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‘Xtep is at par with Nike & Adidas, but prices make us win’

Li Bo, head of new retail at sportswear firm Xtep, discusses the company's overseas strategy

May 31, 2019 by Ruiyao Luo
‘Xtep is at par with Nike & Adidas, but prices make us win’

There is never a shortage of people on Brigade Road in Bangalore. It has attracted flagship stores of major international consumer brands like Nike, Adidas, Calvin Klein, and also Chinese brands such as One Plus, Oppo and Miniso.

On the evening of May 11, a weekend, the crowd at Brigade surged. Many stopped at the door of Chinese brand Xtep's fifth flagship store in Bangalore. Three stores were launched the same night.

Xtep opened its first store in Bangalore in November 2018. In a matter of seven months, it has opened seven in the city. Xtep plans to invest Rs 30-40 crore in India this year, enter Delhi and take the tally of total stores in the country to 20.

Li Bo, head of new retail at Xtep, believes though the cost is high, it is sure to have a certain brand effect. He spoke to The Passage’s Ruiyao Luo about Xtep's overseas strategy.

The Passage: How has Xtep’s progress in the overseas market been so far?

Li Bo: Actually, this is the second time Xtep is going out exploring the overseas market.

In fact, we began as a shoe factory called Sanxing in 1987. It used to fulfil some orders for foreign clients and was even called the ‘Little Prince of Foreign Trade’. At its peak, the products were exported to more than 50 countries and found reputation among customers.

However, after 1998, foreign trade orders slowed down in general, forcing many brands to look at the domestic market. Both Li-Ning and Anta had established their sports brands in the 1990s. We started the brand Xtep in 2002 and can proudly say it is the youngest among sports brands. Only 17 years old.

By digging deep into the domestic market we have successfully established a unique entertainment marketing model which has succeeded in sales. After the 2008 Olympics, when the entire domestic sports market was crumbling under the pressure of surplus stock, everyone was forced to think of reforms — how to be more precise and meticulous.

Between 2013 to 2014, we faced a tough time dealing with surplus stocks and closing of stores. So in 2015, the company came up with a transforming strategy: the brand should return to professional sportswear and the business should go back to retail.

After three years of a painful transformation, our efforts have been fruitful. We have improved in terms of brand, channel, product and retail. The brand of Xtep focuses on professional fashion. We have been deeply cultivating the running market. We sponsor about 35 to 40 marathons in China's running fields every year and have accumulated goodwill among runners.

It is based on this that we began our journey in the overseas market. We started doing international mergers and acquisitions. We can't form a scale effect if we are single-handed, that's why we are cooperating with high-end brands.

For example, we have established a distribution subsidiary in China with Saucony and Merrell, and have begun setting up a market for high-end runners. Merrell is a professional high-end outdoor brand customer. Saucony is among the world's top four running shoes — it is called the Rolls Royce of running shoes. When American astronauts landed on the moon in 1969, they were wearing Saucony, so they were high-end runners. Though reputed, it did not find a suitable partner in China back then.

Besides, if you want to establish a sports company, your product line should be complete and cover everything from running, walking, soccer, basketball and outdoors. Xtep is planning to either expand on its own or through acquisition to complete the categories.

That's why we had the second round of acquisition, where we bought K-Swiss, Palladium and Supra in US to build the entire brand. At the same time, we used the ‘Brand + Retail’ strategy for overseas markets, where we not just export the product, but also the brand and retail management.

In terms of experience, category and quality of our product, we are up there. Also, the overseas market is accepting Chinese products more wholeheartedly. So it's a good opportunity.

The Passage: What is the difference between your current overseas strategy and the earlier strategy?

Li Bo: The earlier one was purely a wholesale model, just trade. We sold products in overseas market through distributor. We had many clients at the time of Sanxing. When Xtrep was established, the cooperation continued and we had some retail stores overseas, but we didn't do much of precise management.

After the retail transformation of Xtep, we began rethinking the overseas market. Now the strategy is called ‘Brand + Retail’ — that is build it like you would in the local market, cultivate and establish the market strategically.

To develop overseas market, explore the respective local market channels, understand the culture deeply, the legal requirements, needs of local consumers and the business model of the local market.

The Passage: So where all have you established a market for yourself?

Li Bo: We started this new ‘Brand + Retail’ export in the second half of 2017. We began in India. The business has expanded to ten countries. We also opened ten stores in Saudi.

They are not all self-owned stores, some are franchisees. But the requirement is not just selling products, but also building the brand and retail store. In India we do it through joint ventures. In countries like Saudi Arabia, Thailand and Kazakhstan, we have agents. It all depends on the local market and the relationship with the local agent.

Though Xtep is in overseas markets, we still continue to build our positioning in China. We are a mid-range brand that focuses on good quality, price and price-performance ratio. In fact, in 3-, 4- and 5-tier cities, it is particularly profitable. The income level in India is also in this range.

So we have chosen South Asia, Southeast Asia, Middle East and Central Asia as our main market now. We won't enter Europe now and may enter Americas after some time. Some markets may not so mature, so we export the products to the distributor with only some basic management principles.

The Passage: Do you have plans to manufacture in India?

Li Bo: As of now, all our products are made in China and exported to other countries. But this is just the beginning. According to our understanding and market research, we choose the products to first hit the market. If it is good, we continue, we adjust if it’s bad. For example, Indian customers require their shoes to be breathable, light, soft; and then a lot of Indians have flat feet, so we adjust accordingly.

In China, our one batch runs for six months, but we may have to speed up overseas to adapt to the markets faster. Local manufacturing is a long-term plan for us. We have a lot of faith in this market, we have a high strategy here. Now we just need to establish the channel, product and marketing, and then expand it if it succeeds.

The Passage: What is your expenditure in overseas market?

Li Bo: In terms of operational expenditure, the biggest cost is rent, second, the tariff overseas, and also the human resource and marketing costs. We are fully prepared for the costs of a new market. For now we remain focused to go through the store, provide products and services, contact consumers and receive feedback. After understanding all these, we do more marketing.

The Passage: Is the store in MG Road also a kind of marketing for you?

Li Bo: We haven’t made money in the previous two years. So why did we open this store in an expensive part of Bangalore? One reason is brand exposure. It's also a place where we can communicate with customers face-to-face. We have a good store, good products, good service, good display — we value this kind of influence. The experience of customers is more abundant. If you come to the store and try the products, you may come back to buy it.

The Passage: Have you adjusted to the Indian market?

Li Bo: Definitely. There is a huge difference between domestic market and overseas. I feel like the Indian retail industry is not as aggressive as that in China. Chinese market is quite developed, all the details of retail management is more developed. We have a whole training programme for overseas employees. When we bring the Chinese system here, we adapt it for the locals. According to the culture and the system, it may take one to two years to adjust.

The Passage: What is the feedback from customers in overseas market so far?

Li Bo: The customers love our products. In fact, in Southeast Asia and South Asia, it’s natural for consumers to compare us with Nike and Adidas. Because Nike, Adidas and Xtep are foreign brands for local consumers.

They will compare us in design, material and prices. For example, Nike has air-cushion shoes that sells at 1200 RMB. We also have one that is sold at 400 RMB. It is being loved by customers. Our product is more attractive in price.

I think this is an advantage for us. Whether it is Vietnam or Saudi Arabia or India, the feedback from consumers is very good.

The Passage: What are your plans for the Indian market this year?

Li Bo: I have visited Delhi. Our plan to enter Delhi is based on the brand's layout and exposure. We have the patience and confidence to operate the Xtep brand in India.

Running a multi-brand store in India is worth trying. Like Lifestyle — it has a large area where different brands that can be combined. For example, running will have Nike, Adidas, Puma and many other brands. We can try it.

We will continue to open new stores in Bangalore and we will also try Delhi. We will slowly expand to the east and west of India.

Ruiyao Luo

Ruiyao Luo is a Beijing-based tech reporter. She focuses on emerging startups and tracks the trends in the startup industry in India and China. She can be reached at Ruiyaoluo@thepassage.cc.

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