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Front of the Pack: Dapai International Chairman Chen Xizhong's firm enjoys the biggest market share for backpacks in China. Photo: Andrew Vanburen

DAPAI INTERNATIONAL Holdings Co Ltd (SGX: CZAI), which officially changed its name last month from its original name of China Zaino International Ltd, is demonstrating by the move that it is very serious about building brand recognition for its expansive line of backpacks and luggage.

The Great Bard may have said that “a rose by any other name would smell just as sweet” but flowers aren’t in the branding business, and the Singapore-listed firm’s Dapai-branded products for some potential new customers had little connection to the company’s former trading counter name – China Zaino.

The name change decision follows a rather uninspiring first quarter performance for the company, in which revenue fell 17.7% year-on-year to 496.9 mln yuan leading to a 19.9% decline in net profit to 77.3 mln yuan.

On a recent trip to Dapai’s Quanzhou city facilities in southeastern China’s Fujian province, six fund managers had a sitdown with company Chairman Chen Xizhong before being given a thorough tour of the company’s two manufacturing facilities in the area.

POS-itive Growth

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Brand Backing: As of June 9, 2010, China Zaino International Ltd officially changed its name to Dapai International Holdings Ltd to better associate its ticker name with its Dapai brand of backpacks and luggage. Photo: Andrew Vanburen


Dapai International Holdings was fully aware that it took more than a renaming campaign to boost brand recognition in China, and hence grow sales at a faster pace.

While Chinese consumers are quite familiar with the Dapai brand as it enjoys a top domestic market share -- and now that the company name will be in harmony with the brand name this will boost recognition for the company itself and its Singapore-listed shares -- but Dapai is also looking to boost its retail outlets.

That is why it was planning an aggressive expansion this year to increase its point-of-sale (POS) numbers in the country.

Dapai was targeting 500 new retail outlet openings in the second half of this year, which would put their total number of concessionary retail POS locations at levels approaching 4,000.

"Our retail expansion, just like our capacity and production increases, will closely coordinate with the particular demand in each region of China,” Chairman Chen told us during the recent meeting in Dapai’s executive boardroom.

And although the company was no longer referred to as China Zaino, but is now Dapai International, the company still had its eyes trained almost exclusively on China’s 1.3 bln potential consumers.

"We are still primarily a Chinese company eyeing the domestic market, as in our most recent earnings period, 90% of our revenue came from the Chinese market with the remaining 10% from OEM-based exports,” he added.

This was further borne out in the numbers, as the company had at last count established a retail foothold in 26 provinces, autonomous regions and municipalities across China.

Additionally, in a 2008 independent research report, the company’s domestic market share for double-strapped backpacks was 35.8%, tops in the industry.

"In line with our brand building strategy, we will be increasingly focused on sales under our own brand,” Mr. Chen said.

So despite the rather forgettable first quarter earnings performance, Dapai International was confidently moving forward, as evidenced by its brand building-inspired namechange and its energetic retail network expansion.

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'I am definitely more optimistic about the coming quarters and the full year for Dapai,' said Chairman Chen Xizhong (left), seen here with China Best Board Chairman Rocky Lu.
Photo: Andrew Vanburen


"For these reasons, I am definitely more optimistic about the coming quarters and the full year for Dapai."

We remain confident that we will sustain our market leadership position in the backpack industry. We also continue to strive for a market leadership position in the luggage industry. We believe that our DAPAI brand is moving in the right direction and the brand awareness of DAPAI has been increasing with our A&P strategy,” Chairman Chen said.

However, brand building at this phase did not include signing on more high-profile spokespersons or team sponsorships.

In addition to appointing Chinese Olympic celebrity diver Tian Liang as Dapai's brand ambassador, the company also sponsors prominent sporting events such as the national gymnastics team in the 2008 Beijing Olympics, and also was an official sponsor of the 2007–2008 China Women's National Basketball Tournament.

"We are very happy with our arrangement with Tian Liang and our team and event sponsorships at this point, so there should be no more new signings this year on these fronts.

 

Dapai Chairman Chen Xizhong on prospects in China’s massive backpack and luggage market:

We remain confident that we will sustain our market leadership position in the backpack industry. We also continue to strive for a market leadership position in the luggage industry.

"We believe that our DAPAI brand is moving in the right direction and the brand awareness of DAPAI has been increasing with our A&P strategy
.

“For these reasons, I am definitely more optimistic about the coming quarters and the full year for Dapai.

“As far as our spokespersons are concerned, we still refer athletes to entertainment celebrities.

“However, like with all our business decisions, if the market has a need in our assessment, then we will add more spokespersons and sponsorships when the time comes.”
 

"However, like with all our business decisions, if the market has a need in our assessment, then we will add more spokespersons and sponsorships when the time comes,” he said.

But he did offer guidance on just whose face or voice might be associated with future Dapai marketing campaigns in China.

"As far as our spokespersons are concerned, we still prefer athletes to entertainment celebrities,” he added.

China’s youth culture and a growing attention being paid to both participatory and spectator sports was a big reason for this decision.

"As the leading manufacturer of backpacks in China, we primarily target the mid-range mass market consumer segment between 13 to 50 years of age, and are viewed by consumers as a premium brand focusing on quality and affordability,” he said.

Oversized Luggage?

Leveraging on its ability to consistently produce good quality products through its rapidly expanding distribution network, Dapai and its 2,000-plus workers diversified onto the luggage industry in September of 2007 in a bid to take advantage of the travel boom in China.

This decision has paid off, as Dapai’s secondary luggage division is catching up to its flagship backpack product line.

Backpack sales contributed 57.4% to revenue in the first quarter, down from 68.6% a year earlier.

Meanwhile, luggage contribution over the same period rose to 42.6% from 31.4%.

However, Dapai’s luggage division was hit by lower average selling prices (ASP) in the first quarter, falling to 187.8 yuan per unit from 212.8 yuan a year earlier.

Meanwhile, Dapai’s backpack ASPs rose to 82.4 yuan from 79.4 yuan over the corresponding period.

This was primarily due to Dapai’s much stronger brand recognition for backpacks in China than for luggage, the latter of which is a far less consolidated industry in the country.

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Bagging the China Market: Dapai began as a dedicated backpack maker but expanded to luggage in 2007. Photo: Andrew Vanburen


Dapai's overall gross profit margin increased by 0.3 percentage points from 29.1% in the first quarter of 2009 to 29.4% in the first quarter of this year.

For backpacks in the first quarter of 2010, GPM rose by 0.1 percentage point to 29.4%, and GPM rose by 0.8 percentage point to 29.5% for its luggage division.

As for which direction Dapai would take in coming quarters – luggage heavy or backpack heavy – Mr. Chen repeated his earlier reply to its retail outlet expansion campaign.

"We will let the market decide,” the Chairman said.

See also: CHINA ZAINO (DAPAI): AGM resolution on share placement not carried


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