Wolverine Worldwide and Xtep International, one of the major Chinese sporting goods companies, have announced agreements to set up a joint venture that will develop, market and distribute Merrell and Saucony footwear, apparel and accessories in China, Hong Kong and Macau. Some of the items will be exclusively designed and manufactured according to Chinese fits and tastes.
With minor exceptions, the joint venture will have exclusivity for the sales of the two brands in China. Previously, the two brands were sold in China through third-party distributors or directly by local affiliates of Wolverine.
The new entity, which should start operating in the second half of this year, is set to open stores under the two brands, mostly in shopping malls in China's larger cities, while raising their presence in the markets of Hong Kong and Macau.
Each of the two parties will make an initial capital contribution of around 155 million yuan renmimbi (€20.4m-$23.1m) to the new stand-alone operation. It will leverage Xtep's sports marketing resources, such as its presence at marathons and its Xtep Run Clubs, which have more than 50,000 members in the country.
Presumably, Merrell and Saucony will be positioned in a higher segment of the market than Xtep, which has been striving to be the favorite brand for Chinese runners. It sponsored 40 running events in 2017, in addition to other events.
Founded in 2002 and listed on the Hong Kong stock exchange, Xtep operates more than 6,200 stores in 31 provinces and municipalities all over China through a vast network of distributors and shopping mall operators. The company cited a strong momentum and booming market demand for running and outdoor sports products in China as a reason for the deal.
On Jan. 22, Xtep issued a positive alert, indicating that its consolidated results for 2018 will likely show a significant increase in net profit of around 50 to 60 percent for the year, on the back of a hike of about 25 percent in consolidated revenues. Among the factors, the company mentioned robust sales performance in the stores due to store upgrades and the optimization of its retail network, coupled with strong product offerings. Earlier in the month, Xtep reported continued average same-store growth in the mid-teens.
For 2017, Xtep had reported a 5.2 percent decline in group revenues to RMB 5,113 million (€672.7m-$762.3m), mainly because of a reorganization of the retail channel, whereby its 40-odd distributors directly manage more than 60 percent of the Xtep stores. The attributable profit declined by 22.7 percent to RMB 408.1 million (€53.7m-$60.8m).