China Consumer

Back in fashion

Li Ning’s turnaround story wins over fund managers

Zhang Xinyu-w

Actress Zhang Xinyu sports it

In the world of fashion “one day you are in, and the next day you are out,” to quote Heidi Klum’s catchphrase on the reality series Project Runway.

But as China’s sportswear label Li Ning has demonstrated, what was once out can come back into fashion again.

The eponymous brand – founded by Olympic gymnast Li Ning – started losing ground after it expanded too rapidly and saw its inventories swell. It failed to convince younger consumers that a homegrown label could rival Western brands like Nike and Adidas. But its efforts at trendier designs also alienated many of its older customers, who accounted for over half of its customer base, noted Zhitong Caijing, a finance portal.

The company’s shares, which are listed in Hong Kong, nosedived from HK$28.27 in 2010 to just HK$5 by 2016. But proving its long-time slogan “Anything is Possible” rings true, Li Ning is back to better days again, even being considered as something of a hipster brand.

After enlisting the services of former Adidas executive Liad Krispin and Uniqlo’s Kosaka Takeshi, the sportswear label hit Rmb10 billion ($1.5 billion) in sales last year. It maintained the momentum into the first half of this year, which saw sales up more than 32% on a year ago to Rmb6.2 billion. Profits have nearly tripled.

The reasons for the stronger peformance are largely a result of Li Ning’s shift towards the lifestyle and streetwear market; an emphasis on cost control; and the lessons learned from the inventory woes of the past – which have all boosted earnings.

Li Ning has also started to move a bit more upmarket. In June the sportswear label showed off its high-fashion apparel and footwear during Paris Fashion Week, where it debuted a sneaker collaboration with designer Stefano Pilati (a former creative director for luxury brand Yves Saint Laurent). Some of their shoes – namely, the $225 Furious Rider Ace Sneakers – have even become collectors’ items.

So far this year Li Ning’s shares are up 206%, rendering it the top performer in the MSCI Asia-Pacific Index and the best gainer among apparel firms globally. Last week its shares reached a high of HK$26.45. Still, its reversal of fortune was far from straightforward. “The first reforms – led by then-CEO Zhang Zhiyong – focused on the repositioning of the brand and its pricing strategy. There was a new brand logo and a new tagline ‘Make the Change’. It wanted to be an international brand, the post-90s Li Ning. But the effect wasn’t obvious,” Zhitong Caijing reported.

“The second reforms saw the company shut down the non-performing stores and clear out all the inventory from third-party distributors, which was heading in the right direction but did little for the topline.”

It wasn’t until 2016 that the company finally made a (small) profit, helped by an increasing percentage of directly run outlets and goods sold online. It also brought in private equity giant TPG and Singapore sovereign wealth fund GIC as investors.

“In our view, it is well positioned to benefit from the rising Chinese fashion culture and holds the key to supporting the company’s brand equity uplift,” HSBC wrote in a recent research report.

Market research firm Euromonitor says that consumer spending on sportswear in China grew faster than on luxury goods between 2012 and 2017. It is not only Li Ning that is now seeing a resulting jump in its share price. Rival Anta, based in Fujian province, still leads the pack in the sportswear industry. It deploys a multi-brand strategy that targets different consumer segments. Its shares have spiked 90% in 2019 and it now has a market capitalisation of HK$200 billion, or $25.5 billion. For comparison, Li Ning’s market value is around HK$62 billion. 

© 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.