Has 2XU earned its Place?

Australia as a sporting nation loves the active wear. So much so that a parody about active wear became an instant hit on youtube.

According to Ibisworld, the annual growth of sporting apparel over the last five years is just below 9% annually (www.ibisworld.com.au), which makes it as one of the fastest growing category in the retail industry. With such a high growth and high profitability there is no surprise that it is a very competitive segment, both local and international players want a (bigger) slice of the pie.

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2XU (pronounced: Two Times You), an Australian premium sports brand, specialized in compression active wear is one of the players in the segment. Starting from its humble beginning a decade ago in its first retail stores in Hawthorn, an inner east suburb of Melbourne, now it distributes its products around the world with the backing of private equity firm owned by LVMH, a global retail giant who primarily operates in premium segment (www.theaustralian.com.au).

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2XU distributes products through five distribution channels, namely Retail Stores, Online, Other Retailers, International Distributors and Sports Teams. Broadly, 2XU distribution channels can be classified into three, Direct, Retail & wholesale.

Retail Stores, Online and Sports Teams are part of Direct channel. Other Retailers channel is part of Retail channel and International Distributors channel is wholesale channel, this is used where the business has no direct presence in the region. Each of the channels has its complexities, advantages and disadvantages.

With direct channel like online and brick and mortar stores, 2XU has full ability to manage its marketing mix, from product assortments, pricing, promotion and place, for example: where the stores located. Zooming in to “Place”, 2XU operates around 18 stores nationally, with many of its stores are located in high-street shopping strips, which have taken a big hit competing with shopping malls and online stores. Similarly Baker indicates that shopping centre’s floorspace as a percentage of total retail space is projected to be just below 50%, increased dramatically from 35% in 2000 (www.insideretail.com.au). Whilst this trend is beyond 2XU control, undoubtedly the situation presents its management with a massive headache trying to grow its revenue with sharply declining foot traffic into the stores.

Moving on into the Retail channel, 2XU distributes its products through retailers such as Rebel and Amart Sports who are owned by Super Retail Group, David Jones and Anaconda in Australia and in the USA through Dick’s Sporting Goods, The Sports Authority and Amazon. Distributing through retail channel has the advantage for not having to pay for occupancy and wages costs, though it usually comes with a lower margin as retailers seek to recover its operating costs and make a profit.

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Source: insideretail.com.au

This revenue-sharing type of relationships can be mutually profitable, but at times complicated. Depending on the relationships, 2XU as a supplier usually has less control over the 4Ps, unless specifically stipulated in the contract. Examples where 2XU have less control of “place” are where 2XU products can be found in a store or locations of the retail stores. Undoubtedly, these two factors can greatly impacting 2XU sales.

Though still relatively small, fortunately for 2XU, the growth of its online business has been tremendous. This is inline with Ibisworld report that indicates online sporting apparel grew above 20% annually over the last five years (Ibisworld.com.au).

With its aspiration to be the first Australian’s sporting brand to become $1billion business and listed in NYSE (www.smh.com.au), 2XU has to overcome fundamental issues around its 4Ps. Issues are ranging from products quality consistency, pricing conflicts across different channels, ineffective & costly marketing campaigns and lastly but not least important, Place, where and how the consumers get the products.

Written by Johan Rudtio, a 2XU employee assessing his employer’s marketing mix.

References

Baker, M. (2014). Don’t let the strips die РInside Retail. [online] Inside Retail. Available at: https://www.insideretail.com.au/blog/2014/07/03/dont-let-strips-die/ [Accessed 15 May 2016].

Cadden, D. and Lueder, S. (2016). Small Business Management in the 21st Century 1.0 | Flat World Education. [online] Flat World Knowledge. Available at: http://catalog.flatworldknowledge.com/bookhub/reader/2861?e=cadden_1.0-ch07_s07 [Accessed 15 May 2016].

Cole, B. (2013). LVMH pays $80m for stake in Melbourne sportswear firm 2XU. [online] TheAustralian. Available at: http://www.theaustralian.com.au/business/dataroom/lvmh-pays-80m-for-stake-in-melbourne-sportswear-firm-2xu/story-fnjw8txa-1226773746829 [Accessed 15 May 2016].

Financial Review. (2015). Morgan Stanley works with 2XU on $600m float plans. [online] Available at: http://www.afr.com/street-talk/morgan-stanley-works-with-2xu-on-600m-float-plans-20150409-1mhk56 [Accessed 15 May 2016].

Financial Review. (2015). 2XU hoping for a touchdown with $600m listing. [online] Available at: http://www.afr.com/business/retail/2xu-hoping-for-a-touchdown-with-600m-listing-20150325-1m76al [Accessed 15 May 2016].

Ibisworld.com.au. (2016). Fitness and Athletic Clothing Stores in Australia Market Research | IBISWorld. [online] Available at: http://www.ibisworld.com.au/industry/fitness-and-athletic-clothing-stores.html [Accessed 15 May 2016].

Ibisworld.com.au. (2016). Online Sporting Apparel in Australia Market Research | IBISWorld. [online] Available at: http://www.ibisworld.com.au/industry/online-sporting-apparel.html [Accessed 15 May 2016].

Inside Retail. (2014). SRG shares soar on speculation. [online] Available at: https://www.insideretail.com.au/blog/2014/11/06/srg-soars-amid-buyer-speculation/ [Accessed 15 May 2016].

Lynch, J. (2015). Melbourne sportswear company 2XU teams up with Navy SEALs to crack US market. [online] The Sydney Morning Herald. Available at: http://www.smh.com.au/business/media-and-marketing/melbourne-sportswear-company-2xu-teams-up-with-navy-seals-to-crack-us-market-20150402-1mduh7.html [Accessed 15 May 2016].

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