Lining Lost The Watermelon &Nbsp, Picked Up The Seeds And Did Not Germinate.

The abandonment of Kappa can only witness its growth and development, and swallow Lotto (Le Tu), but it has formed a black hole of loss.

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According to Lining (02331.HK) 2010 earnings report, since 2008 the Italy sports brand Lotto China's exclusive franchise for 20 years, the brand has been operating deficit for 3 consecutive years, and by the end of 2010, the accumulated deficit was about 200 million yuan.

The newly released China trend (3818.HK) reported in 2010 that although its performance was lower than expected, its net profit still exceeded RMB 1 billion 400 million yuan, which was higher than that of Lining.

Ironically, the 85% of the latter's income comes from Kappa., which was abandoned by Lining.

Even three years of losses, heavy investment into the bottomless pit

According to the contract signed 3 years ago, Lining has obtained the exclusive license of Lotto trademark for 20 years, and can develop, manufacture, marketing, publicize, promote, distribute and retail the licensed Lotto products in China.

According to the contract, Lining has to pay an average of 19 million 690 thousand yuan per year since 2008.

"Lotto (Le Tu) brand is still in the initial stage of development and promotion, and has undertaken higher product R & D and brand promotion expenses."

For the performance of Lotto, in 2010, Lining explained that last year, the group continued to expand its channel to expand its Lotto brand.

However, influenced by market environment and competitive factors, business growth is slower than expected.

According to the results of the report, Lotto brand profit before interest plus depreciation and amortization is RMB 91 million 749 thousand yuan.

Looking at the performance in the past 3 years, Lining lost 12 million 400 thousand yuan in the year after winning the Lotto brand in 2008. In 2009, the loss increased to RMB 76 million 910 thousand yuan. In addition, in 2010, the Lotto brand had lost 3 years, and the accumulated loss amounted to RMB 200 million yuan.

Today's Lotto is just like an unending carriage for Lining. The loss has not been alleviated and the investment needs to continue.

However, Lining said that the Lotto brand strategy has been adjusted in the middle of last year, emphasizing the retail performance and profitability of the store, reasonably controlling the speed of the channel development and the distribution structure of the shop formats, and choosing the key markets to make breakthroughs.

Abandoning K AppA, China's trend is coming from behind.

In the eyes of ordinary consumers, today's Lotto is similar to another Italy sports brand K AppA, regardless of its product style, category, store decoration and layout.

According to Lining's official position, Lotto belongs to the "Italy sports fashion brand", which is very similar to K AppA.

In 2002, Lining signed a concession agreement with B asicN et, the real owner of the K AppA brand. But 5 years later, Lining gave up K AppA, which was taken into the arms of China's trend, and quickly pformed K AppA into a unique sports brand through fashion orientation, making great difference in the Chinese market.

According to the newly released China trend 2010 earnings report, although the overall revenue and earnings are lower than expected, but the annual net profit still reached 1 billion 464 million yuan, higher than last year, Lining's overall profit of 1 billion 105 million 800 thousand yuan.

It is worth noting that Lining's sales volume last year was 9 billion 478 million 500 thousand yuan, while China's sales revenue was less than half, only 4 billion 260 million yuan, of which K AppA accounted for 85% of China's trend revenue.

The gross profit margin of both sides is immediate.

In the explanation of the reasons for buying Lotto, it is impossible for Li Ning Co to mention K AppA.

But there are too many similarities between the two brands, which reflects Lining's idea of losing a watermelon and picking up a seed.

Public information shows that in 2008, in exchange for Lotto franchise for 20 years, Lining spent 934 million yuan.

In the same year, the sales revenue of China was RMB 3 billion 320 million yuan, the profit was RMB 1 billion 367 million yuan, and the compound growth rate of sales revenue and profit exceeded 96% in successive years.

High-end positioning, Lotto step by step Market

With a strong Lining group to support, as long as the direction is firm, Lotto brand wants to get continuous funding and resources support is not a problem.

But the key is that, after experiencing the high growth period of the domestic market from the Beijing Olympic Games, such as the international giants Nike, Adidas, and Lining himself, they all realized that the pace of market development began to slow down.

China has also spit out a similar view in the financial report.

"The mainland sporting goods market has increased by about 30% every year during the period -2007 2004, and even after 2008, the growth rate of the sports industry has dropped to two digits after the 45% increase in the Olympic Games."

At the same time, the rapid rise of local sports brands aggravated competition in the industry.

Among them, leisure sportswear is higher than functional sports wear. "Both local and international sports brands want to enter the leisure sportswear market. At the same time, the international casual wear brand is also actively occupied the mainland market."

Like K AppA, Lotto, which originated in Italy as Lining's brand of high-end international market, still needs to be spun in the first tier market, unable to go deep into the three or four tier market and find space like other popular sports brands.

If you pay attention to the profitability of a single store, it is difficult to strengthen the brand.

If we insist on increasing investment, we can not avoid the rigid costs such as rent, promotion and so on. When is the loss?