Copy n paste from iPhone, so pardon my pasting skills.
Gist of article is on market segmentation which Li Ning seems unable to occupy a strategic segment.
Li Ning Loses Way after Wrong Business Turn
A sports apparel pioneer named after a famous Olympics gymnast is in trouble after shifting its focus
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A new business focus was supposed to strengthen the competitive position of China's leading consumer sports apparel brand Li Ning Co.
Instead, the year-long "make the change" marketing and branding campaign has weakened the company, hurt sales, damaged investor confidence and emptied several executive suites.
On May 24, Li Ning announced the resignations of three senior executives – COO Guo Jianxin, Chief Marketing Officer Fang Shiwei, and Director of E-commerce Lin Li. A source blamed the exodus on the failed campaign.
That same day, Li Ning's Hong Kong-listed shares declined 8.4 percent. The stock has continued losing ground ever since, falling to HK$ 13.38 on June 9, far below the past year's peak of HK$ 29.35. The company's market capitalization has declined more than HK$ 16.8 billion.
Third-quarter shoe and apparel orders fell 17 percent from a year earlier, and 6 percent from the previous quarter, the company said in April.
Li Ning managed to report a 1.1 billion yuan net profit for 2010. But it was badly beaten in the earnings race by major rival Anta Sports Products, which registered a 1.5 billion yuan net profit last year.
Sales Slip
Optimism had reigned in July 2010 when Li Ning announced its transformation with a new company logo and the "make the change" marketing slogan. The campaign including a redefined product lineup, with a shift toward more upscale sporty clothing, footwear and accessories, and away from less expensive leisure-wear products.
The company also consolidated its sales channels, encouraged takeovers of small dealers by larger outlets, and raised prices.
Justifying the transformation was CEO Zhang Zhiyong, who predicted in a company report that China's ongoing urbanization and a rising market for sporting goods would give his company's products "great room for growth."
He also said "increasing signs that sports products are being replaced by leisure products in China" was "only temporary."
But analyst Zhang Shenwei of the Samsung Economic Research Institute said the executives were overly optimistic about moving up the consumer ladder. The simple fact was that the new emphasis on the company's sports line failed to win consumers.
"An upgrade in consumer demand is a long and gradual process," analyst Zhang said. "It's hard to say that China's consumers in the next 10 years will become particular about the professional aspects of what to wear, (such as) wearing a particular suit when playing ping pong, and changing into another kind of wear when playing basketball.
"To focus too much on professional sportswear is, in effect, giving up the market of leisure fashion," he said.
The effort to consolidate sales channels failed as well.
Li Ning had achieved rapid growth in the past by expanding sales channels. Its chain had grown to 7,915 stores by the end of 2010, from 2,887 when the company went public in 2004. Revenues totaled 9.5 billion yuan in 2010, up from 700 million yuan in 2001.
The consolidation, designed to improve single-store performance, encouraged large dealers to acquire smaller ones.
But the expansion strained Li Ning's bottom line as labor and rent costs climbed. And just as the small dealers closed, rival Anta announced plans to expand to 10,000 stores nationwide by the end of the 2011.
Thus, the timing of Li Ning's scaleback was "not appropriate," said Wang Yiming, marketing director at the consultancy Highteam.
Li Ning's consolidation of sales channels actually helped its competitors by giving them room to expand their own sales channels, said analyst Zhang. That's because many small dealers sell several brands, including products made by Li Ning and its competitors.
Highs and Lows
Li Ning was established in 1990, at the dawn of China's sports product market. The company was named after its chairman, a champion Olympic gymnast from the 1980s whose accomplishments made him a national idol.
Li Ning soon had a domestic market foothold. And by the turn of the century, the company was benefiting from the start of a golden decade for sporting goods in China.
The boom attracted many other new businesses, and by 2008 Li Ning found itself battling not only international competitors such as Nike and Adidas, but domestic rivals including Anta, Peak Sport Products and 361 Degrees International as well.
Following the Nike-Adidas business model, Li Ning never built its own production factories. Anta and 361, however, started as contract manufacturers for brand names, and thus were in a good position to go head-to-head with Li Ning with their own products.
Manufacturing gave the rivals cost advantages over Li Ning, and soon they were a force to be reckoned with, especially in China's smaller cities and the middle-end market.
The latest transformation at Li Ning did not address this challenge from contractors-turned-brands.
Another competitive slip for Li Ning was last year's decision to focus on mid- to high-end products – and to start charging higher prices to reflect a sharper focus on quality.
But a Ling Ning dealer in Beijing told Caixin the company's products have been more difficult to sell since the price hikes, and that the decision has prompted some shops to consider cutting orders.
A source close to Li Ning management told Caixin the company "is now sandwiched in the middle of the industry" with products that fit neither a "sufficiently high" market segment, nor one that is "sufficiently low."
True, Li Ning's upper rung products are priced below similar products made by big foreign brands. But the Beijing dealer said the "difference in prices makes little sense" these days in ever-wealthier China since consumers would just as well "buy a top brand with a little more money."
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