After the completion of the strategic transformation, the Group has adopted a retail model similar to a franchise model. The Group decides store location and layout, universal tag price, sets strict guidelines on product ordering instructions, discount ranges based on detail store tiering, and provides training for all retail store staff, while exclusive distributors make most of the capital investments decision such as renovation costs, rents, store inventories and staff costs. Under this model, retail sales per square meter has increased, items sold per order rose, retail inventory level was maintained at a very low 4 months level (industry average is 4-6 months), and retail discount reduced to around 20% for the entire retail channel where in-season stores have close to no discounts. Exclusive distributor directly operated stores remained steady at an optimal level of around 60% of the 6,035 total store count, while store remodeling continued. As exclusive distributor profitability improved, the Group took away the voluntary support and our average trade receivable days reduced to 113 days as at 30 June 2018, from 164 as at 30 June 2017 and 130 as at 31 December 2017.
In addition, the Group has built a professional team of big data experts for real-time monitoring of sales progress, inventory level, discount level and sales efficiency through full ERP-system coverage over entire store network. The analyzed big data also helped the Group set precise discount ranges for each store, guide the store staff on changing product displays in store, improve customer service quality, formulate accurate product ordering instructions for exclusive distributors per store, and pinpoint consumer behaviors that lead to more popular future product development directions. The ERP system also aided the Group achieving higher flexibility and precision in production and delivery, where products delivered to exclusive distributors within a quarter are split into three batches, and the products in the last batch is produced and delivered flexibly based on retail sales results of the first batch captured by the ERP system.
True Omni-Channel Retail through Integrating E-commerce
Xtep operates one of the few true omni-channel retail channels within the sportswear sector, where the online platform not only functions as a direct retail sales channel for the Group, but also a collective retail channel for the exclusive distributors. Thanks to the ability to quickly evolve with consumer trend and detailed direct management with ~400 staff dedicated team, Xtep once again captured top sales by volume in running foot wear products on Tmall in the first half of 2018 and continues to generate high sales growth. Apparel sales on Tmall doubled in the first half of 2018 compared to the same period of last year, the growth rate was much higher than that of peers.
Through the O2O system, offline products are listed on our e-commerce platform, and the Group is able to utilize inventories at exclusive distributors to fullfill orders by consumer. In the first half of 2018, the O2O system was rolled out to over 60% of our retail network. With the Group’s proven success in e-commerce, O2O is a win-win situation where Xtep products are aligned, branding and promotional efforts saw exponential effect, inventory levels are better controlled and profit increases for both the Group and exclusive distributors. With rising sales contribution from O2O, the Group’s online products become increasingly matching to its offline products. For the sixth months ended 30 June 2018, e-commerce contributed to more than 20% of the Group’s revenue.