Xtep International, whose business model is a combination of its own label for China’s mass market and four western brands (K-Swiss and Palladium worldwide, and joint ventures for Merrell and Saucony in China) targeting the premium end, wants to take its Xtep brand to 20.0 billion yuan renmimbi (€2.86bn) and its other four brands to RMB 4.0 billion (€572.5m) in 2025. Like Anta Sports Products’ deal with Fila for China, the combination could be a winning formula for the group.
In the financial year 2021, the Chinese company’s net income rose by 77 percent to RMB 908.3 million (€130.0m) from RMB 513.0 million on a 23 percent top-line growth to RMB 10,013.2 million (€1.43bn). E-commerce revenues accounted for 30 percent of yearly revenues. The annual gross margin improved to 41.3 percent from 39.1 percent in 2020, partially due to an inventory buyback from retailers last year that was divested at reduced prices.
In 2021, Xtep opened more enlarged flagship stores in its ninth-generation format, ending the calendar year with 6,151 Xtep branded doors operated by authorized distributors. The Xtep brand generated a 25 percent increase in annual sales to RMB 8,841.3 million (€1.27bn) as the unit’s gross margin improved to 41.4 percent from 38.9 percent.
Total footwear revenues rose by 18 percent to RMB 5,928.2 million (€848.5m) last year, producing a gross profit margin of 42.8 percent versus 39.6 percent in 2020. Annual apparel revenues were 31 percent higher at RMB 3,887.4 million (€556.4m) and generated a 44.6 percent gross margin, up from 40.7 percent. Revenues from accessories were 23 percent higher last year at RMB 197.6 million (€28.3m), but the category’s gross margin slipped to 31.6 percent from 32.9 percent.
Xtep’s growth strategy includes an acceleration in opening new stores for its athleisure and professional sports segments. The athleisure segment, which consists of the K-Swiss and Palladium brands, suffered a 2.8 percent decline in annual revenues last year to RMB 970.9 million (€139.0m), gross margin improved to 44.6 percent from 40.7 percent, and the operating loss declined by 16 percent to RMB 87.7 million (€12.5m). At calendar year-end, there were 44 self-operated K-Swiss stores and 57 self-operated Palladium stores operating in Asia-Pacific. This year, there are plans to open more signature K-Swiss doors in provincial cities in mainland China, following the January debut of the brand’s Tmall flagship store and its first physical presence in the PRC.
The professional segment, which consists of Xtep’s joint venture with Wolverine Worldwide for its Merrell and Saucony brands, experienced 180 percent top-line growth in 2021 to RMB 201.0 million (€28.8m), but the segment’s operating loss tripled to RMB 40.2 million (€5.7m). Saucony, cited for recognition among elite runners in the PRC, intends to continue opening stores in premium shopping malls in higher-tier cities this year. Merrell, which opened its first image store at the HKRI Taikoo Hui lifestyle center in Shanghai last year, will do the same with locations that offer more apparel and localized products. The two brands ended 2021 with 50 total stores, including six self-operated locations.
