Sportswear industry may expand 18% this year

China's sportswear industry will grow between 15 to 18 percent this year and next as the country's wealth continues to spur demand for shoes and clothing, according to Xtep International Holdings Ltd.

Xtep, part-owned by the Carlyle Group, will continue to open stores in smaller Chinese cities where there's room for expansion, Chief Financial Officer Terry Ho said in a July 19 interview in Hong Kong. "China is still a very good market" and sales grew at least 20 percent in the past four quarters, he said.

The clothing maker has lost 19 percent since July 7, when bigger rival Li Ning Co forecast a decline in first-half sales. Li Ning has plunged 33 percent in the same period, while another sportswear maker, China Dongxiang Group Co, owner of the Kappa brand in China, has slumped 28 percent. Dongxiang said on July 8 that first-half sales probably shrank by 45 percent from a year earlier.

"We have the room and space to increase roughly a few hundred stores per year," Ho said. "The store expansion is natural following the market expansion."

Xtep has 7,300 stores and may add about 500 by the end of 2011, Ho said. The Fujian-province based company targets mass- market customers in second-tier cities, selling sports shoes and apparel at lower prices than Li Ning or China Dongxiang.

The company has focused expansion outside Beijing, Shanghai, Guangzhou, and Shenzhen. Eighty percent of its stores are in smaller cities, Ho said.

Li Ning dropped to its lowest close in more than two years on July 7 after saying sales are expected to fall 5 percent in the six months ended June 30 because of higher costs and strengthening competition. Its profit margin may narrow to as low as 6 percent from 13 percent a year earlier, it said.