Author: Li Jinglin
In 2023, profits will shrink severely, the scale of revenue will be more than doubled by Anta, privatization rumors, and the market value will evaporate by 200 billion yuan...... This is the news surrounding Li Ning in the past period of time - the former domestic sports leader, it seems that it is falling behind in all aspects.
According to the 2023 financial report, Li Ning's revenue was 27.598 billion yuan, a year-on-year increase of 7%, and its net profit was 3.187 billion yuan, a year-on-year decrease of 21.58%, making it the only company with a declining profit among domestic listed sports brands, while Anta's revenue was 62.356 billion yuan and its net profit was 10.236 billion yuan, a year-on-year increase of 34.9%, ranking first among domestic sports brands. Although the scale of 361 degrees is not as large as the first two, it has maintained rapid growth, with revenue of 8.42 billion yuan and net profit of 1.38 billion yuan, a year-on-year increase of 21% and 28.8% respectively. Xtep achieved revenue of 14.346 billion yuan, a year-on-year increase of 10.9%, and net profit of 1.03 billion yuan, a year-on-year increase of 11.8%.
On March 12, the market came with the news of Li Ning's privatization. Li Ning himself responded, "In the face of different competitive environments, for investors, I will consider any plan that can improve investors' returns, but there is no plan at present, and I will report to you later."
On the 20th anniversary of its listing, Li Ning has once again reached a dangerous juncture.
10 years ago, Li Ning radically expanded and transformed, and the brand strategy of "post-90s Li Ning" completely failed, giving up the top spot of the domestic sports brand to Anta. Li Ning himself returned to the front line of business, relying on his appearance at New York Fashion Week in 2018 and the popularity of "China Li Ning" to regain lost ground, and took the "Guochao" express train to be reborn.
Four years ago, Li Ning changed his coach, Qian Wei, who had worked in Uniqlo for 23 years, became the co-CEO, a strict, rational and pragmatic professional manager at the helm, Li Ning, who was born as an athlete, retreated to the second line, and Li Ning Company still wanted to continue to climb the peak.
"The name of the reform is more direct, so that everyone can understand the urgency of not working, especially the senior management team. Qian Wei, who has no sports brand management experience and even no domestic enterprise management experience, has made drastic moves in Li Ning. From 2019 to 2023, Li Ning's revenue scale will increase from 13.8 billion yuan to 27.5 billion yuan, ranking second among domestic brands in terms of market share, infinitely approaching Adidas.
But Qian Wei realized that it was time for Li Ning to have to change. Slow is retreating, the burden of the national tide label, and the transformation of the retail model...... All kinds of problems are hidden under the scale of performance, and Li Ning is gradually moving away from the goal of becoming "Asia's No. 1 sports brand".
What happened to Li Ning?
Li Ning's embarrassment lies in the fact that the top management has stated more than once that it wants to be a professional sports brand, but everyone calls it "Guochao".
Qian Wei has a clear and worrying understanding of the current situation of Li Ning, "If the Li Ning brand is compared to this big tree, the trunk is a professional sport, and the 'tide' is just one of the leaves, which will make the tree look better, but the trunk can grow leaves no matter how healthy it is, and if the trunk is wrong, the tree will fall." He is sure that if his eyes had been staring at the "tide", there would be no Li Ning today.
Unfortunately, Li Ning's professional trunk is not absolutely stout, and the overly eye-catching leaves are even grabbing nutrients that belong to the branches.
Li-Ning's sports fashion business line is mainly focused on two sub-brands, "China Li-Ning" and "LI-NING 1990". In the financial report, Li Ning Company did not disclose the specific performance of the two brands. According to a report by 36Kr, the growth rate of China's Li Ning's stores has slowed down to a certain extent since last year. According to the financial report data, the number of Li Ning stores in 2023 will reach 7,668, an increase of 65 year-on-year. Among them, Li Ning Bulk Goods and China Li Ning decreased by 55 year-on-year to 6,240.
Li Ning said in the financial report that the closed stores are all inefficient. Qian Wei said, "As a retail industry, we do not want to achieve so-called performance growth by simply expanding the number of stores, and Li Ning has always paid attention to store efficiency growth, including customer flow, transaction rate, discount rate, etc. "The transaction, efficiency and growth of Li Ning stores in China need to be further examined.
"China Li Ning" is not only the beginning of Li Ning's entry into the field of national tide, but also the watershed of the rise of "national tide" in the field of consumption. At the same time, "Guochao" is also the incision of Li Ning from a mass brand to high-end.
According to public data, the average price of "China Li Ning" is 700-800 yuan, which is much higher than that of Li Ning brand. From 2019 to 2020, among sports and leisure brands, the prices of Guochao series products and co-branded models are mostly more than 100 yuan higher than ordinary models. "Consumer Daily" reported that around 2021, the price of the Guochao series is generally 40%-50% higher than other products of the same brand.
In 2021, Li Ning took another step forward in the field of sports fashion and launched its new high-end brand "LI-NING 1990", with an average price of about 1,000 yuan. However, Li Ning's step is hardly a success. Since its first store in November 2021, "Li Ning 1990" has opened 27 new stores in first- and second-tier cities across the country in two years, with products ranging from fashion to leisure, from business to golf.
"Li Ning 1990" does not seem to have much to do with Li Ning itself, except for the logo. The product elements are getting wider and wider, but compared with women's wear, men's wear, trend or business brands in the domestic market, there is no obvious differentiation style and competitive advantage; The crowd positioning is ambiguous, and it is difficult to obtain high-end customers on the same track or expand new customer groups.
"After more than 30 years of development, Li Ning has witnessed the improvement of the consumption level of the Chinese people and also seen new market space. Coupled with our precipitation, we hope to meet the needs of more consumers in the case of both front-end and back-end capabilities. Xu Yanfang, general manager of LI-NING1990 products, said in an interview that Li Ning wanted to break through the ceiling, "People often ask me what is the target brand of LI-NING1990." In fact, we can't find a brand that can be benchmarked in the market, with the genes and experience of sports brands, and integrated with a sense of luxury and fashion. We have never done anything like this in the past, and we are constantly matching the right team according to the positioning of the product and brand, and improving more details of the brand. ”
But Li Ning wants to tell a new story, which is easier said than done.
The national tide is losing ground in all directions. Liu Yuan, a brand consultant, said in an interview with Banshu Finance that for most consumers, the consumption of symbols and the display of a certain sense of participation through symbols on social media can be regarded as the completion of this consumption. Most people do not develop the habit of consuming traditional culture with more connotation or depth, which also leads them to come and go quickly.
The trend created by the accumulation of simple symbols is the most susceptible to rapid decay, and it is difficult for brands to precipitate aesthetics in the process of chasing trends. In an interview with chopped pepper, the weaving department made it clear that today's new Chinese style is fundamentally different from the "national tide", "the national tide style has a shallow understanding of Chinese culture, and most of the clothing designs fall into the trap of painting dragons and writing Chinese characters", which is obvious with the meaning of cutting with "national tide".
Li Ning carries the label of "national tide", and when the tide is exhausted, the former scenery will become a burden, and even form a backlash. In addition, it is also more difficult for Li Ning to go high-end through the sports trend.
Adhering to the strategic policy of "single brand, multi-category, and multi-channel", Li Ning chose a more difficult path than Anta to expand the crowd and climb up. To put it bluntly, the background color of Chinese sports brands is still the mass brand. Cheng Weixiong, an independent analyst in the fashion industry and founder of Shanghai Liangqi Brand Management Co., Ltd., made an analogy to chopped peppers: "People flock to Canada geese for 10,000 yuan, but Bosideng will be scolded if they reach nearly 10,000 yuan." ”
Based on this, ANTA's acquisition strategy is faster and more effective to complete the expansion of high-end people. With the acquisition of FILA and the acquisition of Amalfen, Anta's consumer base is naturally diversified and its revenue in the Chinese market has exceeded that of Nike China by nearly 10 billion yuan.
To be high-end is not just to raise prices and expand categories, you need to tell a good story and have time to precipitate. Anta took a shortcut through acquisitions. For other domestic sports brands, the road to high-end is long and difficult. Domestic sports brands have just gone through 30 years of history, and most of their development process is formed from industrial belt factories and wholesale markets, relying on China's vast mass market to do large-scale. Compared with overseas brands, Adidas and Nike have a history of seventy or eighty years of brand development, and have a strong brand mentality in the field of professional sports. Like Lululemon, although it has a short history, it has chosen the right new lifestyle and broken through from a relatively high-end and niche track.
Cheng Weixiong said that there is nothing wrong with Li Ning's single-brand strategy, but it is more difficult, "This strategy needs to be persistent, not to pursue short-term interests, after all, the single-brand space has certain limitations, and the acquisition strategy can continue to superimpose the scale, which is more attractive to investors at the moment." But if the timeline is extended, the long-term value of a single brand will be highlighted. ”
The long-term value of Li Ning must fall in the field of professional sports. Qian Wei said: "The core of Li Ning has always been professional sports. Li Ning and Li Ning 1990 are the indispensable product lines of the Li Ning brand, which will become one of the driving forces to promote the continuous development of the Li Ning single brand, but will not replace professional products as the core of the company. ”
Li Ning's professional athletic achievements are still obvious to all.
According to the financial report, in 2023, Li Ning's three core professional sports categories of basketball, running, and fitness will account for 64% of the total revenue. Among them, the turnover of running and fitness categories increased by 40% and 25% respectively. In particular, running is the highlight, under the million shoes project, the annual sales of the three product series of ultralight, Chitu and Feidian exceeded 9 million pairs, a year-on-year increase of 62%, of which the "Feidian 3 Challenger" has a cumulative sales of more than 1.3 million pairs during the year.
Li Ning himself once said, "footwear products must become the main force". In 2023, with professional sports as the starting point, the revenue of Li Ning's footwear business will account for nearly 50% of the total revenue, and more than 13.3 billion yuan of business will come from footwear. In 2020, Li Ning's footwear business revenue accounted for 43.84%, with a scale of more than 6 billion. Qian Wei revealed that in 2023, the overall revenue volume of professional products will be close to 14.5 billion yuan, and the proportion of revenue will rise to 52%, compared with only 41% three years ago.
Li-Ning's revenue by product in 2023|Data source: financial report
To do professional sports, especially shoes, technology is the core barrier of the brand. In 2019, Li Ning launched new technical materials, and Qian Wei put forward a clear requirement to expand the application of science and technology as soon as possible to cover running shoes, basketball and other shoe products of different categories and different price points. Today, 70% of Li-Ning's shoes have this technology.
However, the problem behind the results has been revealed, and the biggest problem in Li Ning's performance in 2023 is that the increase in revenue does not increase profits - net profit decreased by 21.58% year-on-year.
In fact, the price of Li-Ning's professional sports products has been rising. Taking running shoes as an example, the initial price of Li Ning "Ultra Light 15" in 2018 was 499 yuan, and the first price of "Super Light 18" in 2021 became 599 yuan; in 2019, the first price of Li Ning "Liejun 4" was 699 yuan, and in 2023, the price of "Liejun 7Pro" released by Li Ning came to 1099 yuan.
But the big sales of running shoes did not alleviate Li-Ning's problem. In 2023, Li Ning's footwear revenue will decline by 0.66% to 13.389 billion yuan, and the proportion of footwear in total revenue will also decrease from 52.2% to 48.5%.
Among them, Li Ning's once strong basketball business has stalled significantly, and the revenue of this business line in 2023 will only be the same as the same period last year.
A basketball shoe review blogger said in an interview that some of Li Ning's basketball shoes look good in appearance, but they don't feel good on the foot, such as "the right upper of the Blitz 8 series basketball shoes has obvious toe pinching phenomenon". More importantly, at the marketing level, Wade, the core basketball spokesperson of Li Ning, has been retired for many years, and his influence is bound to be reduced, and the influence of Jimmy Butler, the current biggest brand spokesperson, is not outstanding.
The influence of sports brands in the professional field largely depends on spending money to sign top spokespersons and sports teams. For example, after Messi's transfer to Inter Miami, his jersey sales rose to No. 1 in the United States, surpassing NFL superstar Brady and NBA star LeBron James.
In addition, under the trend of consumption downgrade and the large-scale inventory clearance of the sports shoes and apparel industry, Li Ning can only rely on large-scale discounts to maintain sales. In the first half of 2023, in addition to increasing the discount of outlet channels, Li Ning also increased the promotion of regular-priced stores and e-commerce channels, and the discount directly reduced the gross profit margin of Li Ning, which decreased by 1.2 percentage points in the first half of 2023 compared with the same period last year. Gross margin for the full year 2023 was 48.4%. During the Double 11 period, the discount of Li Ning's products is mostly 5-7% off.
According to the 2023 financial report, Li Ning's overall retail turnover (including online and offline) recorded a low-level growth of 10%-20, and the growth level of offline retail turnover of new products is also this figure. From the perspective of historical data, the overall retail growth rate of Li Ning's main brand is basically consistent with the company's revenue growth rate, and from the final result, Li Ning's annual performance growth rate is only 7%, which is the only one of the four listed sports brands with less than double digits.
What's even more terrifying is that Li Ning's earning power is shrinking, and from 2021 to 2023, Li Ning's net profit will be 4.011 billion yuan, 4.064 billion yuan, and 3.187 billion yuan respectively.
Fortunately, Li Ning's inventory problem has been alleviated. Qian Wei revealed in the earnings call that Li Ning's inventory management level has returned to the best level in the past five years, and the inventory-to-sales ratio is only 3.6 months. As of the end of 2023, the inventory from 0 months to 6 months accounts for 80%, the inventory from 7 months to 12 months accounts for 14%, and the inventory greater than 12 months accounts for only 6%, and the inventory is mostly evergreen. In 2023, Li Ning's inventory turnover cycle will be 63 days, which is still higher than the level of 2021 and 2022, but has decreased from 68 days in 2020 and 2019. In addition, in 2023, Li Ning's total channel inventory will decrease by mid-single digits year-on-year.
Generally speaking, new products with low inventory age are more conducive to circulation, and the lower the proportion of old products in the inventory age structure, the healthier the inventory turnover.
But at the same time, another problem of Li Ning surfaced - dealers fleeing goods. At the third quarter conference call in 2023, Li Ning put the issue of goods fleeing directly on the table to discuss. Although the inventory problem has been alleviated, the complex and chaotic dealer system has led to Li Ning's "prosperity is a benefit, and there is a disadvantage", and the dealers have to sell at a price lower than the direct sales channel and the e-commerce channel in order to quickly get rid of the cash in order to quickly get rid of the inventory, and the problem of different dealers channeling goods has emerged.
When the product is in the limelight, the development of more dealers can indeed help enterprises digest production capacity faster, expand revenue, once the business operation encounters risks, the dealer system will become an important burden that restricts the reform of enterprises. In the opinion of analysts, the direct trigger for the sharp drop in Li Ning's net profit is Li Ning's release of inventory and control of goods fleeing since the second half of last year.
This also leads to another shortcoming of Li Ning's operation - the slow transformation of DTC.
According to the financial report, in 2023, Li Ning's franchise dealer revenue will be 12.628 billion yuan, accounting for about 45% of the total revenue, direct sales revenue will be 6.907 billion yuan, and e-commerce revenue will be 7.531 billion yuan. In contrast, Anta's strategy is based on the DTC direct sales model, followed by the e-commerce channel, supplemented by the dealer channel. As of the end of 2023, the DTC model and e-commerce channel revenue accounted for 56.1% and 32.8% respectively, while the dealer channel accounted for only 11.1%.
Li-Ning's revenue from different channels in 2023|Data source: financial report
ANTA is the most successful brand in the transformation of the DTC model among domestic brands. Under the DTC model, approximately 44% of the approximately 5,400 ANTA stores are directly operated and the remaining 56% are operated by franchisees, while approximately 64% of the total 2,200 ANTA children's stores are directly operated and 36% are operated by franchisees. By the end of 2023, there were 7,053 ANTA stores and 2,778 ANTA children's stores in Chinese mainland and overseas.
The advantages of the direct sales model are obvious, there is no dealer as a middleman, the gross profit margin of the direct business will be higher, and the price paid by consumers is lower;
Qian Wei has been in office for four years, and the proportion of revenue from Li Ning's direct sales channels has declined instead of rising.
Wholesale has always been the core sales model of Li Ning, especially in the second rise, Li Ning re-handed over the urban channel to dealers. This was also the mainstream sales model of most sports brands in the early days, with brands selling new shoes and apparel to dealers through orders twice a year, and these dealers then connected consumers through offline franchise stores, such as Taobo Sports, which was responsible for selling goods for Nike. Li Ning invited Qian Wei to a large extent for retail transformation.
Qian Wei summarized the difference between the two models: the wholesale channel follows the supply thinking, that is, the closed loop of selling goods to dealers is over, while the retail follows the demand thinking, that is, facing consumers directly, by studying the needs of consumers, providing products that they are satisfied with to operate the brand.
But Qian Wei's thinking doesn't seem to be to stress the DTC model.
In 2014, Li Ning launched retail transformation, but under the long-term leadership of wholesale thinking, even if the direct stores are opened, most of the operational efficiency is relatively low. Two different business logics are mixed up, resulting in mutual constraints. By 2020, the company will divide the direct sales and wholesale divisions and grow synergistically.
But it is clear that the internal improvement of the wholesale model is the focus of Li Ning. Li Ning focuses on the single-store operation model, not too much attention to the proportion of directly operated stores, but more concerned about copying the experience of benchmark profit stores to other stores, regardless of franchise and direct sales, Qian Wei's idea is: brand owners promote the transformation of wholesalers, if the latter needs to invest first, he will be more resistant, and in the end it will become a mutual game, but if he can help him make more money, his initiative will be strong.
Admittedly, DTC is by no means the golden rule of the sports brand industry. Cheng Weixiong told Chop Pepper that Adidas and Nike use the dealer model, and the strong distribution system helps them integrate global resources, and the core problem behind it is the company's organizational responsiveness and brand power, "Taking marketing as an example, Anta's corporate strategy can be transmitted to directly operated stores on the same day, but Li Ning may take two or three days or even longer, and even franchisees cannot fully implement it."
Nowadays, Li Ning is suffering from the dilemma of stalling turnover and declining profits, and the sales model based on wholesale channels has widened the distance between the brand and consumers. To solve this problem, it is urgent to make up for the shortcomings of DTC.
Judging from the research reports released by domestic institutions, analysts unanimously believe that Li Ning's operating income growth in the next two to three years will remain in the high single digits, and it is difficult to have the conditions for a significant rebound in the stock price.
Ten years later, Li Ning, who had experienced a resurrection from the dead, once again came to the threshold of fate. Qian Wei once made a bold statement in a media interview: "Do it resolutely, it is mine to lose, this is my responsibility and obligation", but can Li Ning afford to fail again?