What Luxury Brands Can Learn from Footwear Giant Li-Ning

    Despite a slowing economy, China's Li-Ning has continued to flourish in a tough fashion market thanks to an understanding of trends and one smart hire.
    In 2017 Li-Ning started combining sports with fashion, entertainment, cultured lifestyle, and leisure wear. Photo: Shutterstock
    Vincent DjenAuthor
      Published   in Profile

    2019 has been a tough year so far for many fashion brands, but there are still winners to be found, and one of them is lifestyle sportswear brand Li-Ning.

    In China’s homegrown sportswear segment, the brands Anta and Li-Ning are like the country’s Nike and Adidas. Li-Ning was founded by Olympic Gold medalist and hometown hero Li Ning and was, at first, the bigger Chinese brand. But Li-Ning started losing ground to Anta in 2012 and has since lost the healthy sales lead they once had over their sportswear rival.

    Fashion, however, is always changing, and Li-Ning is now considered cool again. Their new streetwear-inspired look became a hit, and they found more visibility at last year’s New York Fashion Week. Some of their sneakers are even starting to become collector’s items.

    Li-Ning hit 10 billion RMB (roughly 1.4 billion USD) in sales last year, and in the first half of 2019, its revenue grew by over 32 percent and profits nearly tripled. The brand’s shift toward the lifestyle and streetwear market fueled a 20 percent revenue growth in 2018, which doubled the previous year’s growth. The company’s continued cost control and inventory management also aided its strong earnings.

    After an initial surge in the sportswear market leading up to the 2008 Beijing Olympics, the market quickly leveled off, and Li-Ning’s growth stalled in 2010. Since then, the brand has suffered through years of declining sales. But 2014 saw that decline end, and sales finally started to grow again as the company began to turn around. This period coincided with urban Chinese consumers finally becoming more mature and sophisticated as their spending power increased and they demanded better products.

    The Big Turnaround Plan#

    Looking back into the history of Li-Ning’s press releases and annual reports, a key change took place in 2012 when the company brought in the private equity firm and well-known turnaround specialist Texas Pacific Group (TPG) to launch a major turnaround plan called the “Transformation Plan.” The plan included building a core Li-Ning brand, repositioning the brand value, and becoming an authentic brand that targets middle-class consumers. It also called for more direct to customer retail, a stronger supply chain and product development capability, the integration of superior performance function and design into the products, and cost and cash flow improvement and control.

    In 2014, revenue started to grow again as the plan began working. The company then came up with a new operating model as part of the Transformation Plan called the “Closed Loop Retail Operation.” The loop starts with consumer and market-oriented product planning, followed by efficient product development, and aided by continuous sales data monitoring and in-store experience and service. If there are excess stocks then clearing channels are to be used, and lastly, cash collection management is laid out clearly to fund the company’s product planning and Ramp;D back at the beginning of the loop. The loop is about creating products the consumer wants by using technology to track sales progress and recover the cash quickly, which is key to success in the always-evolving fashion business.

    China’s apparel industry has been plagued by slow inventory turnover, which hurts a brand’s cash flow. Starting in 2015, Li-Ning’s inventory movement has seen a big improvement, and by 2018, their inventory was turning over faster than rival Anta’s 4.5 times per year and even faster than other Chinese apparel brands such as Bosideng. And with the inventory turnover improvement, Li-Ning’s cash holdings have grown — more than tripled since the beginning of 2015.

    In 2017 Li-Ning started combining sports with fashion, entertainment, cultured lifestyle, and leisure and also started working with artists and celebrities like “Rap of China” winner, GAI. This was how Li-Ning became a trendy fashion icon, but one with authentic roots from its history in the country.

    New leadership#

    One recent development which should benefit Li-Ning greatly is the announcement of a new Joint CEO coming on board from holding company Fast Retailing, best known for their Uniqlo brand that pioneered the range of LifeWear products of everyday functional yet comfortable clothing. Uniqlo is also very good at working closely with a supply chain to develop new materials and for their famous UT series, which is known for licensing t-shirts with artists, animation characters, and iconic brands. And now, with the Chinese government’s Healthy China Initiative to further promote sports and fitness programs, Li-Ning can use their recruit’s expertise to give them a major boost at this pivotal time.

    Can Li-Ning continue its success and be relevant in a quickly-changing consumer market? This remains to be seen. But the company’s focus on the customer, brand message, retail experience, data, operation, and cash efficiency all are key ingredients for a successful apparel company, giving them a strong foundation for future growth.

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