Domestic

Li Ning expects business to slow

(China Daily)
Updated: 2011-01-18 13:43

BEIJING - Li Ning Group Ltd said on Monday that its 2011 gross profit margin will be 1 percent lower than the previous year and its third- and fourth-quarter order growth will be lower than the first two quarters.

Analysts attributed the gloomy performance to the company's rebranding, as the homegrown brand strives to transform itself into an international one and refocuses on youths born after 1990s.

According to the company's filing statement to the Hong Kong Stock Exchange, the profit margin may be pinched due to a new wholesale discount policy and escalating production costs. And the order growth is expected to decline as a result of the company restructuring its distribution channel and the changed market environment of China's sportswear retail industry.

Zhang Xiaoyan, a Li Ning Group spokesman, said the sporting goods industry in China is maturing and the Li-Ning brand will invest more in branding to nurture its long-term competitiveness.

In 2008, China's sportswear market grew by 30 percent year-on-year, and the figure dropped to 15 percent in 2010, Zhang Zhiyong, chief executive officer of Li Ning Group, told Economic Observer.

"Certain financial indicators are expected to fluctuate in the short term, but the rebranding is a strategy that our company decided to follow and will continue," Zhang Xiaoyan said.

In order to set up an international brand, Li Ning Group created a new logo and slogan in 2010, aiming to attract the generation born after the 1990s. Meanwhile, it has streamlined its store chain, closing some of its small stores, and opened new "sixth-generation stores" targeting young consumers.

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Though the Li-Ning brand had more than 7,900 stores by the end of last year, fewer than the target set at the beginning of 2010.

Yue Sanfeng, a partner at Hejun Consulting Company, told China Daily that Li Ning Group is seeking lasting benefits with its new branding strategy.

"It used to open new stores to make profits, but as China's sporting goods market is entering a period of stable development, brand improvement and distribution channel integration are two ways to obtain long-term growth," Yue said.

He added that if Li Ning Group has decided to become a high-end brand, it should stick to its strategy regardless of temporary share price fluctuations or order declines.

However, Goldman Sachs said in a report that Li Ning Group's rebranding strategy is "a mistake". The company is "positioned between global mega brands and domestic mass market brands", and risks being "stuck in the middle" without a clear branding position, it said.

China's sportswear market is divided into mass brands, such as Peak and Anta, which are welcomed in the second- and third-tier cities, and mega brands, such as Nike and Adidas, which are popular.

Peak, which generates 74 percent of its revenue from the mass market, will continue to see strong growth in the next two years, as will Anta, which is the leader in sales in footwear and apparel among Chinese sportswear brands, said Yue.