The sale of the Japanese Kappa trademark lifted China Dongxiang’s profits for the six-month period ended in Sept. 2020, which rose to 1,116 million yuan renminbi (€140.6m-$170.0m), up from RMB 188 million for the year-ago period. On the other hand, the company’s gross margin contracted by 5.3 percentage points to 60.1 percent of sales, while selling and administrattive expenses went up sharply.
The company still owns the rights for Kappa in China and the global rights for Phenix, a Japanese brand of sports apparel that it bought in 2008. As previously reported, China Dongxiang agreed in September to sell the rights to the Kappa brand in Japan for $13 million to BasicNet, which plans to give a major boost to brand’s development in the country. China Dongxiang will focus on Mainland China and Macao, where it will continue as the Kappa brand’s owner. China Dongxiang also decided to license the Phenix brand to franchised operators.
On the sales side, the recent introduction of a direct franchising model, designed to ensure a sufficient supply of products in the stores through bulk orders of merchandise, supported the Chinese sports company’s revenues, which remained flat overall at RMB 899 million (€113.3m-$136.9m), despite the impact of Covid-19.
Sales were mainly driven by the Kappa brand in China, where the economic growth accelerated during the third quarter. The company said that China was shifting from an investment- and export-driven economic model to one more focused on the expansion of domestic demand, which has become a crucial driver for economic growth.
Since the introduction of reforms involving the direct franchising model, the group implemented several measures centered on channel, product and supply chain management, including investments to advance the digitalization of the omni-channel retail process. E-commerce recorded consistent growth in the first half of the 2020 financial year, as the company revamped its operations to enhance interaction with consumers. Furthermore, the Kappa brand launched its digitalized omni-channel operating platform in September to allow mutual access between online and offline stores in relation to inventory in stock and purchase orders.
The group recorded growth of 9 percent to RMB 815 million (€102.7m-$124.1m) for the Kappa brand in China, with apparel up by 12 percent, footwear by 18 percent and accessories by 6 percent. Kappa Kids’ sales were off by 12 percent. In Japan, however, Phenix’ sales fell by 44 percent to RMB 55 million (€6.9m-$8.4m), and Kappa sales also fell by 44 percent to RMB 29 million (€3.7m-$4.4m). Other international sales declined by 42 percent to RMB 21 million (€3.2m-$2.6m).
As of Sept. 30, 2020, the company managed a total of 1,153 Kappa stores, excluding Kappa Kids stores and Kappa Japan, which represents 24 more units than on March 31, 2020.
Moving forward, the group is confident about the growth of China’s economy and the sportswear industry. In particular, it will take advantage of opportunities in the sports industry to explore channels for brand promotion and marketing.