Sports brand leader Li Ning transition: improve the business model to spend the "pain period"

Li Ning (left) and CEO Zhang Zhiyong of Li Ning (right)

As of March 22, several major sports brands in the country: Anta, 361 Degrees, Peak, and Xtep have published 2011 financial reports, which all reflect the cautious attitude towards the future, and the inventory backlog and growth slowdown highlights China's sports. The whole industry is facing difficulties.

As the leader in the industry, Li Ning admitted in early 2011 that the entire sporting goods industry will face a severe situation and the industry transformation will be inevitable. It seems that Li Ning’s original judgment was a bit of a “wise prophet,” but it seems that at the time both the capital market and the media “only saw trees not seeing the forest”. It was only Li Ning’s own problem. In spite of the challenges, Li Ning also stressed that in the face of market trends and common problems in the industry, companies should plan ahead and be prepared for the challenges.

The future of the sporting goods industry will shift from cost-driven to value-driven, brand-based product models, which will be the basis for the long-term and stable development of the Li-Ning brand and eventually become an internationally renowned brand.

In the early 90s of last century, Li Ning, the retired Olympic champion, began his venture to realize his dream of “allowing Chinese champions to put on Chinese sports brands” and “build brands” became the core of Li Ning’s business model.

Perfecting Business Models and Creating Brand Competitiveness Over the past few years, according to media reports, ** seems to be focusing too much on Li Ning’s short-term performance and seldom have in-depth analysis of its business model, strategic planning, and implementation capabilities.

Looking back at Li Ning’s history, it can give us a more comprehensive understanding. This locally grown company has been following the market trend for the past 20 years, proactively finding problems and seeking ways to solve the problems.

In the early 90s of last century, Li Ning, the retired Olympic champion, began his venture to realize his dream of “allowing Chinese champions to put on Chinese sports brands” and “build brands” became the core of Li Ning’s business model. At the very early stage of the development of the sporting goods market, Li Ning’s personal branding effect played an irreplaceable role, but the company has been strengthening its close integration with China’s sports champions, making the “Li Ning brand” a well-known national pride. In the late 1990s, Li Ning stepped into the path of professional development through management reforms. In 2004, he became the first listed sporting goods company in China and welcomed a new development opportunity.

In 2001, Beijing successfully bid for the Olympic Games. The 2008 Beijing Olympic Games brought a once-in-a-century opportunity to China's sporting goods companies. The major brands have made great strides and rapid expansion, enjoying a feast. However, the dialectic of “benefiting the evil” was once again reflected in the sportswear industry in China. The problems that were originally implied by the extensive and rapid growth model soon began to show.

In 2009, the sporting goods industry also began to encounter the common problems encountered by other industries in China. Raw materials and labor costs continued to rise, and retail rents rose rapidly. The upstream and downstream spaces of the industrial chain were squeezed. At the same time, consumer demand for brands and products is more mature, and international brands do not break the boundaries, creating further pressure on local brands.

Li Ning Company further strengthened its determination to improve the business model through analysis of the industry. In 2010, Li Ning took the initiative to propose two major reform measures, “brand remodeling” and “channel change,” aiming to achieve brand differentiation and improve retail operation efficiency. In response to changes in the overall pattern of the industry. At that time, the company’s management made it clear that the next two to three years will be a transition period for the entire industry. Despite all kinds of doubts, Li Ning still adheres to its own strategy - adapting to the development trend of the industry, facing all kinds of business problems, planning ahead and preparing for the challenges.

Concentrating superior resources to lay the foundation for sustainable growth of enterprises Since the listing of various sports brand companies, outsiders are accustomed to horizontal comparisons using various financial data. Everyone seems to be accustomed to commenting that Li Ning's high rate of expenses leads to the impact on profitability, which is not as efficient as other companies. The reporter consulted a number of industry experts and financial professionals and compared and studied the cost structure of Li Ning and other domestic and foreign sporting goods companies in recent years and found that everything should not look superficial and should be combined with the strategic positioning behind it to gain a deeper understanding .

The brand is the core content of the sporting goods industry. Each company has disclosed “the proportion of advertising marketing and promotion expenses in sales”. The reporter has found these data from the annual reports of various companies and compared them (see attached table). . Compared with other domestic brands, Li Ning’s expense rate for this part is the highest in the industry. Companies such as Anta and Peak have basically started to increase in volume in recent years. It shows that Li Ning saw the nature of the industry development earlier and had more forward-looking plans. Its financial resources were adapted to the "brand-oriented" strategy.

But is this part of the cost rate high or low? Looking at Nike, adidas/'target='_blank'>Adidas has been a successful brand that has gone through decades and nearly a hundred years. Today, they are still selling at a level that is several times higher than domestic brands. More than 10% of the amount, we can see that continuing to maintain investment in the brand is a successful way for international brands to achieve sustainable development.

Taking the brand investment rate as an example, Li Ning's financial resource planning can be seen, but the high cost rate will inevitably affect the current profitability. Li Ning's operating margin level is a lot lower than other domestic brands. Look at international brands. History seems to be Tell us, perhaps it should not be simply to measure the success of a company with high or low short-term profit margins. It depends on how the company concentrates its advantageous resources to promote long-term development and whether it can win in long-distance running.

During the research process, the reporter also paid attention to the data on product development. Li Ning has also maintained a high level of investment. Other domestic brands have also rapidly increased their research and development expenses in recent years, indicating that companies are aware of the importance of products. However, Li Ning's product-focused strategy is more forward-looking. Observing the new products launched by Li Ning in recent years, such as Li Ning Gong and Li Ning arc, we are also easy to understand. Continuously strengthening technological innovation and material innovation is an indispensable basic condition for the long-term development of the company. This shows that Li Ning has a strong strategy in the fundamental direction of corporate development.

Li Ning saw the nature of industry development earlier and more proactively planned its financial resources to adapt to the "brand-oriented" strategy.

As we all know, the cost issue is one of the key factors that determine the business model. China's sporting goods companies have made a lot of profits in the past decade. A large part of the reason is that they have relied on lower cost structures. Today, this kind of extensive business model is naturally facing huge challenges. Chinese sporting goods companies face two choices: one is to run from production to sales, save a lot of investment in branding and R&D, and provide basic products; the other is to enhance brand value, strengthen product development, and give consumption. Providers will provide better brand experience and quality products, gain greater pricing power, and thus cope with the pressure of increasing industrial costs. Li Ning chose the latter.

Different choices are closely related to the company’s own business model and long-term accumulation of experience and capabilities. However, in the process of domestic brand self-adjustment, how to adapt to the industry's general trend and transform with its own advantages is not an easy task. This may be the meaning of the “labor pain” that Li Ning talked about.

Some experts believe that Li Ning's need to shift from cost-driven to value-driven, brand-improved business models, will undoubtedly lay a solid foundation for the long-term stable development of Li Ning brand and eventually become an internationally renowned brand.

Advertising marketing promotion costs as a percentage of sales Source: Annual reports of various companies Adidas Nike China Trends Special steps 361 Anta Li Ning 2011 10.2% 11.7% Not yet published 11.3% 14.2% 9.5% 13.7% Not yet announced 2010 10.7% 12.4% 9.3% 11.7% 10.8% 9% 13.6% 15.1%

2009 9.9% 12.3% 7.4% 11.8% 11.3% 8.2% 12.7% 15.4%

2008 10.5% 12.4% 7.7% 9.1% 7.5% 6.4% 13.8% 17.5%

2007 13.4% 11.7% 6.5% 5.6% 8.6% 9.1% 11.7% 16.0%

2006 12.9%11.6%8.1%8.6%6.2%3.3%8.3%16.4%