Li Ning retransforms: embracing young people

From a loss of 1.97 billion yuan to a loss of 184 million yuan. This is the report card of Li Ning in the first half of the year.

“The situation is getting better and there are some positive signals.” On August 12th, at Hong Kong Conrad Hong Kong, a person who had just walked out of the “Li Ning Company Half-year Performance Conference” (Investor Conference) told the Economic Observer. However, optimism did not persist, he said, "I don't know what market segment Li Ning is going to do. The difference between (products) is also vague. You have to ask management."

But the "management" answer may not completely satisfy investors. Li Ning believes that the company's target customer group is "going with the trend of urbanization," and Li Ning Group executive vice president Jin Zhenjun, who is on the spot to keep smiling, said, "The company's biggest concern is to create a healthy platform, including the supply chain. , channels and operations."

This is Li Ning's current situation. On the one hand, it is the report that has started to reduce losses substantially. The other side is a future that has not yet been clearly outlined.

However, Li Ning is not alone. Anta, which recently released its semiannual report, achieved sales revenue of 3.367 billion yuan, a year-on-year decrease of 14.4% and net profit of 626 million yuan, a year-on-year decline of 18.7%. This is the second negative growth of Anta's net profit since 2012. In addition, international brands such as Adidas and Nike also performed significantly less well in the Chinese market in the first half than in the same period last year.

The loss narrowed compared to March 26th before April – Li Ning’s 2012 “slightly tired” performance announcement. Now Li Ning is relaxed: After the end of investor conference, he stood on stage The investors who came to the consultation talked for more than 20 minutes and smiled politely on their faces; even sitting in front of the media, he even tempted and said, “Look at the advertisements that have just been played (the three generations of Li Ning arc), everyone should relax. For Li Ning, who was born with a serious face, this is indeed rare.

What makes Li Ning no longer nervous is that the company’s 2013 semi-annual report has substantially reduced losses: As of June 30, 2013, Li Ning realized revenue of 2.906 billion yuan, a year-on-year decrease of 24.6%; EBITDA plus depreciation and Amortization (EBITDA) was 0.58 billion yuan. The loss attributable to equity holders in the first half of the year was 184 million yuan*** and the loss per share was 15.19 points. Although the word “losing” was still in place, it has narrowed significantly compared to the total loss of 1.97 billion yuan in 2012.

In the report, Li Ning summarized the performance reasons as follows: Partly due to the recent emphasis on reducing the sale of new products to the retail channel, inventory clearance, and store network optimization. As of June 30, 2013, the total number of regular stores, flagship stores, factory stores, and discount stores in Li Ning was 6024, a net decrease of 410 from the end of last year. There were 54 dealers, one less than at the end of last year.

However, its inventory situation did not improve fundamentally. The financial report showed that the average inventory turnover was 96 days. At the end of last year, this cycle was 90 days. Jin Zhenjun admits that most of Li Ning's current stocks are in the channel, not the earnings report of Li Ning. In contrast to this, Anta's inventory turnover days in the first half of the year were only 58 days.

Compared with stocks, Li Ning's average receivables cycle in the first half showed some optimism. This indicator has been reduced from 97 days at the end of 2012 to 88 days. For Li Ning, this may be the most satisfactory place for the entire financial report. At least Jin Zhenjun said with a smile, "The company currently has about 16 billion in cash on hand. There is no current plan." But I must mention that Anta is only 39 days.

During the transformation, at Conrad Hong Kong, Li Ning sits with two people: On the left is Zeng Huafeng, the chief financial officer who joined in April, and on the right is the executive vice president Jin Zhenjun, who has long been known. The former was solemn, and in addition to reporting the financial figures in fluent British English, almost no words were spoken, and the whole process was expressionless; the latter had always kept a smile on the signs, and gestures were exaggerated from time to time, and the questioners were not denied. Despite their different personalities, they all have the background that Li Ning most valued at present: more than two decades of retail management experience.

Li Ning needed such a team to help him reform the 23-year-old company. In an interview, Jin Zhenjun frankly admits that the current Li Ning can be described as “a centralized representative of industry issues”: overexpansion leads to stagnation of growth, competition from casual wear, local sports brand homogenization products flood the market, and consumers are increasingly sophisticated. Consumer quality, the pursuit of more differentiated products.

Jin Zhenjun knows this. He always smiled when facing the media, but in fact his life was not easy. Since Li Ning was invited to “fencing” the transformation, he has been working in the Li Ning Industrial Park in Tongzhou, Beijing almost every day. It was in that office that Li Ning and Li Ning incorporated dealers that accounted for more than 90% of their business share into the reform plan, including clearing inventory and improving channel profitability.

An information provided by Li Ning Company shows that since the announcement of the change plan in July 2012, Li Ning and Jin Zhenjun have jointly assumed the company's implementation of the reform plan. The former is mainly responsible for external affairs, including the development and maintenance of relations with the government, banks, sports teams, and media; the latter leads the Li Ning Group's management team during the transition period and is responsible for internal affairs and operations, including the implementation of the blueprint for transformation. Jin Zhenjun emphasized that "My main job is to create a healthy platform, including channels, supply chains and products."

Zhang Qing, the founder of the key road sports consulting company, believes that Li Ning's failure to announce the 2014 first-quarter trade fair data is doubtful about its subsequent performance. But Jin Zhenjun's explanation is that in the past six months, the company’s three delivery modes, namely, guided order orders, rapid distribution, and rapid response, accounted for 40% of the wholesale sales ratio.

“In the future, the proportion of total sales occupied by traditional ordering clubs will be less and less. The number of goods in the stores is the final decision of the consumers and the market,” he said. This retail-led reform direction was evaluated by Zhang Qing as "the right direction."

In addition to changing the order form, Li Ning’s financial report showed that the company closed nearly 1,300 stores in the past year, including 410 in the first half of this year. But closing stores is not the only measure. At the scene of the interview, Li Ning and Jin Zhenjun did not mention sales promotion or discounts. However, the Economic Observer reporter visited Li Ning's six stores in Xidan, Wangfujing, Yayuncun, and Daxing in Beijing and found that it is making aggressive promotional discounts. Some products are discounted by 20 percent, some are 50 percent discounts, and others are as low as 29 yuan. The high discount product is about RMB 100 after discounting. Obviously, these are the low-end products of the Li Ning series.

Li Ning’s financial report shows that the average retail price of products in the current quarter accounted for 88% of the tag price, and the sale rate reached 40%. However, Jin Zhenjun admits that at present, Li Ning's new products account for a relatively small proportion of total sales, with little impact on sales. The discounted promotion of off-season products may be the reason why Li Ning’s absolute inventory was reduced by 30% year-on-year.

Li Ning is not the only one who is interested in "transformation." Anta said that it has “controlled the number of items ordered by retailers during the first two quarters of the year.” However, in order to increase its performance, sporting goods companies have to give distributors the goods. To resolve this contradiction, shutting down over-expanded stores may be the most direct choice.

On August 6th, Anta announced the semi-annual report. As of June 30 this year, there were 7,834 Anta stores and sports life series stores, 241 fewer than the 8075 at the end of last year; the number of children's sporting goods stores was reduced from 22 to 833. . The same is true of 361 degrees. The number of franchise retail stores in the second quarter decreased by 243, of which 439 were closed and 196 newly opened.

However, this round of store closures will continue. Jin Zhenjun said that Li Ning did not have a specific target number of stores in the second half of the year. However, he admits that at present, Li Ning's transformation is only going to "50%", for some small dealers, perhaps "have not completed half." Compared to Li Ning’s prudent position, Anta is much more direct. Its semi-annual report shows that Anta will adjust its Anta store to 7600-7700 in the second half of the year. This means that Anta will still close more than 200 stores in the second half of the year.

Different from the previous trend of the sportswear company, Zhang Qing is more willing to regard the local brand this round of shops as “self-adjusted”. Jin Zhenjun also mentioned that Li Ning is currently implementing uniform standards for opening stores and closing stores. That is, whether the specified operating efficiency has been achieved.

But all the reform steps are only the beginning. Li Ning said that at present, the company's restructuring "three steps" progressed smoothly, and will continue to promote reforms; and Anta, chairman of Ding Shizhong in the semi-annual report announced the same day, in its Sina Weibo said that in the short term the industry is still facing severe challenges.

This is true of local companies, and foreign brands are no exception. As early as June of this year, Nike announced that its general manager of Greater China will be served by current Vice President Michael Spillane. Gary DeStefano, president of Nike Global Operations, bluntly stated that he hopes the new Greater China General Manager will promote Nike to achieve "continuous growth" in this extremely important area.

Cracking the homogenization problem to close the store is to stop the bleeding, but too many store closures can also lead to a “passive water” in the performance of the company. In the sporting goods industry where the homogeneity of products is serious, "achieving product differentiation is the king."

Li Ning has a clear understanding of this. “Li Ning does not use the traditional characteristics of age, income, region, etc. to target consumers. We think consumers in the big city and people who are getting rich in the second and third tier cities are potential customers of Li Ning.” Li Ning stressed: Sports is a Sports, not luxury.

In contrast, Jin Zhenjun's idea may be more optimistic: the financial crisis will not hinder the development of the sporting goods industry. People are free, they will be more willing to exercise.

Zhang Qing believes that Li Ning’s views are not unreasonable. Consumers of sporting goods themselves are indeed without the boundaries of age, income and geographical area. Even Adidas and Nike, their customers also include college students and the elderly. From this point of view, after undergoing the failed "grab after 90" campaign, Li Ning's return to a more general consumer position is a correct strategy.

However, such an overly broad positioning clearly cannot satisfy investors. Three Li Ning investors interviewed by the Economic Observer reporter agreed that "the future sports industry will be a subdivided market." But Li Ning did not allow them to see this effort.

For example, Li Ning emphasized that "depending on technical genes" forms "difference points." However, there is still a gap between the technical capabilities of local brands and foreign big names. Zhang Qing believes that Li Ning's high-end products coincide with Nike and Adidas' mid- to low-end prices, causing him to lose some consumers.

In addition, Li Ning's differentiation of consumer groups based on the type of sport rather than the type of store also blurs consumer positioning. Li Ning.com's two major sections of basketball are basketball and running. The former can also be said to be a young person's patent, but the latter is the real "men and women eat, suitable for both young and old."

In contrast, Anta's consumers will find it relatively easy to find their own "attribution." Its stores are divided into Anta stores, life series stores and children's stores; its official website also has different sections of men's shoes, women's shoes, children's products and accessories. It's hard to say that segmenting consumers must be a successful strategy, but Anta does show stronger resilience than other local brands. Its semi-annual report shows that the first quarter of 2014's ordering meeting for the first time increased the amount of orders.

It is not difficult to see such a situation in more than a dozen sports shops visited by reporters: Adidas and Nike consumers are mostly young people, while Li Ning's consumers are mostly middle-aged people. Xie Weishan, a partner of Traut's strategic positioning consulting, once said in a report that “Li Ning is not as good as adidas and Nike in attracting young people in China.”

However, Li Ning is not without advantages. Zhang Qing believes that compared with other local brands, Li Ning, as a company founded by star athletes, has made outstanding achievements in product design, quality, and sports marketing in the past two decades. The key is how to pass this advantage into the process of dealing with young consumers.

"We must be able to influence the young people's lifestyle." Zhang Qing said.