Skechers Gets One Step Closer to Making China a $1 Billion Market

Skechers (NYSE: SKX) sold 4.3 million pairs of shoes in China this quarter, which topped last year's result by a whopping 54%. With the company stocking extra inventory for Singles' Day, it could surpass that mark and post record sales for the fourth quarter, too. The company has been ramping up its store growth and e-commerce capabilities for what could turn out to be Skechers' largest market.

Company-branded stores are leading the way

Skechers uses a joint venture model for its branded stores in China and other international locations. This strategy leverages local knowledge and talent to run the stores with the product, brand backing, and infrastructure that Skechers corporate brings to the table. The company grew its branded stores 116% year over year to 736 locations, and they serve as a way to highlight the brand, watch inventory trends, and drive growth in new locations.

With wholesale partners, Skechers has added to its "retail doors" in China, and you can now buy a pair of its shoes in any one of 2,339 locations across the country, up 26% from last year.

Chinese 100 Yaun banknotes. Image source: Getty Images.

E-commerce is not to be outdone

Meanwhile, Skechers is also doing very well with its e-commerce business. In China, e-commerce makes up a bigger percentage of retail than it does in the U.S., and with faster growth, it's expected to be the largest e-commerce market worldwide in short order.

2016 MetricChinaU.S.
E-commerce sales$4,659 billion$4,953 billion
E-commerce growth26.2%15.6%
% of retail sales15.5%11.7%

Data source: GFluence, E-Commerce Nation, and Digital Commerce 360. Table by author.

In its most recent earnings report, Skechers reported "double digit" e-commerce growth in China, which was preceded by seven consecutive quarters of "high double-digit" or "triple-digit" gains. 

And the company is ramping up for the biggest online shopping day in China -- Singles' Day -- on Nov. 11. A shopping extravaganza for consumers all over the country, total online sales came in at $17.8 billion last year, up 24% from the previous year. CFO David Weinberg indicated they have "high expectations for Singles' Day," which would be "very positive [...] for the fourth quarter."

To support all of this growth, Skechers has purchased land to build its own distribution center in China that will be completed in 2019. Investors should be pleased the company is aggressively investing in this market, but one question still remains.

How big is the China opportunity?

Skechers' management indicated they were "comfortable" with their projection of $500 million in China revenue this year. As important as the market is, it'll only end being about 12% of projected full year sales for the company. Weinberg was asked how big the China market could be for the company, and he replied:

[...] They will be $1 billion. Pick a time frame, two, three years. We don't think there's anything standing in our way with that, but that's the anticipation. China could ultimately be as large as the United States. Or larger.

When asked this same question last year, Weinberg responded that China would get to the $1 billion mark in the next five years. The impressive results from this past year have certainly accelerated the timeframe for when the company reaches this important milestone. China's middle class is estimated to grow to 550 million people by 2020. After selling nearly 15 million pairs of shoes in China over the last 12 months, there's plenty of room for Skechers to run in the region. 

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Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.

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