In 2023, as the public's health awareness continues to improve, the social atmosphere of national sports will become stronger, and sports consumption will also usher in vigorous development.
In this context, Li Ning has deeply cultivated the strategy of "single brand, multi-category and multi-channel" to comprehensively enhance brand competitiveness, and Li Ning (02331), one of the leading sports brands, has also handed over a steady and progressive "report card" in this financial reporting season.
In 2023, Li Ning's revenue reached a new high of RMB27.598 billion, a year-on-year increase of 7%, doubling the Group's revenue in five years compared to 2019, with a compound annual growth rate of 15%.
In terms of net profit, the company focused on driving the investment and layout of long-term return business, and during the reporting period, the company achieved a net profit of 3.187 billion yuan, with a net profit margin of 11.5%. From 2019 to 2023, the five-year net profit after deducting one-time non-operating income will increase by 142%, with a compound annual growth rate of 19%.
At the same time, Li Ning also disclosed an important message in the financial report - that is, the gross profit margin in the second half of the year improved significantly year-on-year. In 2023, the company's gross profit increased by 6.9% year-on-year to 13.352 billion yuan, and the gross profit margin remained stable at 48.4%. Among them, the gross profit margin improved significantly year-on-year in the second half of the year, and offline discounts also improved year-on-year. Gross profit margin is not the only criterion for investment decision-making, but it is the key to open the door to analysis, which undoubtedly witnesses the correct layout of Li Ning's more attention to development efficiency and quality.
The improvement of the above-mentioned core financial indicators clearly highlights the resilience of Li Ning's performance in an uncertain market environment.
However, it is worth further thinking about what strategic layout has been made behind the steady growth of Li Ning, and what should be the follow-up growth force?
Deeply consolidate the brand power and help the steady growth of performance
According to the uniqueness of consumer brands, each brand has its own circle of competence. This is especially true for mature group companies, which often have a mature brand image and a strong brand effect, thus strengthening the resilience and resilience of performance in many aspects.
The core reason why Li Ning has been able to continue to overcome uncertainty and grow resiliently is also due to this.
In 2023, Li Ning will continue to give full play to its brand effect, take the "Li Ning" brand as the cornerstone, enter the core sports with the most participation of the Chinese public, and continue to consolidate the market advantages of core categories represented by basketball, running and sports life.
More specifically, from the perspective of Li Ning's strategic layout:
From the perspective of brand power, we will increase investment in the research and development of a single brand to promote the growth of major categories of products. During the reporting period, Li-Ning's R&D investment increased by 16% year-on-year. In the past 10 years, the total R&D investment of Li Ning's single brand has exceeded 3 billion.
Not only that, Li Ning has also built the company's brand barriers from various dimensions. On the one hand, it will enhance the core technology and design of products, help Li Ning to recognize various professional categories in the vertical track, and promote Li Ning YOUNG to become the preferred professional sports children's wear brand for Chinese children. On the other hand, during the period, Li Ning also increased the strategic layout of top professional sports resources to strengthen the professional awareness and influence of the Li Ning brand.
For example, since the 2012-2013 season, Li Ning Group has worked with the CBA for 12 seasons and has provided more than 47,650 pairs of shoes in more than 5,020 top competitions. Relying on the stage of China's highest-level professional basketball league, Li Ning Basketball continues to consolidate its professional sports strength and image with the CBA as evidence.
Thanks to the comprehensive layout of brand power, the growth data of Li-Ning's major products during the reporting period was also relatively bright, contributing a good increment to the brand's performance.
In 2023, the turnover of the three core professional sports categories of Li Ning, basketball, running, and fitness will reach 64%, of which the running and fitness categories will perform outstandingly, with turnover increasing by 40% and 25% respectively. From the perspective of the revenue proportion of shoes, clothing and accessories, thanks to the strategic cultivation of professional categories, the revenue of shoes with higher technology content accounted for 49%, which was higher than that of the clothing business, highlighting the competitiveness of the brand's professional sports; In addition, the potential of the Li-Ning YOUNG children's wear sector continued to be released, with a significant increase of 30%-40% in the middle of the flow, bringing strong momentum.
From the perspective of channel strength, focusing on channel expansion and optimization, while better matching the company's development strategy, it also further improves the shopping experience of consumers.
In 2023, Li Ning will continue to optimize the channel structure and improve channel efficiency, actively deal with inefficient stores, improve the overall store structure, and continue to expand its business territory in high-quality shopping malls, and achieve a major breakthrough in the Super Outlet channel.
By the end of 2023, there were a total of 7,668 Li Ning sales outlets, a net increase of 65 over the same period in 2022. At the same time, after three years, Li Ning has also completed the goal of expanding the card position layout of high-level market channels, and the occupancy rate of core commercial entities has increased to nearly 90%. In addition, the company has also accelerated the upgrade of its store image, and by the end of 2023, a total of more than 230 new and upgraded stores of the ninth generation have been opened and upgraded, further improving the shopping experience of consumers.
In addition to continuously optimizing the channel structure, Li Ning also strives to improve the business performance of the same stores in the direct channel by continuously strengthening its retail operation capabilities, thereby bringing impetus to the Group's development - in 2023, the number of Li Ning's directly operated stores will reach 1,498, a net increase of 68 stores year-on-year.
While strengthening retail operations, Li Ning also continues to support and empower dealer partners in pursuit of long-term and steady development. In order to ensure the health of the channel, in the second half of the year, we will strategically adjust the shipment volume of distribution channels according to market dynamics to ensure efficient coordination of terminal business. In the long run, Li Ning will continue to empower dealers and improve the operational efficiency of terminal retail, so as to promote the healthy development and sustainable growth of the channel.
It can be clearly seen that after continuously optimizing the channel structure and improving the channel efficiency, Li Ning has obviously strengthened the company's brand effect invisibly after providing consumers with a better consumption experience, thereby empowering the company's performance growth.
According to the latest financial report data, in 2023, the company's direct sales revenue will increase by 29%, offline discounts will improve year-on-year, and the annual wholesale turnover will achieve a low-end growth of 10%-20%, and the overall offline business performance will be stable.
Based on the above actions, Li Ning has undoubtedly built the company's brand "moat" from many aspects, which not only accumulates stronger strategic potential energy for the company, but also provides the company with a steady stream of growth vitality.
Nuggets "Sunrise" track, waiting for the long slope and heavy snow
If Li Ning's strong brand power provides the source of power for the company's performance, then the development momentum of the sports consumption industry has opened the growth ceiling of Li Ning.
Looking back at the domestic sports shoes and apparel market, it can be roughly divided into three stages: from 2001 to 2010 was a period of rapid development, the public consumption capacity was significantly improved, and the sports boom brought by events such as the Olympic Games was superimposed, and local sports shoes and apparel brands developed rapidly. From 2011 to 2013, the industry was stagnant, and the growth rate of the sports shoes and apparel industry slowed down due to the subprime mortgage crisis and other reasons; After 2014, it was a period of steady growth, although the development of 2020 was stagnant due to the impact of the epidemic, but after the post-epidemic era, driven by multiple factors such as policy promotion and residents' income improvement, the industry has recovered steadily, and the market size will increase by 13.66% year-on-year to 354.947 billion yuan in 2021, with a slight year-on-year increase in 2022, and it is expected that the industry scale will grow steadily at a growth rate of 5%-12% in 2023-27.
The scale of 100 billion yuan is superimposed on the double-digit growth rate, which obviously highlights the great development potential of the current sports consumer market, so as to provide endless imagination for related sports shoes and clothing companies.
However, from the source, the vigorous development of sports consumption is based on "change". For Li Ning, this "change" is undoubtedly positive and constitutes a unique "strategic window period" for it.
On the one hand, as the social atmosphere of national sports becomes stronger, the public's attitude towards sports events has changed from watching to participating, the public's enthusiasm for sports consumption has been accelerated, and the demand for professional sports equipment has increased. On the other hand, driven by policy guidance and pop culture, trendy sports continue to be popular, and "trendy sports" equipment continues to sell well, thus promoting the strong growth of sports products in sub-categories such as skateboarding, skiing, and outdoor hiking.
And why do you regard these positive changes as Li Ning's unique "strategic window period"?
First, Li Ning's "single brand" has formed a strong brand effect.
The outside world has always liked Li Ning's "single brand" strategy and the industry's "multi-brand" strategy as a comparison, believing that multi-brand can better expand the segmented population, share back-office resources, and facilitate business expansion. But in fact, there is no advantage or disadvantage in the strategy itself, but it is only based on different corporate genes and advantages to choose its own development path, and the market seems to ignore the strong effect of focusing on the single product strategy, that is, a single brand can help enterprises establish a unified brand image, enhance visibility and recognition; Consumers are more likely to be loyal to a single brand, reducing the possibility of switching brands, which is more conducive to the long-term development of enterprises.
As far as Li Ning is concerned, the sports story of the founder Li Ning is used as the carrier to build a brand image. Then it further focused on the single-brand strategy, highlighting the "professional" characteristics, and when it comes to professional sports, it reminds people of Li Ning. Such a brand recognition is undoubtedly strong and long-term.
Compared with global sports brands, the world's strongest sports brands are currently dominated by single brands. Taking Nike as an example, its brand revenue in fiscal year 2023 (June 2022-May 2023) is as high as $48.7 billion, of which the Nike brand accounts for about 95% of the revenue. It can be seen that relying on the vigorous sports consumer market in China and strengthening consumers' cognition with the "Li Ning brand", Li Ning undoubtedly has huge market exploration space.
Second, based on a single brand, the multi-category track is deeply cultivated, and the incremental space opened up should not be underestimated.
According to Li Ning's development strategy, its original intention is mainly to enter the core sports categories such as basketball, running, badminton, table tennis and other core sports with a Li Ning brand, and enter the core sports with the most participation of the Chinese public. In fact, through the multi-category cultivation of the Li Ning brand to achieve multi-dimensional expansion, the product power brought by this way is timeless, that is, after the superposition of the corporate brand and the product brand, the vitality of the product brand will continue to lengthen, and the accumulation will become deeper and deeper.
In addition, in the author's opinion, whether it is a multi-brand or a single-brand strategy, the ultimate foothold is still in product power, which also means that product power is the key to the company's growth. According to the analysis of CITIC Securities, Li Ning's core fundamentals and background (i.e., excellent product matrix and product development team) are expected to help the company maintain its leading position in the next round of industry technology iteration. Li Ning's R&D model mainly adopts the centralized + decentralized model, that is, by increasing the R&D investment of a single brand, it can achieve cross-category technological innovation, which can promote the company's product development of various categories to be more "specialized".
Obviously, the scientific and technological strength and product strength built by Li Ning are also very good to the point of feedback to the performance. Taking the running category data as an example, in 2023, the IP sales of Li-Ning's core running and basketball shoes will exceed 12 million pairs, of which the total annual sales of the three core running shoe IPs of ultralight, Chitu and Feidian for daily jogging, advanced training and racing competitions will reach 9 million pairs. Among them, the cumulative annual sales of Feidian 3 Challenger exceeded 1.3 million pairs, becoming a phenomenal IP in carbon plate running shoes.
From the above, it can be seen that under the single-brand strategy, Li Ning has realized a multi-category product matrix layout, which not only has the characteristics of "specialization", but also has diversified development characteristics, accumulates its own brand equity, gives full play to its brand value, and takes a more long-term and stable path.
This style of play also matches the current comprehensive and professional strategic window period of the sports consumption industry, so for Li Ning, although it is very hard to do a "single brand" for ten years, the long slope and thick snow that belong to it have appeared.
epilogue
Based on the above, it is not difficult to see that Li Ning's steady growth in 2023 is not accidental, but the result of the company's strong growth logic.
More importantly, from a long-term perspective, the brand, product and channel power that Li Ning has built with all its dedication may lay a solid foundation for its steady performance in 2024 and beyond.
While the development confidence is sufficient, Li Ning also repays the trust of shareholders and investors with tangible cash dividends. For the year ended December 31, 2023, Li Ning's annual dividend will be 54.74 cents per ordinary share, with an annual dividend payout ratio of 45%, which is at a high level in the industry. Such a large dividend not only reflects the company's emphasis on shareholder returns, but also reflects shareholders' confidence in the company's future development prospects and recognition of growth value.