Li Ning's revenue broke through 20 billion yuan for the first time, and advertising and marketing slammed into 1.78 billion

(Zhang Hanwen Photography)

After nike and adidas' latest financial reports showed that their performance in Greater China had declined to varying degrees, the financial reports released by domestic sports brands showed a different situation.

On March 18, Li Ning released the 2021 fiscal year (as of December 31, 2021) data show that its revenue exceeded 20 billion yuan for the first time, in addition to another domestic sports brand Xtep International also released an annual report a few days ago showing that its revenue exceeded 10 billion yuan - with the enthusiasm of the Chinese people to buy "national tide", Li Ning and a number of other domestic sports brands began to eat the "national tide" dividend.

However, it is worth noting that in 2021, in the case of a significant increase in revenue, Li Ning's advertising and marketing expenses soared by nearly 40% to 1.78 billion yuan, while the proportion of R& D investment fell from 2.2% in 2020 to 1.8%. During this year's Winter Olympics, Qian Wei, co-CEO of Li Ning Group, publicly mentioned that one of Li Ning's three important points of strength is technology, and how Li Ning will lay out in research and development innovation in the future has become a focus.

One thing goes on and on

Before the market on March 18, Li Ning released the 2021 fiscal year report, the announcement shows that the annual revenue recorded 22.572 billion yuan, an increase of 56% year-on-year; the net profit recorded 4.011 billion yuan, an increase of 136.14% year-on-year; the gross profit margin rose from 49.1% to 53%; and the net profit margin also rose from 11.7% to 17.8%. Li Ning said in the financial report that through effective cost control, the expense ratio has declined, so the comprehensive profit indicators have improved significantly.

By product category, Li Ning's revenue consists of clothing, shoes and equipment accessories, contributing 11.82 billion yuan, 9.51 billion yuan and 1.24 billion yuan of revenue respectively, accounting for 52.4%, 42.1% and 5.5% of the total revenue, respectively.

It should also be noted that the inventory-related data that plagued Li Ning and other garment enterprises in 2008 have been further improved in 2021, although the inventory has increased from 1.35 billion yuan to 1.77 billion yuan, the average inventory turnover days have been shortened from 68 days to 54 days, the average accounts receivable turnover days have been shortened from 17 days to 13 days, and the average number of days payable has been shortened from 65 days to 47 days. It can be seen that the speed of Li Ning's capital flow has accelerated significantly, and the ratio of Li Ning's inventory to total current assets has also decreased from 13.8% in 2020 to 9.5%, and the pressure on commodity inventory has been further weakened.

In addition, on March 16, Xtep International, which is also a domestic sports brand, released its 2021 financial report, with revenue increasing by 22.5% year-on-year to 10.01 billion yuan; net profit increased significantly by 77.1% to 908 million yuan, also achieving a substantial increase in revenue and net profit.

In contrast to the high growth shown in the financial reports of domestic brands such as Li Ning, international sports brands such as Nike and Adidas are "retreating" in China.

Nike's fiscal second quarter of fiscal 2022 (the three months ended November 30, 2021) shows that its revenue performance in Greater China showed a cliff-like decline. Revenue plunged 20% year-over-year to $1,844 million, and pretax profit also fell to $569 million, or as much as $569 million, from $891 million in the year-ago quarter.

Adidas also recently announced the 2021 fiscal year (as of December 31, 2021) financial report shows that as one of the three strategic key markets of Adidas, the Chinese market revenue growth rate is only 3%, its North American and European markets have maintained double-digit growth, and Adidas's performance in the second, third and fourth quarters of 2021 in China has fallen by 16%, 15% and 24% respectively.

The decline in Adidas' performance in China may indirectly lead to a change of coach in its Chinese market. According to media reports, on the eve of the release of the 2021 financial report, Adidas appointed Xiao Jiale as the new head of the Chinese market, replacing Jason Thomas, who took office in 2019, who will be transferred to the senior vice president of global franchising. As for whether the change of coach can solve Adidas's dilemma in China, it still needs time to verify.

On March 18, Li Yingtao, senior analyst of Analysys New Consumption, analyzed in an interview with the China Times reporter that as long as the general environment of Sino-US competition remains unchanged and China's economy continues to grow, this dividend will continue, but the strength has declined. However, it should be noted that Li Yingtao believes that in the boom of the "rise of the national tide", it will be the brands with sufficient product strength that will take the lead in eating dividends, rather than simply "rubbing" the concept of the national tide.

The proportion of R&D investment declined

Qian Wei, co-CEO of Li Ning Group, has said in public that Li Ning's goal will be to be a "muscle-type" enterprise, that is, a company that can be efficient and constantly generate kinetic energy. At the same time, he himself will not set a limit on the budget of the R&D innovation team and will provide strong support.

However, Li Ning's 2021 financial report shows that its research and product development expenditure to revenue ratio decreased from 2.2% in the previous year to 1.8%, but due to the substantial growth of revenue, Li Ning's R&D and product development expenditure still increased significantly, from 323 million yuan to 414 million yuan.

In contrast, Xtep's latest disclosed data shows that its R&D expenditure in 2021 is about 252 million yuan (224 million yuan in 2020), and its R&D investment accounts for about 2.5% of total revenue (this data is 2.7% in 2020). In addition, ANTA's 2020 data shows that its R&D expenditure in that year was about 888 million yuan, and the R&D investment accounted for 2.5% of revenue.

However, it is worth noting that with the rise of the national tide, domestic sports brands began to increase investment in advertising and market promotion, in 2021, Li Ning's expenditure in this field decreased from 8.9% last year to 7.9%, but the actual expenditure increased from 1.28 billion yuan in 2020 to 1.78 billion yuan, a sharp increase of nearly 40%, one of the major marketing actions is that at the end of March last year, Li Ning announced that Xiao Zhan became the global spokesperson for its sports trend products.

In addition, in 2021, Xtep's advertising and promotion expenses were about RMB1.02 billion, compared with 917 million yuan in 2020, and advertising and promotion expenses accounted for about 10.2% of total revenue, compared with 11.2% in 2020. Xtep pointed out that the increase in advertising and promotion costs is mainly related to brand promotion and the increase in sponsorship of new celebrity spokespersons and professional athletes.

However, the most concerned about Li Ning from the outside world is still its sub-brand "China Li Ning". In 2018, the Chinese Li Ning series debuted at New York Fashion Week, causing heated discussion in the outside world, regarding this event as a landmark event that opened the "first year of the national tide", and even "China Li Ning" once represented the national tide brand.

However, Li Ning did not separately list the revenue achieved by the "China Li Ning" series in the financial report. On March 18, relevant people close to Li Ning told the "China Times" reporter that "China Li Ning" did not account for a large proportion of Li Ning's overall revenue, and was only a part of the sports life category, but the outside world paid more attention to it.

Qian Wei has also expressed his understanding of the concept of "national tide", believing that the sustainability of the national tide heat depends more on whether the performance of the product can meet the needs of consumers. Therefore, it is foreseeable that Li Ning, as a professional sports brand, will make a balance between "muscle training" and "show appearance".

Responsible Editor: Huang Xingli Editor-in-Chief: Han Feng