The recent introduction of a direct-franchise model, designed to ensure a sufficient supply of products in the stores through bulk orders of merchandise, lifted the Chinese sports company’s revenues, which were up by 12.6 percent on a comparable basis in the new financial year ended on March 31, reaching 1,841 million yuan renmimbi (€231.3m-$263.8m), in spite of a weak fourth quarter. They were driven by the Kappa brand.
China Dongxiang’s fiscal year previously ended on Dec. 31. The company owns the rights for Kappa in China and the global rights to Phenix, a Japanese brand of sports apparel that it bought in 2008.
The company’s gross margin jumped by 5.9 percentage points to 61.8 percent of sales, due to last year’s transition from a wholesale model to the direct-franchise model. However, net income attributable to shareholders declined by 14.7 percent to RMB 366 million (€46.0m-$52.4m), in spite of a strong contribution from the group’s investments.
The sales increase was driven by a rise of 24 percent to RMB 1,388 million (€174.4m-$196.1m) for the Kappa brand in China, with apparel up by 23 percent, footwear by 28 percent and accessories by 40 percent. The strong increase came in spite of a drop in high-20s during the fourth quarter, due to store closures linked to Covid-19.
Kappa Kids’ sales were off by 25 percent, in spite of store promotions and investments in marketing initiatives such as a popular “Chinese Football Boy” campaign.
In Japan, Phenix’ sales fell by 14 percent to RMB 202 million (€25.4m-$28.5m) and Kappa sales remained flat at RMB 99 million (€12.4m-$14.0m). Other international sales declined by 5 percent to RMB 64 million (€8.0m-$9.0m).
The company said it enhanced the penetration of the Kappa brand in the Chinese fashion market through campaigns with celebrities, as well as the implementation of an integrated online and offline marketing strategy. The group continued to optimize its store network and improve store efficiency, while developing e-commerce via social media.
In Japan, further to the upgrading of product designs, the management took diversified marketing initiatives related to sports, especially geared toward the younger generation. It also collaborated with Japanese football comics in organizing events and sponsoring women sportswear in golf tournaments.
As of March 31, 2020, the group had a total of 1,372 Kappa stores, including 243 Kappa Kids’ stores. There were 132 units fewer than on March 31, 2019, as the group further reduced the number of under-performing stores.