Lotto hopes to achieve $15 million in sales in China this year, rising to $100 million by 2010, through a new joint venture with Scienward International, a Hong Kong-based sister firm of a Chinese company that has been making apparel for Lotto for seven-years. Scienward already has a joint venture with Stonefly, an Italian brand of casual and comfort shoes in which Lotto’s main shareholder and chief executive, Andrea Tomat, also has a stake.
Lotto had been absent from mainland China since wrapping up its distribution deal with Lightening Star, a subsidiary of Kingmaker, approximately a year ago. Scienward will capitalize on Stonefly’s good relationship with Chinese department stores to build up Lotto’s new sales network. Overall, the new Lotto China joint venture is planning to do business through at least 100 stores in China – mostly single-brand outlets - by the end of this year.
In addition to recently opened franchised stores in Tianjin, Nantong, Hangzhou, Kunming and Taizhou, Lotto plans to open 12 self-owned stores in major cities. It wants to franchise 40 points of sale by the end of June, and 50 more by the end of 2006. By the end of March, Shanghai and Beijing will feature 15 stores, of which 12 will be company-owned. Lotto is talking to Quest Sports about carrying its line. Lotto wants flagship stores in Shanghai and Beijing, and it is looking for a partner to run eight other multi-brand shops.
The Double Diamond has previously used licensees in China, but with the joint venture deal and the direct involvement of its area manager for the Asia/Pacific region, Luca Tomat (no direct relation to Andrea Tomat), the brand will be more in control of its destiny. Progress will be measured by doors, not by market share. The joint venture will set up its own network of suppliers, although some of them will use the same factories that supply other markets. About 30 percent of the offerings will be specific for the local market, but Lotto will try to capitalize on the high reputation of Italian style in China.
The brand will also look to Chinese entertainers for promotions. Lotto, which launched its laceless Zhero Gravity football boot in Shanghai last week, has signed a 3-year sponsorship deal with a Chinese football team, Shenyang Jinde. Presumably it did not break the bank, as the team finished 13th in the 14-team Chinese Super League last year.
Lotto China will open a flagship store in Hong Kong in the 2nd half of this year, but this is seen mostly as a marketing investment for Chinese tourists visiting the city. There will be limited penetration into specialized football stores in 2006, but most of the development will take place in 2007 with chains and independent stores. The total investment will be €5 million over the next three years.
The strategies laid out for China and Hong Kong are noticeably and predictably different. Lifestyle and leisure are much more important than performance in mainland China. Lotto expects 95 percent of its sales in China to come from single-brand stores, while in Hong Kong 90 percent of sales should come from multi-brand stores. The footwear/apparel/accessories ratio is projected at 65/30/5 for Hong Kong and 40/55/5 for China. Performance products will be three times as important in Hong Kong, representing 30 percent of sales, with active products making up 20 percent. In China, Lotto has a projection of 10 percent for performance versus 40 percent for active.
