Xtep saw relatively sluggish sales growth last year as it restructured its business to focus more strongly on functional products and profitable distribution, but the benefits already transpired in the gross margin and profit before one-off items.
The Chinese group's sales were up by 1.9 percent to 5,396.6 million yuan renminbi (€728.3m-$783.3m) for the year. As part of the restructuring measures, the number of Xtep stores was reduced by about 200 to 6,800 at the end of 2016, but the cuts were more radical for Xtep Kids stores. Their number was more than halved to 250, down from about 600 at the end of 2015.
Xtep's operating profit increased by 19.6 percent to RMB 1,139.2 (€153.7m-$165.4m) – albeit before a provision for impairment of trade receivables amounting to RMB 222.2 million (€30.0m-$32.3m), which chiefly relates to the realignment of Xtep Kids. The group's profit actually declined by 15.2 percent to RMB 527.9 million (€71.2m-$76.6m). The realignment consists in regrouping the operational management of the Xtep and Xtep Kids brands and harmonizing their distribution, which led to the many store closures.
The Xtep group's restructuring measures further aimed to flatten the supply chain, by removing layers of distribution and getting distributors to run more of the stores directly.
This has enabled the group to have more control over the distribution of Xtep products and inventories, to harmonize the offering and pricing in the stores. Xtep has installed real-time data gathering systems in about 90 percent of Xtep retail stores, synchronizing with an app that allows retail staff of all levels to monitor and quickly react to retail data.
Online sales remained strongly in focus as well, as Xtep boasts that it was the leading brand in the sports footwear category in Tmall and JD.com in terms of volumes last year. It has a dedicated team of more than 300 people working on digital sales. Last year it launched O2O, sharing inventory with its distributors to enable them to use the online platform as another retail channel for products they have ordered for sale in their stores.
Xtep justified its decision to focus on running footwear with impressive numbers on the growth of the activity in China. The number of participants at Chinese marathons soared from about 1.5 million to 2.8 million last year. The Chinese Athletic Association registered 328 marathons last year, up from 134 in 2015, and the expectations are that the number could reach 500 this year.
Xtep already picked running as a focus several years before other Chinese companies started to zero in on the demand, and it has become established as a value for money brand in this category. The group sponsored or organized 44 marathons and other running events in China last year.
Xtep latched onto another major trend last year with the launch of its Blade Project, targeting the growing football market. The target is to serve 5 million Chinese youths in the next five years. It includes the continuation of the brand's sponsorship of the Chinese college futsal league and the China university football league. It added the sponsorship of the China high school football league, and partnerships with many Chinese youth football education and training service providers. Andriy Shevchenko, the former Ukrainian football star and current head coach of the Ukrainian national team, was appointed as spokesman for Xtep football products launched in June.
Xtep went on to launch smart running shoes in the third quarter and outdoor products in the winter, and it should add more female-focused products this year, such as yoga and fitness apparel, and other products intended for indoor training.