What happened
As China’s love for local brands remains strong, Li-Ning has leaped ahead in the sportswear race. In the year ended December 31, the athletic apparel giant saw total revenue surge 56 percent to 3.55 billion (22.57 billion RMB) and net profit jump roughly 1.4 times to 630.6 million (4.01 billion RMB). The Beijing-based company attributed the higher sales to China’s effective pandemic control, support of relevant national policies, and increasing awareness of healthy lifestyle and sports, particularly in the wake of the Tokyo and Beijing Olympics.
However, the next earnings report could be dented by new challenges. On March 14, US Customs and Borders Protection banned all goods made by the Chinese giant, accusing it of using North Korean labor in its supply chains. The customs agency stated that Li-Ning has 30 days to provide “clear and convincing evidence” that proves its products do not involve convict or forced labor, although Li-Ning has called the allegations “incorrect and misleading.” On top of this, Li-Ning stated on March 18 that China’s recent COVID-19 outbreaks were adversely affecting performance, narrowing sales growth from 35 to 40 percent earlier in the first quarter to 15 to 20 percent this week.
The Jing Take
Since the Xinjiang cotton crisis in March 2021, Li-Ning has soared both in sales and global recognition. Whereas luxury brands like Burberry were able to quickly bounce back after the controversy, foreign sportswear companies have faced ongoing troubles in the market: in Q2 2022, Nike announced a 24 percent drop in China sales, while adidas saw a 15 percent fall in Greater China sales in its third quarter, leading to the recent appointment of a new China chief.
This landscape has shifted partly because Li-Ning has been able to, quite literally, fill the shoes of its rivals. The brand named after a Chinese gymnast has doubled down on innovation and performance — major selling points for Nike and adidas in China — from expanding its offering of professional running shoes to “employing the most advanced quick-dry technology” to dress Olympic athletes. At the same time, Li-Ning continues to capitalize on the Guochao wave by embracing traditional and popular culture; its basketball series, for example, draws inspiration from the cities of Nanjing, Chongqing, and Changsha, while its marketing campaigns tap local Chinese idol Xiao Zhan to reach a broader audience.
Despite concerns around the US ban and COVID-19, Li-Ning’s growth prospects remain promising. Although the ban may taint Li-Ning’s reputation abroad (the brand has partnerships with Disney and the NBA), it is unlikely to have a significant impact on sales as overseas customers contributed to less than 10 percent of revenue. As for COVID, the joint CEO pointed out that the company had accumulated a lot of experience on how to respond to virus outbreaks and will prepare for uncertainty cautiously. Perhaps then, the greater battle for Li-Ning will come not from policies or the pandemic but rather competition from fellow Chinese sportswear players as they similarly ride these trends to success.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.