brand cultures, the company plans to offer consumers more choices and greater value.

The first key to success was capitalizing on the crisis of the original Italian brand owners, attracting international capital market attention, and partnering with financial giants like Morgan Stanley to secure the lifetime regional usage rights of the Kappa brand. Full ownership not only mitigates the risk of the brand being reclaimed post-maturity but also grants autonomy and flexibility in market operations and brand management. Owning a globally recognized brand significantly reduces the risk of failure.

Fourthly, the company adopted a light-asset operational model, focusing on sports fashion. One characteristic of fashion is that consumer demands change rapidly. Thus, it's impractical to rely solely on traditional production methods. Instead, the company adopted a non-retail, non-production model, excelling in efficient inventory management, shortening accounts receivable cycles, and controlling costs effectively.

Lastly, the company actively promotes sports fashion through entertainment marketing, aligning with Kappa's "Fashion + Sports" brand philosophy. Collaborations with brands like Pepsi, including limited-edition Pepsi Kappa cans, maximize publicity with minimal advertising investment. The company continues to innovate, aiming to offer consumers more choices and greater value based on diversified brand cultures.

As for the future, under the leadership of Mr. Qin Dazhong, the company will continue expanding its sales network, enhancing marketing efforts, improving internal efficiency, and stabilizing its multi-brand strategy. The Japanese market remains a steady growth area. Guided by principles of self-confidence, pragmatism, and innovation, the company seeks to build China's premier sports brand management team. By embracing diverse brand cultures, it aims to provide consumers with more options and greater value.