Can XTEP Enter The High-End Market With The International Big Name Saucony?

China is the second largest sporting goods consumer market after the US. Sports brand in China is eager to be recognized by high-end users, but it is hard to get rid of customers' perception of low-end products. International giants outside the door are salivating in the Chinese market but are stuck in "acclimatized". The same appeals attract them, and cooperation becomes a shortcut for mutual achievement.

The chairman of Wolverine group, which owns CAT, Saucony San Kang Ni and Merrell Mai Le, said: "when he was looking for Chinese partners, he locked his eyes on XTEP."

In March 5th, XTEP International (01368-HK) signed a joint venture with the famous sports brand Wolverine of the United States to set up a joint venture at Island Shangri-la Hotel. In accordance with the joint venture agreement, the two companies each invested 155 million yuan as the initial financing amount. The joint venture will operate the famous international sports brand Wolverine, Merrell and Saint Saucony, which operates in mainland China, Hongkong and Macao.

XTEP's back gun

Many domestic brand of national sports are blocked when they expand the market of second tier cities, so they retreat to the three or four tier cities. XTEP also had a strategic retreat and started a difficult spanformation of three years. From its recent earnings report, the spanformation of the company was quite good. It not only completed the change from fashion to professional sports, but also increased its company's performance. This is due to the optimization and adjustment of the store structure and, of course, the increasing consumption ability of the three or four tier cities in China.

However, if we want to make XTEP have a bigger development increment in the future, it will become a gateway for us to return to a second tier city. The cooperation with Wolverine will bring Merrell and Saucony China business into XTEP's territory. This will enable XTEP's products to meet the positioning of high and low prices, and the addition of high-end products will also benefit the company to continue to raise its gross margin level.

Continuing to raise gross margin requires a breakthrough

In terms of data, XTEP has been dormant after three years of spanformation. Its gross margin has remained stable in 2017 except for some decline in the past year. Gross profit margin is also gradually improving, until 2018, there was a callback. Because XTEP is aiming at the low-end market of the three or four tier cities, and has done quite well here. If we want to further improve the gross profit margin of the enterprises in the future, it will be the only way to build high-end products into a second tier city.

At this time, XTEP found Wolverine not only means finding a good partner, but also means finding a good teacher.

Multi brand development route

Wolverine group, the oldest Footwear Group in the United States, was born in 1883. Because of its excellent technology and quality assurance, it provided millions of military boots for European battlefields during World War I, and made pure leather gloves for US allies during World War II.

The brand Merrell is one of the most popular outdoor shoes brands in the world, and Saucony has been praised as one of the world's four largest jogging shoes in the world. In fact, Wolverine group's brand also has many famous brands such as Wolverine, CAT, HUSH PUPPIES (Xia Bushi) and so on. If XTEP is to develop the line of brand operation, the Wolverine group is the best teacher for a hundred years.

Make up the short board of medium and high end shoes.

At the signing ceremony, Ding Shuibo, chairman of XTEP international, talked about the pricing of new products in the future. He thought Saucony had the reputation of "Rolls-Royce in running shoes". In the future, apart from the introduction of high-end running shoes of more than 1000 yuan, it will also exert itself in the middle end market of about 500 yuan. Unlike XTEP, which is mainly distributed in the three or four tier cities, Saucony and Merrell stores will be mainly located in the first tier and second tier cities, serving high-end customers, and are expected to boost the company's performance in 2020.

According to Mr. Ding Shuibo's introduction, XTEP and Saucony and Merrell will share each other's resources. XTEP will play the advantage of China's home court, and make use of the scale effect of the perfect supply chain and 7000 stores nationwide to help Saucony and Merrell brands promote in the Greater China region. The two sides will jointly develop and produce running shoes that are more suitable for Chinese people.

Competitive domestic race

At present, the four kings of jogging shoes include Saucony, NewBalance, Brooks and Asics. In addition to the fact that Brooks was forced to leave China in 2017 because of its trademark similarity with Anta, the other three brands have taken root in China.

In fact, before the cooperation with XTEP, Saucony has entered the Chinese market, but this North American first trip to China seems to be acclimatized. When China's double eleven shopping street was launched in 2018, Saucony was called out of China. Its commodities were heavily discounted in China's mainstream electricity providers. Subsequently, Saucony announced the announcement of its Jingdong flagship store closing. As of press day, Tmall and Jingdong still can't find Saucony's flagship store.

At the signing ceremony, what did reporters learn from the experience of Wolverine Blake W.Krueger, who failed in the past international development? Mr. Krueger admitted frankly that there was not enough time, talent and resources to invest in the Chinese market.

He said: "the past has not been invested in China's market, and this needs to be corrected."

Sufficient cash to provide protection for promotion.

According to the joint venture agreement, XTEP and Wolverine will each pay 155 million yuan to the joint venture company as the initial financing amount. Although Saucony and Merrell are well-known brands in the world, they are not well known in China, and they need to spend a lot of resources in the initial stage of promotion. For XTEP, multi brand promotion means higher expenditure, which requires good cash reserves as support.

Referring to XTEP International's first half year financial report data in the past three years, its cash and bank balances have maintained steady growth. The first half of 2017 increased by 25.7% over the same period last year, up 5.8% over the first half of 2018. Referring to the end of 2018 H1, XTEP international total assets amounted to 9 billion 340 million, and cash and cash equivalents accounted for 38.8% of total assets. Such a high proportion reflected XTEP's good cash position and solvency, which provided ammunition for the development of multi brand strategy.

Outdoor for the future, running for the moment.

Although China's running market is a late start, in 2018, the total number of Chinese marathon IAAF signboard tournaments has reached the world's top. XTEP is the sponsor of the largest Chinese marathon competition. Making full use of this advantage to publicize and promote Saucony is a very effective choice.

When it comes to the future expectations of the two brands, Mr. Ding Shuibo thinks that in the past, Chinese people were poorer and wore a pair of shoes, no matter what sport they were wearing. Now, with the increase of their incomes, the functional requirements of different sports shoes are getting higher and higher. Marathon has already started an upsurge in China.

Therefore, Mr. Ding Shuibo summed up the phrase "outdoor for the future, running for the moment", which has seen the key sequence of the development of the two sub brands in China.

Risk:

The rapidly developing sporting goods consumer market in China has also created fierce competition in the industry. It is not easy to kill a blood market in this market. Saucony and XTEP killed a weapon, which is undoubtedly wise, but the difficulty lies in the marketing competition in the market. At present, the successful sports shoes brands such as ASICS popularized in China have invested heavily in marketing. Saucony and Merell are not XTEP's sons. Nevertheless, from the moment XTEP announced cooperation and cooperation with them, it has already begun to benefit.