Li Ning returns to save his ailing company

(Ecns.cn)--Former gymnast Li Ning has resumed leadership of the sporting goods company that bears his name. It remains to be seen if he will be able to rescue it from gloomy stock prices, overstocked products and declining profits.

Li Ning Company Limited is also struggling to retain key employees who are abandoning what may be a sinking ship: its CEO, Zhang Zhiyong, resigned on July 5 following a continuous slump in sales, for example.

According to Zhang Qing, a public relations and brand asset manager, the company may have lured senior managers from foreign companies such as P&G, Coca-Cola and Mead Johnson Nutrition, but many of them have already left.

In 2011, Fang Shiwei (CMO), Guo Jianxin (COO), Xu Maochun (CPO) and Zhang Xiaoyan (Dept of Government and Public Affairs) all left the company.

Fang Shiwei was a particularly conspicuous figure. His branding strategy, which tried to focus on the post-90s generation, not only hurt sales to the company's regular customers but also failed to attract many youngsters.

After Fang's plan was implemented in July 2010, Li Ning's stock price dropped to a six-year low from HK$32 to less than HK$5.

Li Ning's decline began last year, when it realized revenue of 8.9 billion yuan, down by 5.8 percent from 2010. Net profit dropped by 65 percent from 1.1 billion yuan to a mere 400 million yuan.

The company initially grew by producing basketball uniforms, but it expanded to fields such as badminton and table tennis, a move that "increased costs in personnel and materials, which has been a big problem," says a senior manager.

"Looking back, the company's fast growth was largely due to China's rapid economic development in general, so many problems were ignored," says another senior manager.

With internal troubles yet to be eliminated, Li Ning also faces challenges from other domestic and foreign companies.

Anta and Peak, two big Chinese sports brands, have already made their reputations abroad by sponsoring the Continental Basketball Association, a golden opportunity that Li Ning missed.

Recent statistics show that Li Ning is the worst performer among the five sports companies listed on the Hong Kong Stock Exchange.

In an effort to reverse the downturn, last January the company signed deals with two investors—TPG Capital (a U.S. private equity group) and the Government of Singapore Investment Corp (GIC).

TPG and GIC claim to have respectively bought 561 million yuan and 189 million yuan worth of convertible bonds in Li Ning. If converted, TPG would hold a 12 percent stake in the company's equity.

TPG has also put one of its partners at the helm of Li Ning. Kim Jin-gong, a Korean-American, is a Harvard graduate who once worked for Dell and McKinsey before joining TPG in 2006.

Kim was appointed executive vice-chairman to lead the company alongside its eponymous founder on July 3.

Kim told the Financial Times that "TPG's investment in Li Ning is long-term because the turnaround will be a multi-year effort. We will inject more capital into the company if necessary."

However, analysts are skeptical of TPG's ability to improve operations at Li Ning, even though Kim once led a turnaround at Daphne, which TPG also invested in. The company's share price rose fivefold and sales increased 50 percent while he was there from 2009 to 2011.

"Daphne's performance improved a lot while Mr. Kim was there, but that's mainly to do with the economy improving after the global financial crisis. Actual changes to its operations were not very significant," says Alfred Ying, a senior consumer analyst at Piper Jaffray.