Xtep International, a key retail partner for the Saucony, Merrell, K·Swiss, and Palladium brands, and now a 40 percent owner of the Saucony IP in China, said 2023 was a landmark year for the group as it celebrated its 15th Anniversary of listing on the Hong Kong Stock Exchange.

“During the 15-year journey, we have weathered the ups and downs of various economic cycles and expanded our business into a globally diversified portfolio,” Chairman Ding Shui Po offered in his letter to investors accompanying the company’s annual report 2023. “In 2023, Mainland China’s economic growth remained volatile amidst heightened macroeconomic uncertainties and geopolitical tensions, resulting in a dampened momentum,” continued Shui Po. “The retail sector faced challenges in achieving a strong post-COVID recovery, given weakening consumer confidence and modest GDP growth of 5.2 percent.” 

Shui Po said that at a time when price-conscious consumers responded to economic uncertainty by switching to more affordable options, the retail industry in Mainland China stepped up promotional efforts to wrestle with excessive inventory and market consolidation.

“Additionally, the e-commerce business underperformed due to a significant decline in online ordering, which continued to weigh on the retail industry throughout 2023,” Shui Po said. “Despite these challenges, the sportswear sector posted stable growth of 14.2 percent1, outperforming the overall retail sector for the year. In particular, companies focusing on the mass market with greater specialization in performance gear are poised to gain market share.”

Xtep International’s revenue increased 10.9 percent to an all-time high of RMB 14,345.5 million in 2023, compared to RMB 12,930.4 million in 2022. Revenue of the core Xtep brand also increased 7.4 percent, accounting for RMB 11,947.3 million in 2023 revenue, compared to RMB 11,127.9 million in 2022.

The group’s gross margin improved 30 basis points to 42.2 percent of sales for the year, compared to 40.9 percent in the prior year. The group’s operating profit increased 7.9 percent to RMB 1,579.9 million from RMB 1,464.3 million in 2022.

Profit attributable to ordinary equity holders of the company also hit an all-time high of RMB 1,030.0 million in 2023, up 11.8 percent from RMB 921.7 million in 2022. Basic earnings per share was RMB 40.8 cents in 2023, compared to RMB 36.6 cents in 2022.

The Board has proposed a final dividend of HK8.0 cents per share, with an option to receive scrip shares instead of cash. With the interim dividend of HK13.7 cents per share, the full-year dividend payout ratio was approximately 50.0 percent, equal to 2022.

“Our industry-leading position in the running segment has continued to fuel the Group’s business growth,” suggested Shui Po. “In 2023, Xtep outperformed all international and domestic brands in the most prestigious marathons in Mainland China, including the 2023 Xiamen Marathon and Beijing Marathon, achieving the top position with the highest wear rates among all participants and sub-three-hour marathoners. Our exceptional “160X” running shoes also gained significant market recognition, helping 83 runners win 370 championships and set new records thus far. To capitalize on the booming running market, the core Xtep brand will continue to focus on expanding its business in the mass market segment by offering value-for-money professional products in Mainland China.”

Throughout the year, the group said it made great efforts to enhance operational efficiency and alleviate inventory pressure on the core Xtep brand while unlocking the potential of its new brands in Mainland China to strengthen brand positioning strategies within the multi-brand portfolio.

At December 31, there were 6,571 Xtep Adult branded stores, mainly operated by authorized distributors in Mainland China and overseas, compared to 6,313 stores at 2022 year-end.

Saucony and Merrell
Meanwhile, Saucony, which Shui Po said caters to “a sophisticated customer base,” has been gaining momentum and increasing brand awareness in the running segment. He said the brand ranked third among all brands in terms of wear rate among all participants in the most prestigious marathons in Mainland China. Among runners representing the larger group of mass-market runners in the 2023 Shanghai and Beijing Marathons, Shui Po said Saucony ranked third among domestic and international brands, underscoring the brand’s exceptional product performance and market recognition.

“Within our multi-brand portfolio, Saucony became the first new brand to achieve profitability in 2023,” said Shui Po. “Its increasing competitiveness and superior performance in professional running gear have enabled its success, strengthening its position as a sustainable growth driver in China for the group in the long term.

“Leveraging our innovation and R&D capabilities, we will continue to design and develop customized collections for Chinese consumers, in addition to sourcing products launched by Wolverine, while broadening Saucony’s fashion and lifestyle offerings to accelerate the growth of our business and further explore global markets,” Shui Po said.

“Thanks to its exceptional design and superior product performance, Saucony has attracted considerable attention from an expanding customer base, thus sustaining a strong growth trajectory,” Shui Pocontinued. “In 2023, the revenue generated from the professional sports segment exhibited robust performance and soared by 98.9 percent to reach RMB 795.5 million, accounting for 5.5 percent of the Group’s total revenue.”

Shui Po said that by leveraging that design and quality, Saucony had experienced remarkable growth in brand awareness among Chinese consumers, accompanied by a rapid increase in-store productivity and an encouraging expansion throughout Mainland China.

He said that following the successful launch of the company’s first third-generation image store at the Shanghai Super Brand Mall in June 2023, Xtep continued to expand its retail presence in Tier 1 cities while establishing its retail footprint in premium shopping malls in Tier 2 cities.

As of December 31, 110 Saucony stores and four Merrell stores were in Mainland China.

“To further enhance control and synergies with Xtep in product innovation, marketing, and distribution channels, the group acquired 40 percent of Saucony’s intellectual property rights in China in December 2023, as well as Wolverine Group’s interests in the 2019 joint venture in January 2024, making the joint venture entities become the wholly-owned subsidiaries of Xtep, Shui Po explained. “These transactions demonstrated our confidence in and commitment to the business development of both brands and their growth potential in China. We remain committed to the expansion and enhancement of our retail network in Mainland China.”

The Wolverine World Wide Deal
To further develop the Saucony and Merrell brands in Mainland China, Hong Kong and Macau, on December 17, 2023, certain members of the Group entered into agreements with Wolverine World Wide, Inc. and certain of its subsidiaries, under which the parties have agreed that:

  • Acquisition of interest in Saucony Asia IP Holdco and formation of a new joint venture: XMS Sports Co. Limited, a wholly-owned subsidiary of the company) shall acquire 40 percent of ownership interest in Gemini Asia Saucony, LLC, a limited liability company incorporated under the laws of The State of Delaware of the United States of America, which was established for holding, licensing and managing the intellectual property rights associated with the Saucony brand in Mainland China, Hong Kong and Macau. A joint venture agreement shall be entered into in relation to the management and operation of Saucony Asia IP Holdco.
  • Call options to acquire the remaining interest in Saucony Asia IP Holdco: XMS Sports shall acquire the options to, in the event of global sale of the intellectual property of the Saucony brand or a change in control of Wolverine, purchase a further 35 percent or 60 percent ownership interest in Saucony Asia IP Holdco.
  • Acquisition of the Wolverine Group’s interest in the 2019 joint venture entities: MS (China) Sports Company Limited (previously known as Xtep Holdings Limited), a direct wholly owned subsidiary of the company, shall acquire the Wolverine Group’s interests in certain joint venture entities to carry out the sale and distribution of products under the Saucony and Merrell brands. As a result, the joint venture entities shall become wholly-owned subsidiaries of the Group and the agreements constituting the joint venture will be terminated.

K·Swiss and Palladium
While the overseas market for K·Swiss and Palladium experienced stagnation, both brands made progress in rebranding efforts within Mainland China, as evidenced by the increase in brand recognition and store productivity. 

In 2023, revenue from the athleisure segment increased by 14.3 percent to RMB 1,602.6 million, accounting for 11.2 percent of the Group’s revenue. Revenue from Mainland China grew rapidly by 224.3 percent, its revenue contribution also significantly increased from 10.2 percent in 2022 to 29.0 percent in 2023.

As K·Swiss and Palladium continue to enhance their product portfolios and retail network, they are reportedly beginning to reap the rewards of their successful rebranding initiatives in Mainland China. In particular, according to the company’s annual report, one of K· Swiss’ pilot stores in Changchun achieved an annual store productivity of over RMB 10 million, serving as a strong testament to the brand’s exceptional product design and quality.

In addition to tennis, K·Swiss reportedly actively promoted pickleball in recent years. In November 2023, K·Swiss sponsored and partnered with the Oakley Hong Kong Open Pickleball Championships 2023, the largest international pickleball tournament in Hong Kong. K·Swiss provided athletic footwear for the event organizers and guests for the day and offered high-performance tennis shoes as prizes for the winners. Through various types of sponsorship, K·Swiss has successfully raised brand awareness among local and international athletes and skillfully delivered diverse tennis-inspired collections embedded with elements of the sport that are suitable for different situations.

Throughout the year, K·Swiss accelerated the opening of stores in premium shopping malls in higher-tier cities in Mainland China, including the first store in Shenzhen at Coastal City Shopping Center.

As of December 31, there were 101 K·Swiss stores in Asia Pacific, including Mainland China. To cater to the high-end consumer segment, Palladium also expanded its presence by opening new stores in various higher-tier cities in Mainland China. Following the launch of a new store in Beijing in September 2023, Palladium further expanded its footprint in Southern China opening its first store in Shenzhen at The Mixc World in November 2023.

Shui Po said Palladium in Mainland China experienced promising initial success in 2023, supported by its “effective product development strategy and strategic brand positioning that resonated with the younger generation.”

“The brand’s revamped products received exceptionally positive response from younger Chinese consumers during the year,” Shui Po said. “Tapping into the growing demand for individuality and the popularity of athleisurewear, Palladium has witnessed a significant surge in brand awareness, and store productivity has exceeded projections, which has further bolstered our confidence in its future development.”

As of December 31, there were 94 Palladium stores in Asia Pacific, including Mainland China.

“Although challenges lie ahead, 2024 holds tremendous promise and untapped potential,” Shui Po commented. “With our established track record in the running segment, our strategic focus on mass market consumers, and government support for the sports industry, we remain confident in the continued recovery of the sportswear sector and our ability to drive future success.”

Image courtesy Xtep International