Noting that all the players in the athletic footwear and apparel market are facing weaker bargaining power with Chinese subcontractors, Exceed Company says it plans to capitalize on the abundant supply of labor in the inner and western parts of China, acquiring local manufacturers of footwear soles and apparel and setting up new production facilities of its own. It will also expand its network of regional sales and logistic centers to cope with the increasing instability of the supply chain in the country.
Releasing good results for the second quarter ended June 30, Exceed said these constraints caused its gross profit margin to decline by 1.9 percentage points to 31.0 percent from the same period a year ago, as it outsourced a larger portion of its footwear production. However, the company said it still has enough cash to support these investments as well as the construction of a new head office. The program is expected to cost about 1,290 million renminbi (€140.0m-$201.6m).
Founded in 2002 in Fujian to offer a broad range of value-priced sports footwear and apparel products for “discerning” Chinese customers, Exceed has been seeking to grow mainly in second- and third-tier cities.
The company pointed out that retail sales trends remain strong in these areas, where its increasing brand recognition is supported by effective marketing campaigns. Xidelong sponsors the popular “Inter-City” TV program, which features athletic challenges among different municipalities, and the “Fitness for All Campaign – Walking to 100 Universities.”
The number of Xidelong retail stores, which are operated by distributors and authorized retailers, increased by 653 units to about 4,650 doors during the latest quarter. The focus has been on affluent provinces such as Guangdong, Jiangsu and Zhejiang.
The company's sales grew by 15.7 percent in the second quarter to $114.7 million to RMB 741.5 million (€80.5m-$115.9m), with increases of 11.6 percent for footwear, 19.9 percent for clothing and 25.9 percent for accessories. Despite the lower gross margin, operating earnings increased by 3.9 percent to RMB 198.8 million (€21.6m-$31.1m). Net income went up by 5.2 percent to RMB 94.7 million (€10.3m-$14.8m).
New capital investments are also envisaged by another Chinese company in Fujian, Peak Sports Products. Besides expanding its marketing focus beyond basketball to tennis, running and football, the company plans to spend RMB 80 million (€6.7m-$12.5m) on new machinery and equipment for existing production facilities in Fujian and Jiangxi Provinces. It also intends to launch a three-year construction project next year for an additional apparel plant costing RMB 1 billion (€108.5m-$156.3m).
Peak Sports raised its net income by 22 percent to RMB 423.1 million (€45.9m-$66.1m) for the first half of 2011 on 25 percent higher revenues of RMB 2,226 million (€241.5m-$347.8m). Gross margins increased by 2.2 percentage points to 39.9 percent. Focusing on second- and third-tier cities, the company boosted its retail network by 395 doors in the six-month period.
