Do you remember Kappa?
When it comes to Kappa, many young people today may not know much about it, but for many people born in the 80s and 90s, Kappa was an indelible memory in their youth, and it once led the trend of an era!
In China, because of its unique logo design, Kappa is more commonly known as “back to back”.
Once upon a time, Kappa and its “back-to-back” brand logo were well-known, and were once comparable to sports brands such as Adidas and Nike in the domestic market.
It was once the sports brand with the best growth prospects according to Goldman Sachs, and was once selected as the most promising enterprise in China by Forbes. As early as 2008, it sold 3.3 billion yuan in one year, successfully surpassing Li Ning and Anta to become “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 as many as 4,000 stores. Its popularity is evident!
However, Kappa, which once crushed all major sports brands, experienced agents taking the lead in selling fake goods in just a few years. It lost more than 700 million in 5 months and was granted the exclusive right to use its trademark…
Now, it has fallen into obscurity and gradually faded out of the public eye.
Why did “Kappa”, the former king of sports brands and China’s number one sports brand, fall to this level?
At the beginning of 2022, Kappa’s parent company, China Dongxiang, announced that it would transfer the exclusive right to use the “Kappa Kids” trademark to Quanzhou Pingbu Shoes for a period of 10 years;
During the term of the agreement, the authorized company has the relevant rights to use the design, manufacturing, sales, marketing and products related to the “Kappa Kids” trademark in mainland China.
It is worth mentioning that this is not the first time Kappa has sold its trademark assets!
In July 2020, the company sold the Kappa Japanese trademark and intellectual property rights and other related assets; in October of the same year, the company also granted the “Phenix” trademark as a licensee in Japan, South Korea, Australia, the United States and parts of Europe. exclusive rights to use the area.
Such frequent trademark transactions seem to be a helpless move for China Trends, which has a dismal performance.
According to data from Northeast Securities, Kappa’s domestic market share has dropped to 0.46% in 2018.
Like other disappearing brands, Kappa’s performance has been declining, it has become more and more depressed, and it has fallen into a puddle of unlimited losses!
According to China Dongxiang’s 2022 fiscal year interim report, the entire group’s operating losses reached 776 million yuan in just five months from April 1 to September 30, 2021, a year-on-year decrease of 167.88%.
It is worth mentioning that the Kappa brand accounts for a relatively large proportion of the group’s operating quota, reaching 65.5%.
After summing up, there are two words – “huge loss”.
As of the end of December 2021, the number of Kappa stores was 1,419. Since 2010, the number of offline stores in China Dongxiang has begun to drop off a cliff, with a total reduction of 2,581 stores in 11 years.
As of the close of trading on March 9, the stock price of Kappa’s parent company, China Dongxiang, was quoted at HK$0.49, with a total market value of HK$2.885 billion, not even one-tenth of its peak market value of HK$31.7 billion. The market value has evaporated by nearly HK$29 billion, becoming A “penny stock.”
So, how did Kappa, once so famous, step down from the altar?
When it comes to China Trends and Kappa, one person must be mentioned: Chen Yihong.
As the chairman and executive director of Dongxiang, Chen Yihong also has another well-known title: “The Godfather of Chinese Fashion Sports Brands.”
17 years ago, when Chen Yihong, chairman of the board of directors of China Dongxiang, sold off his shares in Li Ning Company without hesitation in exchange for the opportunity to fully operate the Kappa brand, he may not have thought that the company would reach such a situation now.
Many people think that “Kappa” is a native Chinese sports brand. In fact, this sports brand was born in Italy in 1916.
Although Kappa has a long history, compared with Adidas and Nike, Kappa pales in comparison in overseas markets.
However, it is worth mentioning that after entering the Chinese market, Kappa finally reached its peak of development!
In 2002, Beijing Dongxiang, a subsidiary of Li Ning Company, won the agency rights of Kappa in the Chinese market. Chen Yihong, general manager of Li Ning Company, became the chairman of Beijing Dongxiang, holding 20% of the shares.
During this period of time, many major events have occurred in my country’s sports world, which have promoted the development of sports brands; whether it is the successful bid for the Olympics, the qualification of the Chinese men’s football team, and my country’s accession to the WTO, the domestic sportswear market has ushered in a big consumer-side boom. Prosperity, the market structure of the entire industry is roughly clear:
High-end international brands such as Adidas and Nike dominate first- and second-tier cities. Domestic players that can compete with them are Li Ning, Anta and other brands.�� And Jinjiang brands such as Guirenniao, Xtep, and 361° have all reached third- and fourth-tier cities, and even at the township level.
As for Kappa, which came across the ocean from Italy, as a “European-style high-end sports brand”, it was obviously a bit acclimated in the domestic market. Its performance in the next few years was unsatisfactory. After that, the headquarters had cash flow problems and was even more affected by A blow.
In 2005, due to internal adjustments at Li Ning, Chen Yihong gave up all of Li Ning’s shares and acquired the remaining 80% of Beijing Dongxiang’s shares for 44.814 million yuan. Beijing Dongxiang was renamed China Dongxiang, and Chen Yihong became the boss of the new company.
In 2006, news of poor cash flow was revealed by the Italian Basic Net Group. Chen Yihong immediately went to Italy and bought the Kappa brand ownership and permanent operating rights in mainland China and Macau for US$35 million.
Since then, Kappa has become a purely domestic brand, and its road to rebranding has also begun.
Kappa’s sudden trendy sports style, coupled with its distinctive logo and bright and bold colors, formed a differentiated competition with the sports style of Nike and Adidas, attracting the love and pursuit of a large number of young people, and became a hot domestic sports brand at that time.
In the following years, back-to-back sales showed a linear upward trend in the domestic market. In 2006, its net profit reached 330 million yuan, an increase of 705%!
In 2007, China Dongxiang was listed on the Hong Kong Stock Exchange, and its market value once exceeded HK$30 billion, which was higher than the market value of Li Ning and Anta in the same period.
During the period when the 2008 Olympic Games was held, Kappa received back-to-back development boosts. In this year alone, Kappa’s revenue was 3.3 billion, and its net profit was as high as 1.317 billion, making it the largest sports brand in China.
Singing all the way, Kappa ushered in its peak moment in 2010, with more than 4,000 offline stores and annual sales reaching 4.26 billion yuan.
At that time, dealers of sports brands were spreading a saying, that is: “If you want to make money, sell Kappa.” This shows how popular “back-to-back” was in the Chinese market at that time!
Under Chen Yihong’s leadership, Kappa has gradually improved and set fashion trends on fire. Chen Yihong is also known as the “godfather of fashion sports brands” in the industry.
After the peak there are endless troughs!
Since then, due to the previous over-expansion of the domestic sports shoes and apparel industry, inventory backlog, and changes in industry channels, the industry has transformed from brand wholesalers to brand retailers.
During this period, China Trend failed to predict the market trend and make changes in time, which caused Kappa to go downhill and gradually faded out of the public eye.
Success comes with failure, Olympic dividends disappear, industry consumption declines as a whole, and sports brand inventories surge. While other brands continue to seek innovation, Kappa seems to be still immersed in the glory of the past, and its business model is still stuck in the inertia of large-scale expansion. among.
After Kappa reached its peak moment, other sports brands jumped on the national trend. Unfortunately, Kappa failed to capture the pulse of the industry and gradually began to fall behind. In the following year, it fell out of the first echelon of sports brands. Since then, its sales It has been falling all the way, from 4.26 billion yuan to 1.41 billion yuan in 2013.
In 2012, Kappa encountered a sales model crisis. In order to make money, dealers sold their inventory while selling fake products. For a time, Kappa fakes were rampant on the market, and the original “high-end sports brand” fell directly to the bottom.
In 2014, Kappa entered the home furnishing field. From research and development to production and sales, Kappa embarked on a road of brand licensing. With continuous transformation, Kappa has gradually drifted away from its original intention. In addition, due to the hidden dangers of the asset-light model, Kappa’s brand premium capability is also declining year by year.
Looking at the history of Kappa’s brand rise and fall, we can see that capital operation can indeed see results faster than brand operation, because brand operation relies on continuous investment, but direct authorization to sell trademarks can guarantee profits despite droughts and floods.
Kappa, which once stood at the top of the Chinese sports brand pyramid, has now fallen here. The importance of the company’s brand development is self-evident.
Whether Kappa can turn around in the Chinese market ultimately depends on the operation of the brand itself.
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