XTEP Sponsored The 143 Marathon Brand Image Remodeling.

To promote brand pformation, XTEP has invested heavily in marketing, sponsoring 132 marathons and running events in 4 years, and advertising costs rising year by year. However, its R & D expenditure is at the bottom of the four largest state-owned brands.

Under the background of consumption upgrading, how far can the road of "strong marketing + cost-effective" go?

In 2018, a news programmer who wore a XTEP blind date was tucking up a girl, and sent XTEP to the headlines.

In fact, in order to reshape the brand image of consumers, XTEP has been very competitive in recent years.

In 2015, XTEP launched the three year strategic pformation plan to pform brand positioning to professional sports.

In March 12th, XTEP handed in its first pcript after three years of strategic pformation.

In 2018, business revenue increased 24.8% to 6 billion 383 million yuan, and the share holders of ordinary shares should increase profits to 60.9% yuan to 657 million yuan.

Behind the high growth performance, we find that in order to promote brand pformation, XTEP has invested heavily in marketing. In the past 4 years, 132 marathons and running events have been sponsored. Advertising costs have risen year by year, but its R & D expenditure is at the bottom of the four state-owned brands.

Under the background of consumption upgrading, how far can the road of "strong marketing + cost-effective" go?

How is the pformation in three years?

After the financial crisis in 2011, the radical expansion of the sports clothing brand ushered in a brakes, revenue, gross profit margins plummeted, channel surplus, high inventory.

Against this background, XTEP put forward the plan of "three year strategic pformation" in 2014, and made great changes in three aspects: brand, product and channel.

Specifically, the brand is repositioned from "fashion sporting goods" brand to "sports fashion brand", focusing on running and other sports kinetic energy products. The mission is to make XTEP the "runner's preferred brand".

In order to promote brand pformation, XTEP increased its sports marketing investment, and sponsored target events such as sponsoring marathon and running events, organizing XTEP 321 Running Festival, establishing a running club, sponsoring the XTEP runway of Beijing Olympic Forest Park and so on, and consolidating the relationship between "running" and XTEP brand.

In terms of products, we focus on creating running shoes and apparel core product lines, and expand product categories, including outdoor product lines, professional soccer product lines, indoor integrated training product lines, yoga and fitness products.

The result of product and brand pformation is that the gross profit margin of the group has been increasing year by year.

In 2014~2018, XTEP international gross margin rose from 40.8% to 44.3% due to the increased sales of functional sports products with relatively high gross profit margins.

In terms of channels, we should promote the pformation of physical sales channels from wholesale mode to retail mode. On the one hand, we should flatten the distribution channels, reduce the level of distribution channels from multi-storey to two levels, increase the proportion of retail outlets directly managed by total agents, thereby enhancing the group's control over retail channels, and constantly upgrading the image of stores.

In 2017, the retail pformation was basically completed. About 60% of the shops were directly operated by the general agents.

While promoting the pformation of physical channels, XTEP has also made efforts in e-commerce and O2O business. The proportion of revenue from e-commerce channels has increased continuously, reaching 20% in 2018.

From the perspective of income structure, shoes accounted for 61.5% in 2018, and clothing and accessories accounted for 36.4% and 2.1% respectively.

Compared with Anta, Lining and 31st degree, XTEP shoes account for the highest proportion.

Advertising costs increased by 47%

From the trend of gross margin and net interest rate of XTEP, we can find that gross profit margin has shown an upward trend since 2008, but net interest rate is decreasing.

Why is this happening?

The problem is the cost: since 2008, the proportion of XTEP's sales and distribution costs, administrative expenses and financial costs to total revenue has been on the rise.

Starting from the highest sales and distribution costs, from 2008 to 2018, XTEP's share of the cost rose from 12% to 21%, while 70% of the sales cost was advertising and promotion expenses.

In 2018, the cost of advertising and promotion of XTEP was 968 million yuan, an increase of 47% over the same period last year, accounting for 15.2% of the group's total revenue.

As we all know, domestic sports brands are always willing to throw money in advertising and marketing, which may be inspired by Nike and Adidas.

Specifically, XTEP implements the dual marketing strategy of "sports + entertainment".

Sports marketing, mainly through sponsoring sports events, providing official clothing for the national team and inviting sports stars to endorse.

Since 2015, in order to promote the pformation of the brand to the professional sports direction, XTEP has stepped up its sports marketing investment and launched a major marketing campaign around the two categories of "running" and "football".

In 2015~2018, XTEP sponsored 143 important marathons and running events; 2016 held the annual "XTEP 321 Running Festival"; the title sponsored the Beijing Olympic Forest Park XTEP runway; invited sprinter Xie Zhenye, the 20 km Olympic medalist Wang Zhen and Cai Zelin, the National Indoor Athletics Championships finals, the men's 60 m final champion Xu Zhouzheng, and so on as the sports spokesperson; as of the end of 2018, XTEP established 6 running clubs with 123 thousand members.

In April 2016, XTEP launched a comprehensive football strategy - the edge plan, which plans to serve the country's 5 million youth soccer population in the next five years.

Entertainment marketing is mainly conducted by inviting entertainment stars to endorse and name variety shows.

Since 2008, XTEP has been named the sponsor of Hunan Taiwan's "up to the day" for 7 years in a row.

In 2018, XTEP worked with Iqiyi to become the official designated sports brand of the second season of new rap in China.

Entertainment spokesmen, from the earliest Nicholas Tse, Twins to later Jolin, Willber Pan, Lunmei Kwai, XTEP's star lineup has always been luxurious.

In 2017, in order to approach young people, XTEP invited Zhao Liying, Lin Xing and other traffic stars as entertainment spokesmen.

In addition to sales and distribution costs, administrative expenses are also a small sum, and the increase is more obvious.

In 2018, the proportion of XTEP's administrative expenses in operating revenue dropped by over 30%, but still up to 9.75%, while Anta sports accounted for 5% of the total administrative expenditure in the same period.

It reflects that XTEP still has room for streamlining in this expenditure.

In addition, in recent years, the proportion of XTEP's financial cost in total revenue has also increased significantly, which is related to the expansion of product lines and increased investment in marketing.

Compared with the huge advertising cost, XTEP's R & D cost is negligible.

In 2018, the cost of advertising and promotion of XTEP was 968 million yuan, accounting for 15.2% of the total revenue of the group, compared with 2.3% in 2017.

R & D cost is 166 million yuan, accounting for about 2.6% of the total revenue of the group, and the proportion dropped by 0.2% over the same period last year.

Horizontal comparison, in 2018, only four major domestic sports brands, only XTEP's R & D expenditure was less than 200 million yuan.

In the same period, the R & D expenses of Anta, Lining and 31st degree were 599 million yuan, 229 million yuan and 215 million yuan respectively.

In recent years, in order to promote the brand pformation, XTEP has added product research and development input to cooperate with major textile fiber suppliers such as Dongli, Japan and Dow Chemical Corporation to develop materials, and build a dedicated research center for running. However, compared with domestic counterparts and international brands, there is still room for improvement.

Adidas's R & D investment in the 2017 fiscal year was 1 billion 400 million yuan (187 million euros). Nike's R & D expenditure was not shown separately in the financial report. According to Morgan Stanley, Nike's R & D investment in recent years was about 1 billion 700 million yuan (2.5 billion).

XTEP has always emphasized that "cost performance" is the advantage of its products.

From the price point of view, Tmall official flagship store, XTEP running shoes price range is 99 yuan ~599 yuan, Anta is 139~799 yuan, Nike 349 yuan ~1899 yuan, Arthur 279 yuan ~1390 yuan, new Bai Lun 259 yuan ~1899 yuan, XTEP's advantage is indeed obvious.

But from the "sex" point of view, consumers' recognition of XTEP running shoes is obviously against the international brands such as Nike, ADI, and Arthur.

With the improvement of people's income and the upgrading of consumption concept and fitness concept, consumers' demand for sports shoes performance will be higher and higher. The road of XTEP's "price advantage + strong marketing" may not be able to go on forever.

Marketing can narrow the distance between consumers and brands, but only research and innovation can enhance the core competitiveness of products.

In addition, it is worth noting that the proportion of shoes produced by XTEP has fallen for 4 consecutive years, from 59% in 2014 to 46% in 2018.

That is to say, more than half of XTEP's shoes are produced by outsourcing suppliers.

Although XTEP said in its earnings report, "strictly monitor the procurement of all materials, all outsourced suppliers are always monitored by our group's quality control team". However, the main product's self production rate is less than 50%, which still challenges the company's management and quality control capability.