Focus On Brand: Is Kappa On The Decline

Who remembers kappa?

It used to be the sports brand with the best growth prospects in Goldman Sachs and the most potential enterprise in China selected by Forbes. As early as 2008, he sold 3.3 billion yuan a year, successfully surpassing Li Ning and Anta as China's largest sports brand.

At the peak of its development in 2010, kappa's annual revenue reached 4.262 billion yuan, operating profit reached 1.741 billion yuan, and there were 3751 stores.

But now, kappa has long been out of the public eye. According to its annual report in fiscal year 2022, the company's operating profit was 776 million yuan, a year-on-year decrease of 167.88%.

At the beginning of 2022, the company announced to sell the exclusive right to use the trademark of kappa kids in mainland China to Quanzhou pingbu. Prior to that, it also sold kappa's Japanese trademark and intellectual property rights, as well as Phenix's exclusive trademark rights in Japan, South Korea, Australia, the United States and some European regions.

After selling assets one after another, has China's first sports brand become the past?

Sports brands with the best growth prospects in China

Kappa is an Italian brand founded in the early 20th century. Until 2002, Beijing trend, a subsidiary of Li Ning company, obtained its agency in mainland China.

During this period, with the successful bid for the Olympic Games, the men's football team and China's accession to the WTO, the domestic sportswear market has ushered in a great prosperity in the consumer side. The market structure of the whole industry is generally clear: adidas, Nike and other high-end international brands control the first and second tier cities, and the domestic players that can compete with them are Li Ning and Anta; However, Jinjiang brands such as guirenniao, Tebu and 361 ° have all fallen to the third and fourth tier cities and even township level.

Kappa, who came from Italy, did not perform well in the next few years. According to an article in the daily economic news, the annual sales revenue of kappa is even less than that of Adidas and Nike in a year.

At that time, Chen Yihong, former CEO and general manager of Li Ning company, mainly engaged in Beijing trend and its kappa, holding 20% of the company's shares.

In 2005, Chen Yihong gave up all the shares of Li Ning because of the internal adjustment of Li Ning company, and got the remaining 80% shares of Beijing trend with 44.814 million yuan, thus becoming the real boss of the company.

In 2006, kappa's parent company basicnet exposed rumors of poor group cash flow. Chen Yihong immediately went to Italy and bought kappa's brand ownership in mainland China and Macao for $35 million.

As a result, kappa has become a pure domestic brand, and the road of brand reconstruction has opened.

First, differentiated positioning, transformation of sports fashion line.

From 2002 to 2005, despite the fire in China's sports industry, kappa was positioned as a high-end "professional sports brand", forming a pattern of positive competition with Adidas and Nike.

In this case, kappa is quite dependent on the advanced design ideas of Italy. Almost all of its clothing, shoes and other products are Italian style, without injecting Chinese local popular elements and failing to gain the recognition of Chinese consumers.

But Chen Yihong found that the sports brands at that time all took the traditional sports style as the core line, so that most sports clothes were loose type. This left a blank for the sports fashion market, and kappa began to make sportswear into a waist closing design, slim and often decorated with sequins.

Although these clothes are not suitable for professional sports, they are good-looking and fashionable, winning the favor of many young consumers.

Second, differentiated marketing, entertainment instead of specialization.

At that time, the marketing of sports brands in the field of professional sports can be said to be a breakthrough. Anta won the men's table tennis world champion Kong Linghui with 800000 yuan, Jinlaike chose Wang Nan, the world champion of women's table tennis, and Cai Zhenhua, then China's table tennis coach, invited by Xi Delong. Adidas and Nike even paid sky high sponsorship fees in competitions such as the world cup.

Kappa has a different approach. It began to sponsor Huang Jianxiang, Tian Liang, Xin, Chen Bolin and other star artists and sports journalists' appearance and life clothes, even did not emphasize that it was a sponsor.

This has aroused the curiosity of a large number of consumers. First finance once learned in an interview that when kappa does not appear as a sponsor, consumers will think that the staff of the program group chose kappa spontaneously - which means that kappa has become a fashion representative in this circle.

For a while, celebrities love to wear kappa.

Third, light mode supply chain construction to reach consumers quickly.

When consumers across the country saw kappa appear in various scenes, the brand has actually completed two aspects of HbG's big penetration theory: can see and can remember.

Next, kappa needs to quickly reach consumers so that everyone can "buy it.".

Channel expansion is the key. According to lianshang.com, kappa adopts a policy of exclusive dealers, which encourages one dealer to become bigger, stronger and deeper in a certain region, rather than developing multiple dealers in the same region. By centralizing resources and reducing intervention, kappa can give dealers more initiative in specific areas at lower cost, thus achieving the enthusiasm of all channels.

When it peaked in 2010, kappa had only 38 dealers, according to the data.

The same is true for upstream production. Kappa had only one internal factory in Jiangsu at that time, and almost all of the rest of its production was outsourced to more than 100 domestic suppliers.

The only way for kappa to balance upstream and downstream is to control the risk of runaway order bullwhip effect. Qin Dazhong, then the COO of the company, once said: "Assuming that kappa received 100 orders, 75 orders were placed to the factory, and 25% of the orders were reserved for materials. When the sales feedback that this item is easy to sell, kappa will let the factory finish the remaining 25% and prepare a certain quantity of materials. This series of instructions will be completed in a very fast process, which can help the dealers to effectively add the best-selling value and control the wind Risk. "

Of course, in order to achieve the above three points, kappa once raised funds from Morgan Stanley and signed a bet, that is, the net profit of the company in 2006 should not be less than 180 million yuan, and that in 2008 should not be less than 350 million yuan.

In fact, kappa achieved a net profit of 330 million yuan in 2006 and 1.31 billion yuan in 2008, becoming the largest sports brand in China.

At the time, financial giant Goldman Sachs said that kappa was the company with the best growth prospects among the sports brands it tracked. Kappa also ranked first in the list of "potential enterprises in China in 2008" by Forbes, a famous international financial magazine.

Dealers take the lead in selling fake goods

By 2010, the annual revenue of kappa will reach 4.262 billion yuan and the operating profit will reach 1.741 billion yuan.

Unfortunately, after the peak is an endless trough. After the consumption wave of sportswear brought by the Olympic Games, it is difficult for China's market to have a new growth point; However, from the internal point of view, its business model is still in the inertia of large-scale expansion.

For a long time, the inventory of China's whole clothing industry has increased sharply. By the first half of 2012, the total inventory of Li Ning, Anta, 361 °, Tebu, peak and kappa reached 3.721 billion yuan; The total inventory of 22 A-share clothing listed companies reached 38.2 billion yuan in the third quarter.

However, in this process, including Li Ning, Anta and other domestic sports brands have all returned to normal, and led the development of national fashion clothing. Why was kappa, which was once regarded as the most promising growth potential, been hit to the edge by the waves of the times?

There is only one answer, and Xiao He is defeated.

In the process of rapid growth in the early stage, the construction of light mode of supply chain system has laid a great hidden danger for kappa.

Due to the downstream exclusive dealer policy, the dealer's store construction freedom is high, so that when the product sells well, a large number of stores are opened. However, after the 2008 Beijing Olympic Games, the domestic sporting goods industry entered a low ebb period, and kappa dealers began to quickly close stores, with the scale rapidly reduced from 4000 to about 1000.

As a result, kappa's inventory has soared by 5-6 times.

In addition, an article published by Phoenix Fashion said: the remaining dealers began to sell fake goods in order to survive, so kappa fake goods were rampant in the market, and brand awareness was greatly reduced.

Another representative of the light model is that when all sports brands are building their own back-end factories and self operated terminal stores, kappa announced that the company has gradually formed a pattern of sports apparel as the main business and investment business as the auxiliary.

China's trend behind kappa is known as the company that is best at financing and investment among sports brands. As early as 2011, China trend announced that it invested $100 million in Alibaba group through its wholly-owned subsidiary Mingtai, and completed the investment by subscribing to Yunfeng fund.

In the years since then, Alibaba has become a fish in the water in the capital market, and has contributed a lot to China's trend. For example, in China trend, the first half of fiscal year 2021 results show that its revenue is 899 million yuan, which is flat on a year-on-year basis; The net profit was 1.116 billion yuan, with a year-on-year increase of 493%.

This higher than expected growth is mainly due to the faster than expected growth of investment income.

However, by the first half of fiscal year 2022, China trend achieved revenue of 852 million yuan, up 4.5% year-on-year; The operating loss was 770 million yuan. Among them, the company's stocks and secondary market funds callback, resulting in a loss of 661 million yuan in the company's investment business.

However, even after excluding the losses from investment business, China trend still has a loss of 75 million yuan, which means that kappa is really hard to sell.

This is not only caused by dealers selling fake goods in light mode, but also by kappa positioning problem.

"Lazy bear sports" once reported that in a 500 meter commercial street in Heilongjiang County, kappa stores are so many that the staff are too lazy to get off the bus. Even remote construction farms have appeared kappa outlets.

But in fact, once the brand stores are too dense, coupled with the proliferation of fake goods and promotion, kappa will easily form a "rotten Street" feeling.

This brand impression eventually led to the marginalization of kappa by young consumers.

Kappa saves herself

　　 From the perspective of sports fashion category, kappa has been the best. But now, FILA, also from Italy, seems to be crushing kappa.

In August 2009, Anta bought the operation right of FILA China for 325 million yuan, and positioned itself as a "high-end sports fashion brand".

By 2014, FILA will turn losses into profits; In 2016, the gross profit margin of Anta clothing category increased by 3.2%; In the first half of 2019, the revenue of FILA reached 6.538 billion yuan, with a growth rate of 80%. Among them, the gross profit margin is as high as 71.5%, the gross profit margin of Anta main brand is 42.5%, that of Li Ning is 49.7%, and that of lululemon is only about 58%.

In 2021, FILA will achieve a half year revenue of 10.8 billion yuan.

Perhaps seeing FILA's share squeeze in sports fashion, kappa began to change its positioning. Zhang Zhiyong, chief executive officer, President and executive director of China trend group, said, "the operation rules of sports brands and fashion brands are not the same. Next, we should strengthen the closeness between our brands and sports."

During this period, kappa started frequent interaction with e-sports, sponsored RNG dota2 team, and cooperated with Tencent E-sports to become the designated clothing of Tencent E-sports games in 2020tga, and jointly launched k-spirit E-sports clothes with Tencent E-sports.

At the Tokyo Olympic Games, skateboarding appeared as an Olympic event for the first time. Kappa cooperated with the national skateboarding team and signed three top women skaters, Lou Jiayi, Zhang Xin and Zeng Wenhui. During the East Olympic Games, they also wore skateboarding shoes and clothing custom developed by kappa.

Just from the current response of young consumers, kappa's marketing impact still has some room for improvement.

In fact, from the perspective of the development of Chinese footwear and clothing brands, transformation and self-help should be regarded as systematic upgrading.

First, brand marketing is in line with the national consensus.

For example, Anta and Li Ning are the representatives of Guochao brand. According to the data of Qingtong capital, the penetration rate of Guochao brand will reach 38% in 2019; In 2018, more than 84.4% of respondents began to recognize domestic brands, and 75.8% of respondents increased their consumption of domestic brands.

Second, brand management caters to the whole process of data transformation.

For example, Wang Baili, the reborn shoe maker, has incorporated all the processes of supply chain, design and manufacturing, store decision-making, member management, etc. of a pair of shoes into the data-based process.

Even the clerks can view the historical consumption data of customers in the store, increase the dimension of customer data, view and correct their sales performance, and optimize sales behavior according to data feedback.

Third, brand management from inventory to operator.

Clothing industry inventory is more than everything. As early as 2014, Fudan University MBA class outflow data, "even if all China's clothing factories shut down, the rest of the clothing will still be enough to support the whole nation to wear for three years."

How to change such a dilemma? The only solution may be to "change the way people think and stop thinking that it is a traditional enterprise". C2m clothing customization, the rise of Guochao, IP cross-border... This industry has changed under the guidance of red collar, Li Ning, Anta and other brands.

Internet thinking, big data awareness and new retail mode will become the driving force for all enterprises in all industries to catch up with the times. Of course, to really change the way of thinking of an industry, the struggle and twists and turns must be unknown.

I believe that kappa is also involved in self struggle and ideological twists and turns.