June 20, 2008 / 10:04 AM / 11 years ago

Chinese sportswear firm eyes Olympics boom

HONG KONG (Reuters) - Chinese sportswear firm Xtep (1368.HK) expects national Olympics pride to give its sales around a 30 percent higher-than-average boost between June and August as it seeks to build its brand in China’s crowded sportswear market and beyond.

Xtep International Holdings, which makes and sells sports shoes and apparel across China for firms such as Disney (DIS.N) but also sports its own brands “Xtep” and “Koling,” plans to expand its nationwide chain 17 percent this year, adding about 800 outlets.

Xtep hopes to double its market share in two years, grabbing sales from the likes of domestic industry leader Li Ning (2331.HK), Anta (2020.HK) and Adidas ADSG.DE, Nike (NKE.N), and Dongxiang (3818.HK), which licenses Kappa sportswear.

U.S. private equity giant Carlyle CYL.UL has a 7.2 percent stake in the firm, eyeing a Chinese sportswear market expected to grow to $7.2 billion in 2009 from $3.84 billion in 2006, according to Shanghai-based brand strategists ZOU Marketing.

“The Olympics helps in terms of dollars, and helps the whole industry as a concept,” CFO Terry Ho told Reuters on Friday.

“It’s not just a one-off occasion. It’s not just a single year boosting sales by ‘X’ percent.”

The ambitious firm, which was founded in 1999 as a manufacturer, is already setting its sights abroad, aiming to spend around $75 million on an international brand to target the upper end of China’s domestic market.

Xtep, whose shoes cost on average 250 yuan ($36.34), raised $286 million in a Hong Kong initial public offering, but its shares fell 6 percent in a disappointing market debut in June.

Shares in the firm have plummeted more than 28 percent from their IPO price of HK$4.05 per share in early June.

Few analysts cover Xtep, given its recent market debut, although many say the sportswear sector is a good way for investors to benefit from China’s surging consumer boom.

Retail sales in the country jumped 17 percent last year to $1.3 trillion as increasingly well-heeled Chinese took an interest in better products and lifestyles.

FASHIONABLE SPORTSWEAR

Unlike its competitors, Xtep is positioning itself as a “fashion” sportswear brand rather than a “professional” one, a segment in which it claims to be the leader.

“We like to add fashionable elements — it’s not like Gucci or Louis Vuitton style, but it has more colorful and stylish things so teenagers and students can have a unique brand to become attached to,” Ho said.

The firm plans to focus on China expansion in the near term, but has not ruled out eventually selling its wares in Southeast Asia and beyond.

Some analysts are skeptical that Chinese brands can succeed abroad, given the country’s reputation as a centre for low-cost labor and cheap and faulty products.

Still, Ho is undeterred, and said that reliable quality will eventually win consumers over.

“I don’t think it’s impossible that one day you will see Xtep become a very popular student brand in the United States,” Ho said, adding that it is the “dream” of the firm’s chairman to become the world’s largest “fashion” sportswear brand.

Ho said so far the firm had been able to pass on rising manufacturing and labor costs to consumers and was not considering moving to lower cost centers such as Vietnam.

Xtep would raise retail prices on shoes 10 percent, and apparel 15 percent in 2008.

Some analysts warn that margins are too tight in a cut-throat arena dominated by deep-pocketed global brands.

“Our prices are increasing from 200 to 220 yuan, so in absolute terms it is only 20 yuan, not that much,” Ho said. “The retail prices of other brands will increase, so we will do the same thing.”

Editing by Anne Marie Roantree

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