Innovative branding and marketing promotion strategy

As a sports fashion enterprise, we are keen on using highly effective marketing and promotional strategies. To this end, we have enhanced the Kappa brand and its related promotional activities via key sponsorships of sports teams, sports-related activities, celebrities, and public events. Here are some of last year's major activities:

Sports Marketing

Sponsorship of PRC Events:

• China Open Tennis Tournament
• Strategic alliance with Chinese Ski Association
• Sponsorship of Buick China Golf Club League, Kappa Cup Celebrities Golf Game and golf programmes at Travel Channel

Sponsorship of Japan Programmes:

• Sponsorship of Japan National Ski Team
• Sponsorship of three top soccer teams in Japan- Consadole Sapporo, Tokyo Verdy and JEF United by Kappa Japan

Sponsorship of International Programmes:

• The Official partner of Norwegian Olympics teams in 2010 Winter Olympics and the 2012 Summer Olympics Games by Phenix Brand
• Co-sponsorship of top German soccer club- Borussia Dortmund
• Official partner for the World Golf Championships (WGC) – HSBC Champions, one of the top 10 golf tournaments in the world
• Sponsorship the prominent Italian soccer club – A.S. Roma

Entertainment Marketing

• Sponsoring celebrity events generates publicity and strengthens our positioning as a preferred fashion sports brand. Past activities included:
   -  OMINI's 40th Anniversary
   -  Kappa X YOHO! Trendy Festivities
   -  2009 WCG sponsorship events
   -  Strategic alliance with Huayi Brothers Media Group

Leading products design and research capability

Short term goal

• Innovative product design capabilities
  

  -	Strong product design capabilities supported by a team of over 61 design talents from China, Japan, Korea and Italy
  -	Collaborated with the former global creative director of Adidas – Mr. Michael Michalsky, an internationally renowned German designer in the fashion industry, to launch a new collection of Kappa brand products in 3Q2010
  -	Cooperated with the University of Arts London ("UAL") and the WGSN to strengthen the Group's product design capability

• High-end product R&D
  

  -	A strong product R&D team comprising 100 professionals in our technical centres in China and Japan
  -	Provided a comprehensive and high-end technology development platform to support the Group's multi-brand strategy

Extensive retail and distribution network

The Company has developed extensive distribution and retail networks in the PRC by cooperating with distributors across the nation. Our retail outlets now cover all major provincial capitals and many other large urban areas and towns. As of 31 December 2009, the Company's total number of outlets has increased to 3,511.

The Company opened the first 4th generation store in July 2009 in Shenyang. And a total of 80 fourth generation stores have been newly opened and renovated as at 31 December 2009. Entered into JV partnership with 6 distributors to strengthen China retail network.

The renovation and display of our retail stores is a crucial factor in building our brand image. To this end, we have cooperated closely with our distributors to ensure that the image of these outlets, along with the decoration and customer services meet our high standards. Moreover, we also provide extensive training to front-line sales staff to enhance our overall corporate image.

By 31 December 2009, we had launched 10 flagship stores in prime shopping locations, including Bejing, Tianjin, Hangzhou, Suzhou, Harbin and Changsha.

Kappa's first official online flagship store opened in Taobao on 1 September 2009 to diversify sales channel.

In Japan, the Company opened approximately 2,600 and 1,100 points of sales of the Kappa brand and the Phenix brand respectively as at 31 December 2009.

Highly efficient supply chain management

The Company adopted an asset-light business model in operations to optimize production cost which resulted in high profitability.

Long term goal

• China-Japan Supply Chain Integration
  

  -	Cooperated with Mercer, the world's leading consulting firm to integrate the Group's supply chain in China and Japan
  -	Greatly optimised the production cost of Phenix, with gross margin of Japan segment significantly enhanced from 40.7% in 2008 to 45.2% in 2009
  -	Phenix's capability to master advanced technology were applied in product design