Xtep releases the fifth five-year plan, double upgrade 丨 2025, it should be viewed with admiration

The country is vigorously promoting the common prosperity of the people. When various policies are superimposed to pave the way for the common prosperity of the people, a new investment hotspot "expansion of the mass consumer market" will be born. The core of this investment hotspot includes: mainly appearing in the most basic consumption of residents, such as food, clothing, housing and transportation; affordable price, increasing quantity, high quality, and design features; multiple categories, multiple styles, and low unit price.

Just in time, last night, Xtep announced the group’s fifth five-year plan (the “Fifth Five-Year Plan”). By 2025, Xtep plans to achieve revenue of 20 billion yuan from its main brand, with a compound annual growth rate of 23%; total revenue from new brands will reach 4 billion yuan.

From the perspective of the positioning of "expansion of the mass consumer market", because the product unit price is not high, it also has a certain brand power; the product has a sense of design and good quality; the channel layout has always been in third- and fourth-tier cities. Mainly, Xtep invisibly fits this new consumption gap.

With the positive five-year plan and favorable policies, has Xtep’s era arrived? This article attempts to interpret Xtep's "Fifth Five-Year Plan" and analyze Xtep's future growth space and core competitiveness.

According to Xtep's "Fifth Five-Year Plan", Xtep is building a main brand with the positioning of "sports + fashion", that is, professional sports and sports fashion two-wheel drive, corresponding to the mass sports market and the domestic market respectively. Trendy market. As a sports brand that has been established for 20 years and has settled in third- and fourth-tier cities, this is a redefinition of the brand. So, with the main brands Anta and Li Ning firmly at the top, what opportunities does Xtep have in the mass sports market? Can the Guochao concept bring new growth space to Xtep?

Sports brands must have sports genes. Xtep's sports genes mainly lie in running.

Based on policies and related survey results, running will still be one of the areas that sports brands need to compete most for in the next few years.

According to the "National Fitness Plan (2021-2025)" recently issued by the State Council, by 2025, the total scale of the national sports industry will reach 5 trillion yuan, and the proportion of people who regularly participate in physical exercise will reach 38.5 %. The plan clearly states that the measures to be implemented will include increasing the supply of national fitness venues and facilities; conducting extensive national fitness events; stimulating the vitality of sports social organizations (including running), etc.

At the same time, Shanghai's latest "2020 National Fitness Report" shows that running ranks second among the physical exercise programs that people often participate in, with 43.3% of respondents choosing "running", among which Among respondents aged 19-49, running is the most common physical exercise activity.

Correspondingly, for sports industry companies, the running sports equipment market is also an attractive big cake. Take running shoes as an example. According to iResearch data and Soochow Securities’ calculations, the total number of core runners and mass runners in my country reached 400 million as early as 2019, and the running shoe market reached 175 billion in 2020. Yuan or so.

Faced with such a Red Sea market, domestic sports brands including Anta, Li Ning, Xtep, and 361 Degrees have made great efforts. For example, Li Ning launched the ? series of running shoes, and Anta launched the Chuang series of running shoes. However, in this vertical field, Xtep seems to have established a deeper moat, which includes both product strength and cost performance.

This is first reflected in the recognition of Xtep running shoes by elite marathon runners. Among the top nine men in the 2021 Xuzhou Marathon, 7 are wearing Xtep 160X PRO running shoes, and the other two are wearing Nike running shoes.

The recognition of Xtep by elite marathon runners comes from the strength of its products. Take Xtep 160X 1.0 running shoes as an example. According to the Guotai Junan Research Report, in the evaluation of the world-class professional evaluation organization "RUNNER'S WORLD", Xtep's lightweight, heel cushioning, energy feedback and other functions all scored 95 A high score above 10 points.

On the other hand, among similar racing shoes, Xtep’s ultimate cost-effectiveness has also attracted many fans. Guotai Junan's research report shows that based on the wearing situation of running shoes in Chinese marathon events in recent years, Xtep, Nike and Li Ning are the brands most commonly worn by elite runners. Among them, the average price of professional racing running shoes from Nike and Li Ning is around 2,000 yuan, while the highest price of the Xtep 160X series with similar performance is only around 1,000 yuan.

Behind Xtep’s product strength is Xtep’s R&D investment over the years. As early as 2015, Xtep established a sports science laboratory. According to reports, the laboratory covers scientific research equipment such as 3D foot scanners and infrared high-speed motion capture systems and mechanical analysis systems. It is the first dedicated running R&D center in my country's sports industry for shoe testing, design and research and development.

From the perspective of expenses, Xtep's R&D expense rate continues to rise, from 2.3% in 2015 to 2.7% in 2020. Compared with Li Ning and Anta, its R&D expense rate is higher.

The number of patents is an important indicator that directly reflects the results of R&D investment. Tianyancha information shows that as of July this year, among the major domestic sports brands, Xtep’s number of patents is second only to Anta, with a total of 1,093 patents.

In the future, Xtep will have a certain first-mover advantage in the market competition in the field of running shoes, clothing and equipment, and is expected to maintain its leading position in the industry.

In addition to running shoes, clothing and equipment products, Xtep is also building a running ecosystem. In 2007, Xtep began to fully develop the running field. In 2012, Xtep established the "Tepa Running Group", which is currently one of the largest and most active brand running groups in China. It provides a variety of running services, such as new product promotion, training and events, through the Terunning Group, which currently has about 1 million members, in an attempt to create a running ecosystem.

In addition, according to the "Fifth Five-Year Plan", in the future, Xtep's main brand, which is deeply involved in the mass market, will further expand its business in basketball, outdoor, comprehensive training and other fields in addition to focusing on running to drive the market. If the price rises to more than 1,000 yuan, it may provide Xtep with new room for revenue growth.

"National trend" is undoubtedly one of the hottest topics among consumer brands in the past two years. According to the "Baidu 2021 Guochao Pride Search Big Data" report, the search popularity of Guochao has increased by 528% in the past ten years.

In the "Fifth Five-Year Plan", Xtep also clearly expressed its ambitions in the field of fashion and sports, and national fashion is naturally an important entry point for Xtep to play sports fashion.

In fact, as early as 2019, Xtep showed up at the "London Fashion Week" with a variety of trendy products with bright colors and bold designs.

Recently, Xtep has made frequent moves in terms of national trends. In May this year, Xtep and Shaolin's joint series even cooperated with Tmall Super Brand Day to hold a large-scale fashion show in Shaolin and launch a new high-end brand XDNA. Subsequently, the popular little girl Dilireba was signed as the new brand spokesperson.

Data show that the post-90s and post-00s generations have become the main increase in national trend consumption. According to the plan, Xtep will expand the national fashion market through cross-border co-branding, innovative design and other measures. This is an important way to "please" young people at the moment.

It is worth noting that Xtep’s reorganized children’s business will also become an important driving force for the development of its fashion sports. At present, it seems that the main target group of Xtep's children's business is the post-2000 generation - the main increase in national trend consumption, which is conducive to building the minds of the post-00 generation group and enhancing brand recognition. When the post-00 generation grows up, Xtep is expected to gain a group of loyal consumers with financial strength.

Judging from public data, Xtep Children’s business has grown significantly. As of June 30, 2021, Xtep Children had approximately 1,000 retail points in mainland China. During the 618 Shopping Festival in 2021, Xtep's children's business online sales increased by 150% year-on-year.

According to the "Fifth Five-Year Plan", of the 20 billion yuan revenue target of Xtep's main brand in 2025, Xtep's children's business needs to contribute 3.5 billion yuan, with a compound annual growth rate of 37%, higher than that of Xtep's adult business 21% of the business shows that Xtep attaches great importance to the children's business.

The main brand is the foundation for Xtep’s growth in the next five years, and channel upgrading will become an important means for the main brand to achieve growth.

In terms of offline channels, according to the plan, "city offensive, shopping mall preemption" and "digital operation" are the keywords for this round of channel upgrades.

Specifically regarding the number of stores and monthly store effectiveness, according to Xtep, by 2025, the annual net number of Xtep adult stores will reach more than 1,500, and the monthly store effectiveness will reach 250,000; the net number of Xtep children's stores will be The number of stores will reach 1,000, with monthly store sales reaching 150,000.

In terms of store layout, Xtep will deploy trendy stores in first- and second-tier markets to double the number of stores. The first trendy store will be opened in the fourth quarter of this year. It is expected that the number of trendy stores will reach 300 by 2025. 300 stores. In third- and fourth-tier cities, Xtep will increase store density in certain areas through channel structure optimization measures such as expanding area and optimizing retail space to further stabilize its market share.

In terms of store structure, Xtep plans to increase the proportion of shopping mall (supermarket + outlet + fashion) stores to 38% by 2025, while the proportion of independent stores (street shops + running stores) will be 62% %.

It is worth noting that, unlike most other well-known sports brands, Xtep does not plan to be too "radical" in its DTC strategy.

DTC stands for Direct to Consumer, which aims to focus on consumer needs to reversely guide manufacturers’ design, production, product selection and marketing. Brands including Anta, Adidas and other brands are vigorously developing DTC strategies. Among them, Anta officially launched a comprehensive DTC model transformation in 2020, launching a mixed operation model in 11 regions in China, involving 3,500 stores, of which about 60% are directly operated by Anta, and about 40% are operated by franchisees in accordance with Anta New operating standards operations.

In contrast, according to the statement of Xtep Chairman Ding Shuibo, Xtep attaches great importance to DTC, but will not take back agents for direct sales in the short term. At the same time, it will provide training to agents and pass This way it works.

Continuing to use the agency model may allow Xtep to develop its business at lower costs and risks. After all, a large-scale DTC transformation based on the agency model will help increase revenue and create profits in the long run, but it may be difficult to avoid additional costs in the short term, and the difficulty of store operation and management will also increase. For example, in the third quarter of last year, Anta spent up to 2 billion yuan in acquiring 11 dealers in order to transform into a DTC model.

Online is more like the main battlefield for Xtep to launch DTC. According to data from the National Bureau of Statistics, the proportion of online retail sales of physical goods has increased year by year, rising to 24.9% in 2020. When e-commerce becomes an indispensable channel for national consumption, Xtep also plans to deploy all online channels, including increasing social e-commerce layout and investment, new product investment, top-notch product creation and IP marketing.

The upgrade of online and offline channels is closely related to the expansion of membership scale. According to the plan, the number of members of Xtep’s main brand will exceed 65 million in 2025.

In addition to the development of the main brand, the market is generally paying attention to Xtep's multi-brand operations, which is its larger growth space in the future.

In 2019, Xtep acquired the Greater China operating rights of sports fashion brands K-Swiss and Paladin, as well as professional running and outdoor brands Saucony and Mile. So far, Xtep has formed a brand matrix covering the three major fields of mass sports, professional sports and fashion sports.

In June this year, Hillhouse invested HK$1 billion in Xtep, of which approximately HK$500 million was used to develop the global business of the "K-Swiss" and "Paladin" brands. As of June 30, 2021, K-Swiss had 44 self-operated stores in the Asia-Pacific region. K-Swiss' first self-operated store in mainland China is expected to open in early 2022. On the other hand, Paladin focuses on optimizing its retail network and improving store efficiency in mainland China. As of June 30, 2021, Paladin had 57 and three self-operated stores in the Asia-Pacific region and Europe respectively, 25 of which are located in mainland China.

For Saucony and Melo, Xtep plans to increase the number of Saucony stores to about 200 by 2025, with the average store area increasing by more than 45%, and the offline to online ratio being 60: 40.

In the future, Mele will become an important driving force for the growth of Xtep’s outdoor sports business. Outdoor sports are a high-potential growth market for China's sports industry. According to a research report by Industrial Securities, the retail scale of China's outdoor sports market is about 25 billion yuan, with per capita consumption of 20 yuan and an outdoor participation rate of less than 20%. The development of outdoor sports in China is still in its infancy. In countries with relatively developed outdoor sports, they have entered a stage of high penetration. For example, the outdoor participation rate in the United States reaches 50%, and the per capita consumption is 430 yuan.

Low penetration means higher room for growth. Therefore, major domestic sports brands are investing in this market by acquiring foreign brands.

For example, Anta has acquired outdoor sports brands such as Descente, Colon, Arc'teryx, and Salomon through large-scale acquisitions. However, China's outdoor sports market has not yet formed a brand monopoly. Brands including Xtep, Anta, and Li Ning are all on the same starting line, and Xtep has also obtained competition qualifications through Mele.

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Reference materials: Guotai Junan's "Xtep International: Be unique and keep walking"; Soochow Securities' "Xtep International: The light of running shoes establishes the foundation of a national trend brand, with multiple brands and many The future of category operations is promising"

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