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Li Ning projects profit drop

By Ji Beibei (Global Times)

08:18, July 11, 2012

It is time for Li Ning Company to resume sponsorship of high-end sports events and adjust its brand positioning to establish a clear image in both domestic and overseas markets, analysts said Tuesday, after the firm denied reports of bankruptcy of an overseas subsidiary.

Li Ning Monday denied a report that its Spain subsidiary has filed for bankruptcy, saying only a licensee was involved and it will have limited effect as Spain contributed a minute portion for the brand's revenue.

"Li Ning should work harder to forge partnerships with high-profile sporting events or organizations like its tie-up with the Chinese Basketball Association (CBA)," Chen Shixin, a sports brand observer at Hangzhou -based market portal, told the Global Times Tuesday.

The company announced in June that it would become the CBA's sportswear sponsor for five seasons till 2017.

"But more effort is needed," Chen said. "The brand lost the sponsorship of the Chinese Olympic Committee to Anta between 2009 and 2012 and may be unable to regain the partnership in the next four years."

China's sports goods market gained steam since 2007, growing at 35 percent annually, but growth slid to 16 percent in 2011 due to supply glut and economic slowdown, according to Shenzhen-based consultancy Qianzhan Intelligence Co.

Besides being dragged by a slowdown in the whole sector, Li Ning made blunders in brand positioning, which hurt the company's performance, analysts said.

"In 2010, Li Ning shifted its brand positioning, targeting at the post-1990s generation instead of the post-1980s," said Zou Ke, a sports industry analyst at Qianzhan, noting that the shift resulted in the loss of its appeal to the post-1980s generation, while the purchasing power of the post-1990s generation is not high enough.

In line with its brand repositioning, Li Ning also raised prices, which drove some of its customers away to other high-end global brands like Nike and adidas or to cheaper local brands like Anta and Peak, Zou told the Global Times on Tuesday.

"Li Ning's orders for 2012 dropped seriously compared with 2011, as shown by its financial reports. To lower the possible risks of short-term debt payment and raise its profitability, Li Ning may decide to close some underperforming shops," Zou noted.

As the leading domestic sportswear retailer, Li Ning is facing weakening performance and it replaced its China CEO Thursday.

The firm saw its inventory rise 40.57 percent to 1.13 billion yuan ($179 million) by the end of 2011 from the previous year, and its net profit slumped 65.2 percent year-on-year in 2011 to 386 million yuan. It predicted a substantial decline in net profit for 2012 a few weeks ago.

To meet the challenges and stay afloat, Li Ning released a plan Thursday, setting a high priority on clearing inventory over the next six to 12 months. The plan also includes making adjustments in the supply chain and improvements in the merchandising model.


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