Sports Athletic Apparel

A Sporting Chance

Competition in China's sportswear market is intensifying following the Beijing Olympics. Chinese sportswear brands like Li Ning (2331) and ANTA Sports Products (2020) are already well- established, but Xtep International (1368), which listed in June, has tripled profits in its first interim report.

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Fashion sportswear distributor Xtep says it will focus on brand building.

"Xtep is the third largest local sportswear brand in China, after Li Ning and ANTA," said chairman Ding Shuipo.

The company has captured 18.9 percent of China's fashion sportswear market, according to market researcher Euromonitor International. Its direct competitors include China Dongxiang (3818) and Puma.

Brand power can be built through advertising and sponsoring sports events, and marketing and promotion costs accounted for 8 percent of Xtep's turnover, said Ding.

"By sponsoring sport competition in universities and concerts for our image and brand representatives, we hope our brand can penetrate the young population," he added.

Image representatives of Xtep are pop singers Nicholas Tse, Jolin Tsai, Wilber Pan and Twins. Ding said Xtep will sponsor about 10 concerts for its ad stars in China's major cities in 2009. "Customers may get a free ticket with purchases of a certain amount," said Ding.

As sport becomes more popular in the mainland after the Olympics, Ding said the company also plans to recruit famous a athlete to be its new brand representative.

Xtep will be the sole sports pr

"Research and development expense is about 1.3 percent to 1.6 percent of total turnover," said Ding.

He expects the investment in this field will rise to more than 2 percent as the company improves and diversifies its product range.

"We cooperate with professional designing teams, for example Tsinghua University's Academy of Arts and Design and international designers."

Xtep has three product design teams and one R&D team.

During the first six months Xtep introduced 1,121 footwear designs, 1,347 apparel designs and 1,075 accessory designs.

Ding said investment on R&D has more than tripled to 22.5 million yuan (HK$25.65 million) in the first-half, compared to 6.6 million yuan a year earlier.

Internal management had become more transparent after the Hong Kong listing, he added.

Production facilities in the first-half were almost fully utilized.

"We plan to outsource instead of expanding production lines, as it is impossible to manufacture all products ourselves." The ideal ratio of outsourced production would be 70 percent of total capacity, said Ding.

The company hired more than 6,000 staff on production lines, but would need more than 20,000 without outsourcing.

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