Before publishing very good results for the first half of this year, Xtep International Holdings of China announced the completion on Aug. 1 of its acquisition of K-Swiss and its various footwear labels, including Palladium and Supra, for $260 million from E-Land of South Korea. The entire business had a turnover of $210 million last year, up by 2 percent from 2017, with a reduced net loss of $14.8 million.
Sales grew by 12 percent to $109.2 million for K-Swiss and by 10 percent to $77.9 million for Palladium, but sales at Supra, PLDM and KR3W declined by 39 percent to $22.8 million. The new owners have big plans for the development of these brands in China through targeted product and marketing initiatives.
The business, now called KSGB, will still be based in Los Angeles, but it will be steered by a new chief executive, Michael Yuan, who is president of the Xtep Global Brands Group. James Ting, corporate development director of Xtep, will serve as chief financial officer. They will rely on the ongoing services of brand managers who will be part of the company's executive committee, including Barney Waters as president of K-Swiss, Christophe Mortemousque as president of Palladium and Steve Harden as president of Supra.
The acquisition of KSGB was described by Xtep as part of a new strategy to develop a “multi-brand business model,” targeting the rising middle class in Asia – obviously on a smaller scale than Anta Sports Products. As part of this strategy, Xtep formed earlier this year a joint venture with Wolverine Worldwide for the distribution of Merrell and Saucony products in mainland China, Hong Kong and Macau (see SGI Europe Vol. 30 N° 9+10 of March 6, 2019). K-Swiss and its sister brands will cater more to the growing athleisure and retro sportswear markets in the wider Asia-Pacific region.
Xtep launched a dedicated e-commerce website for Saucony last month. It expects to open the first stand-alone Saucony and Merrell stores in the first and second half of 2020, respectively.
Meanwhile, Xtep reported a 23.0 percent organic increase in revenues to 3,356.9 million yuan renmimbi (€422.5m-$468.7m) for the first half of this year, attributing the strong progress to a successful strategic transformation over the past three years, product innovation and the strong momentum of the sportswear market in China.
While sales of footwear increased by 8.1 percent to RMB 1,911.9 million (€240.6m-$266.9m), those for apparel jumped by 50.4 percent to RMB 1,356.0 million (€170.6m-$189.3m) and accessories went up by 53.2 percent to a still low level of RMB 89.0 million (€11.2m-$12.4m).
Same-store sales went up at a low-teens rate, thanks in part to a new and more “international” store concept where apparel and footwear are merchandised together to maximize cross-selling opportunities. More than 80 percent of the stores, which average about 100 square meters, have been refitted in the past few years.
At the end of the first half, about 60 percent of Xtep's 40 distributors were operating the brand's 6,312 points of sale, 82 more than at the end of 2018. In addition, e-commerce contributed more than 20 percent of revenues. Xtep remained the best-selling brand of running shoes on Tmall in terms of volume.
The company reported a net profit margin of 13.8 percent for the first half, 0.1 percentage points above the score of the year-ago period. The gross margin improved by 0.9 percentage points to 44.6 percent, while the operating margin declined by 0.3 percentage points to 21.4 percent.
The gross margin on footwear remained stable at 44.8 percent, while the margin on apparel increased by 2.7 percentage points to 44.7 percent.
While concentrating on running and lifestyle products, the brand has just made its first foray into basketball through a sponsorship contract with Jeremy Lin, and American-born and American-educated basketball pro who is now playing for the Beijing Shougang Ducks. He was previously with the Toronto Raptors.