In the controversy of the North Malaysia event, Xtep's market value evaporated by more than HK$1 billion within two days

People of the Day

2024-04-24 11:29Posted on the official account of Beijing Daily People

Xtep, which has been running on the road of marathon sponsorship for 17 years, is now "surrounded by tigers and wolves" in the field of running shoes, and it is best not to make any mistakes, otherwise other brands will immediately take its position.

But apparently, Xtep has made a mistake.

Text | Wang Xiao

Edit | Yang

Operations | Puffs

The "farce" of the marathon

The usually quiet running group seemed to explode, and it was lively for two days. The red 99+ mark, hanging at the top of the message list, is still being refreshed.

Zheng Jianye, a Beijinger who has been running a marathon for three years, clicked on the chat, and the anger in the group suddenly came to his face. The target of the angry attack is the sports brand Xtep, some people say "this thing is too inauthentic", some people say that Xtep is too small, and some people even call for the next marathon never to wear Xtep products.

Back on April 14, in the Beijing Half Marathon sponsored by Xtep, Xtep's contracted athlete He Jie won the men's championship. An event that should have been worth celebrating, but it aroused questions from netizens.

Before the finish line, there were only He Jie and three other foreign athletes. Two of the foreign athletes tried to speed up past He Jie, but seemed to be blocked by another foreign athlete's reach. Even the narrator seemed a little embarrassed, "The four of them have a tacit understanding and have been together throughout the whole process." In the end, He Jie was almost "surrounded" by the other three people to cross the line, only one second ahead. By the end of the match, He Jie had noticeably been breathing unevenly, but the other three seemed to have some energy left.

▲ He Jie was almost "surrounded" by the other three people.

For a time, discussions such as "guaranteeing the champion" and "the game is unfair" were overwhelming, flooding all kinds of social media. On the afternoon of April 19, the Beijing Half Marathon Organizing Committee issued a decision, announcing the cancellation of the results of He Jie and the three foreign runners involved, and the withdrawal of the trophy and medal bonus. Immediately afterwards, Xtep issued an apology statement, saying that in this competition, Xtep invited 4 foreign athletes to serve as He Jie's pacemakers (commonly known as "rabbits", one of whom exited at 4 kilometers and did not appear at the finish line). The staff "made a mistake during the registration process and did not identify his pacemaker, resulting in him participating as a special guest".

In the marathon, the officially recruited pacemakers will be clearly marked on their bodies to accompany and help the participants complete the race according to the pre-specified finish time and strive for better results.

▲ The officially recruited pacemakers will have a clear logo "PACER". Photo / Beijing Half Marathon's official WeChat 

Li Yu, a 95-year-old Shandong girl, has run marathons for seven years and has been an official pacemaker five times. In her eyes, the performance of the three foreign athletes in the competition is very suitable for the role of pacemakers, except that there is no logo on their bodies. When he saw Xtep's statement, Li Yu was very surprised, "The registration is so standardized, how can there be such a mistake."

In the eyes of some people who are more deeply involved in the marathon, Xtep's statement is more like a rhetoric. In addition to the official pacemaker, sports brands will hire private pacemakers for their own contracted athletes during the competition, commonly known as "private rabbits". Zheng Jianye said that in many competitions, "private rabbits" will compete as normal athletes, and sometimes they will not be specially identified.

However, when the general "private rabbit" is some distance from the finish line, it will start to slow down or leave the field directly to ensure that the contracted athletes cross the line smoothly. There is also a situation where "Private Rabbit" directly overtakes the contracted athletes in the final stage and wins the championship. "It's a bit like a double insurance on the brand", so that no matter whether it is a contracted athlete or a "private rabbit" who wins the championship in the end, it can be guaranteed to be the brand's "own person", and the feet are wearing their own running shoes.

Before the "farce" of crossing the line, there had been a small controversy in the Beijing Half Marathon. Two days before the game, Jia Orenga, the global spokesperson of China's Jordan Sports, had just landed in Beijing, but found that he had been disqualified from the competition. In the afternoon of the next day, the Beijing Half Marathon Organizing Committee issued a statement on the situation, saying that Jia Oringa was a competitor with a competing brand, which exceeded the scope of the sponsor's quota. At that time, there were already marathon enthusiasts who were dissatisfied, "There has never been anything like this before."

▲ Jia Orirenga. Photo / Visual China

After He Jie and the three foreign athletes were canceled, Zheng Jianye went to the marathon report card again, and the third runner-up was Li Chunhui, or Xtep's "own person", who joined the "Xtep running family" as early as 2018.

The story forms a closed loop, and the marathon seems to have become Xtep's "exclusive game".

Multiple levels of anger cumulated, and people's discontent spread from the niche circle of Marathon to the entire Internet. Some people jokingly called the match "China-Africa Friendly Match", while others were disappointed and puzzled by "why competitive sports have become like this". In the comments of Xtep's apology statement, more than one person said, "I will never buy Xtep again."

Immediately afterwards, the capital market responded quickly. At the opening of trading on April 15, Xtep's share price fell rapidly, and as of the close, the largest intraday decline reached 8.63%. In just two days, Xtep's market value has evaporated by more than HK$1 billion. On April 17, Ding Shuibo, chairman of Xtep, began to save the stock price, investing HK $6.478 million to increase his stake to 49.23%. Normally, the increase in the holdings of major shareholders represents long-term optimism about the company, and Ding Shuibo seems to be responding to the controversy in this way.

Xtep, why did you choose a marathon?

This time, along with Xtep, he was thrown into the eye of the storm of public opinion, as well as the contracted athlete He Jie. After the game, He Jie looked at the full screen of doubts, clicked on the fan group, and edited a long response, "I don't need this champion to prove myself."

▲ Screenshot of He Jie's reply.

And in this game, Xtep obviously needs this championship more than He Jie. Blake, the current manager of DB-Footwear Innovation Lab, who once worked for a leading international sports brand, said, "Every sports marketing needs highlights, and the championship is the core communication story. "If you want to get the most out of your event sponsorship, the best way to do it is to win the championship.

Prior to this, Xtep had deeply bound the 160X series of running shoes to the marathon to make them "champion running shoes". On the official sales page of the 160X series, the bold words read: Help break the Chinese marathon record.

Just over half a month ago, in the Wuxi Marathon on March 24, He Jie created a time of 2 hours, 6 minutes and 57 seconds, pulling the Chinese marathon into the "206" era. If He Jie's championship in the Beijing Half Marathon had not been cancelled, it would have been an excellent marketing story for Xtep to be linked to Wuxi's results.

Not only He Jie, Xtep is also betting on more championships. According to the statistics of "21st Century Business Herald", as of December 31, 2023, there have been 370 marathon championships of 83 Chinese athletes, and Xtep's 160X series is on their feet.

▲ Xtep has made the 160X series a "champion version of running shoes". Photo / Xtep Tmall store

"In sports events, only champions can be seen by outsiders", obviously, Xtep is not satisfied with only serving professional runners, and all potential users of marathons are Xtep's target audience.

For sports brands betting on the running category, marathon results are the fastest and most direct way to prove the performance of their products to the outside world. The competition also screened out a group of high-sticky users of running shoes for the brand. But not everyone knows what is the best and most suitable running shoes for them, and in order to reduce the risk of decision-making, "the easiest thing for the public is to see what the champion wears".

Xtep is well aware of this and will cooperate with the competition to carry out corresponding marketing activities. Zheng Jianye found that when buying Xtep shoes before and after the marathon sponsored by Xtep, he would often encounter discounts, "which can be two or three hundred cheaper".

As early as 2007, Xtep set its sights on the marathon cake. In the annual report of the following year, it can also be seen that Xtep was cautious in "small steps and jogging" at that time - only sponsored two events, one of which was also a clothing sponsorship.

Xtep's strides on the marathon track are getting bigger and bigger, especially after 2020.

Zheng Jianye can clearly feel that after the epidemic, everyone seems to prefer marathons, "it is like a blowout". On days when walking is restricted, people's desire for shoes becomes stronger. According to a report by NPD, a third-party research organization, the sales performance of the running shoe category has significantly outperformed other types of sneakers since 2020, and "the size of the global running market has the potential to continue to expand." According to iResearch's estimates, there are 100 million core runners and 300 million mass runners in China, and the Chinese market is becoming the second largest running market in the world.

Xtep took advantage of the "sports wind" in China and began its "sprint stage" in the marathon. Taking the Xiamen Marathon, which has been sponsored for 16 years, as an example, in 2019, only 4.2% of runners who broke 3 (expected to finish within 3 hours) wore Xtep running shoes, but in 2021, this number quickly refreshed to 51%.

By 2023, Xtep will begin to "run wild". According to the annual report, in 2023 alone, Xtep sponsored 24 marathons. Among the mass runners and runners who break 3 (expected to finish within 3 hours), the wearing rate has surpassed that of major brands at home and abroad, ranking first. Among the top 100 male athletes, the wearing rate of Xtep running shoes is even as high as 41%. In other words, looking at the top 100 male athletes in China, 4 out of 10 are wearing Xtep running shoes.

In this way, Xtep has spent 17 years firmly tying the marathon to itself. The marathon and its champions have also helped Xtep to build a professional, comfortable and market-leading brand brand in the minds of consumers.

▲ Xtep firmly tied the marathon to itself and laid a professional brand brand in the minds of consumers. Photo / Xtep Tmall store

Blake has compared the product pricing of international brands and Xtep: the markup rate of foreign brands can reach 7-9 times the cost of products, while it is difficult for domestic brands to price the same, and the multiplier of some products may only be 2-3 times, so the impression of "focusing on cost performance" has been formed.

Embarking on the professional track can help Xtep enhance its brand tonality, thereby increasing the unit price of goods. Comparing the gross profit margin of running shoes and popular sports shoes, the gross profit margin of professional competition products is lower.

"However, professional running shoes can drive the price and quality upgrade of the overall product portfolio, which in turn will increase the gross profit of the product. In other words, by continuously launching professional running shoes, increasing product sales with relatively high customer orders, and eliminating past specials, Xtep can increase the average customer orders of its products and achieve better gross profit performance. ”

This is also confirmed by the data. According to the annual report, Xtep's gross profit margin for the full year of 2023 further increased to 42.2%, and the revenue of the professional sports segment also increased by 98.9% year-on-year to RMB796 million, accounting for 5.5% of the group's total revenue.

In Blake's eyes, "in the field of racing shoes, Xtep's products are already in the first echelon, and it is difficult for the brand to achieve significant improvement in product breakthroughs.

"The popularity of carbon plates and supercritical products has led to this round of the arms race for professional sports racing shoes, but the technological breakthrough in materials has not been so fast. "If you want to continuously improve the brand markup rate, it seems that it is easier to make volume marketing easier than to break through technology.

From a practical point of view, Xtep does the same. Blake compared the carbon plate running shoes released by various brands this year, and although Xtep still maintained the level of the first echelon, "other brands have some more interesting attempts".

A "Road to the King of Volumes" with no end in sight

Finding a new path has been a challenge Xtep has faced since its birth. Ding Shuibo started as a shoe processing business, which was originally called "Sanxing Company" and occupied the downstream of the industrial chain. For a long time, Sanxing's business was very prosperous. In just 4 years since its establishment, it has achieved a leap from 10 pairs of shoes a day to 10,000 pairs of shoes, and the scale has increased by 1,000 times. It is exported to more than 40 countries and regions, and has set up 4 production bases in Europe, North America, South America and the Middle East.

In the eighties and nineties of the last century, people were more concerned about price than brands, and Sanxing won by low prices. Dante Shuibo also felt the difficulty of low prices, and without his own brand, he could only make some "hard-earned money". At that time, Ding Shuibo was thinking about how to make this cake bigger. So, in 2001, Sanxing changed and Xtep was born.

At that time, the shoe market did not leave room for Ding Shuibo at all. In the 90s, the domestic brands "Li Ning" and "Anta" had registered their own companies and launched their own brands, and by the time Ding Shuibo entered the game, they had already entered the hearts of the public. Foreign brands are also eyeing up, and old sneakers such as "Converse" and "Adidas" also want to take a share of the domestic market. In this case, it is difficult for the "budding" Xtep to occupy a piece of the market.

Just like the brand slogan, Xtep must "step out of a different style every step of the way". The first way Xtep found itself was to put forward the concept of "sports fashion", and boldly used entertainment stars as brand image spokespersons.

▲ Xtep's positioning is "sports fashion". Photo / Screenshot of Xtep's official website

In 2007, he devoted himself to the marathon track, which was the second path that Xtep came up with. This new road seems to have given Xtep more "sweetness". Looking at Xtep's past financial reports, before 2007, Xtep's annual revenue was still some distance from 500 million, and by 2007, Xtep's annual revenue directly reached 1.364 billion yuan.

Encouraged by revenue, Xtep began to continue to attack the professional running shoe track. In 2015, Xtep built the X-Lab sports science laboratory to increase investment in running technology, and in 2019, Xtep established a joint venture with Wolverine Worldwide to start the development, marketing and distribution of Saucony, a veteran professional sports brand in the United States. As of December 31, 2023, there are 65 Xtep running clubs in Chinese mainland, with more than 2 million "special runners" members.

▲ Xtep store. Photo / Visual China

After several operations, Xtep found that the "sweetness" that the running shoe track once brought to itself was being "diluted" little by little. According to the 2023 financial report, Xtep's annual revenue reached 14.346 billion yuan, a year-on-year increase of 10.9%. However, compared with the growth rate of 29.13% in 2022, it has slowed down significantly. Compared with its peers, 361 degrees' revenue in 2023 will be 8.42 billion yuan, a year-on-year increase of 21%.

Among them, the footwear revenue that dominated the marathon list in various regions was 8.172 billion yuan, a year-on-year increase of 5.3%, and the growth rate also lagged behind the clothing business. Compared with the group's overall revenue growth rate of 10.9%, it also seems to be facing a dilemma.

In the capital market, Xtep's performance was also dismal. Xtep's share price has fallen from its peak of HK$14.6 in July 2022 to bottoming out at HK$3.6 in early January 2024.

The revenue growth rate has declined, but more and more money is burned for the marathon. In 2007, when Xtep had just increased its sponsorship of marathon events, Xtep's advertising and marketing spending accounted for only 5.6%, and just one year later, the proportion increased to 9.1%. According to statistics, Xtep's annual sponsorship expenses for marathon events have reached tens of millions of yuan, involving many well-known events at home and abroad.

By 2023, it will be directly approaching 2 billion. According to the financial report, Xtep's advertising and promotion expenses in 2023 will be about 1.962 billion yuan, a year-on-year increase of about 28%, accounting for about 13.7% of the total revenue.

Yu Chenglong has been responsible for brand and sports event marketing in the domestic airline and internet industry, and has been sponsoring major international sports events since 2018. Sponsorship of sports events is different from other commercial event sponsorship, and the brand originally thought that as long as the sponsorship fee was paid, it was all over, but in fact this is not the case.

Every time a brand sponsors an event, it is necessary to prepare not only the cost of sponsorship, but also the cost of marketing communication, so as to gain the desired exposure, otherwise "it may not necessarily lose money, but it will definitely not make a profit". Many brands are very lacking in the experience of sponsoring sports events, either want to make a splash or make a profit. When the event ended, I found that it was all a flash in the pan.

For example, the sponsors of marathon events are generally divided into three levels, and you can get a third-level sponsor by investing hundreds of thousands, but if you want to become a first-level sponsor, "you have to spend millions". There is also a money-saving method for some experienced brands, which is to spend hundreds of thousands of dollars to become a third-level sponsor, and then use the rest of the budget for communication and marketing activities, "which is the most cost-effective operation". But if it is a long-term sponsorship like Xtep, "it will definitely burn money".

In fact, Xtep not only burns money on competitions, but also on athletes. As early as 2019, at the Xiamen "National Race for All" strategy conference, Xtep and the Chinese Athletics Association released a series of new marathon incentive policies: 1 million yuan for breaking a domestic record, and an additional 10,000 yuan for every 1 second of breakthrough.

▲ Picture / Visual China

Why is the money burning more and more? Because Xtep is not the only one that is eyeing the "fat" of the marathon.

In 2022, Hongxing Erke will publicly launch the "Hero Post": Chinese runners who wear a full set of Hongxing Erke competition equipment and win the championship of the Shanghai Station will be rewarded with a total prize of RMB 1 million.

According to the data of "Yue Run Said", the highest wearing rate of running shoes for runners in the single-stop Shanghai Marathon "Breaking 3" is Nike, accounting for 46.3%, which is more than double the wearing rate of Xtep.

Today, in the "competition" of sponsoring marathons, Xtep has become the first place in China. If you want to maintain this first place, you will have to spend more money and compete with more brands for the "champion's feet".

In this marathon incident, Blake speculated that Xtep seems to be interested in building He Jie into a "super hero" in the marathon field, just like Lin Dan in badminton. However, any "super hero" must be born in a fair, just and open competition environment to be meaningful and arouse the enthusiasm and worship of ordinary people.

An American pacemaker once said, "Running is the most natural sport in the world, and when you grow up and learn to walk, you start running." This is the most fascinating part of the sport. You can even run barefoot, you don't need anything else. ”

Xtep, which has been running for 17 years on the road of marathon sponsorship, is now "surrounded by tigers and wolves" in the field of running shoes, and it is best not to make any mistakes, otherwise other brands will immediately take the position of Xtep.

But apparently, Xtep has made a mistake.

(Except for Yu Jackie Chan, the other interviewees are pseudonyms)

Resources:

1. "Running" did not save Xtep: performance growth is not as expected, and the stock price has fallen by 2/3", Blue Whale Finance

2. ""Depth" Sports National Brand Competition "Running Shoes Jianghu"", interface news

3. "Domestic Running Shoes Fierce Battle Marathon", China Business News

4, "Xtep, Caught in Controversy, But Won Ma", I love the marathon iLoveMarathon

The article is original for Daily People, and plagiarism must be investigated.

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