Ace up its sleeve

Li Ning's new face: Jessica Jung of South Korea’s Girls’ Generation

The US Open this year was filled with surprises. The first, of course, was that two of the best players – Roger Federer and Novak Djokovic – both lost to lower-ranked competitors. Marin Cilic, the 14th-seed, ended up playing (and beating) Japan’s Kei Nishikori in the final. He was the first player in a decade to win a Grand Slam while ranked outside the top 10.

Also surprising, China’s Peng Shuai made it to the semi-finals of the womens’ tournament. Peng, who was unseeded, blazed her way to the semis without losing a set. Unfortunately she had to withdraw from her match against Caroline Wozniacki after an apparent heat-related injury, although that didn’t stop her popularity soaring back in China.

Another big winner at the US Open was Li Ning. That’s because the Chinese sportswear firm had struck endorsement deals with both Cilic and Peng, who wore its tenniswear at Flushing Meadows to huge global exposure. In the case of Cilic it is the first time the champion of a tennis major has worn a Chinese brand. The boost could be helpful as Li Ning continues in its efforts to rescusitate its business prospects.

As WiC has reported in the past, Li Ning was once a challenger to global brands like Nike and Adidas. But in recent years it has run up heavy losses and its stock has lost about four-fifths of its value since 2010.

Li Ning – the eponymous founder of the sportswear brand – reckons that the worst is now over, telling China Enterprise News that the company is progressing with its latest turnaround plan. “The reforms have now entered attack mode,” the executive chairman told the newspaper. “In the last two years we mainly dealt with problems like how to get rid of inventory, increase distribution and improve cashflow. However, now is the time to start fresh, to build a new platform and a new growth model.”

In the first half of this year, the company says sales rose 8% from a year ago to Rmb3.4 billion ($554.5 million), helped by higher sales of new products as it expanded its chain of directly-operated stores.

However, net losses widened to Rmb585.8 million from Rmb184.2 million in the same period a year earlier. Li Ning blamed a series of one-off charges, as well as the costs of opening more stores amid fierce competition in the industry. The sportswear firm has also warned that a fuller recovery could take two more years as it invests in more promotions and marketing.

“It’s hard to say if their direction [of transformation] is right or not when the loss is getting bigger and bigger,” Steve Chow, analyst at Sunwah Kingsway Group Research, told Reuters.

Li Ning has also been working at overhauling its brand. Last month, it announced the termination of its decade-long sponsorship of the national gymnastic team, which is being viewed as a move to distance the firm’s brand from its chairman, China’s most famous gymnast (see WiC17). “Giving up the opportunity to work with the national gymnastics team was absolutely the right decision for Li Ning as a company. But personally, it was very agonising. I grew up with gymnastics and gymnastics was also a big part of my life. But as chairman, it was a decision I had to make,” Li laments.

To create a hipper image, Li Ning is now investing in a marketing drive that includes bringing on board as brand ambassadors NBA superstar Dwayne Wade and Jessica Jung from the South Korean girl band Girls’ Generation. It is also targeting trendy, faster-growing sports in China like basketball and running, hoping to attract younger consumers with a mid-range pricing strategy.

But analysts say that Li is struggling with how to lead his company forward. “The reason why Li Ning’s brand continues to deteriorate is because of its positioning,” industry researcher Zhu Qinghua told Time Weekly. “It’s not high-end, but it’s not low-end either. Compared with Nike and Adidas, there is still a wide gap in the branding. But compared with domestic brands like ANTA and Peak, Li Ning’s products are too expensive, so not many people will buy them.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.