Li Ning getting leaner, meaner, firm says

Customers make purchases at a Li Ning Co Ltd store in Xuchang, Henan province. The share of the company's subsidiaries in retail revenue grew from 21 percent in 2011 to 35 percent in 2013. Geng Guoqing / For China Daily

Sportswear company Li Ning Co Ltd saw improvements in its operations in 2013. But the company needs more time to report concrete results, its management team said.

The Chinese sportswear maker, named after the iconic gymnast who established the brand, reported a net loss of 392 million yuan ($63.7 million) for 2013 on Monday. That figure narrowed by 80 percent its 2012 loss, which totaled 1.979 billion yuan. Meanwhile, its gross profit rose slightly from 2012's 2.514 billion yuan to 2.594 billion yuan in 2013.

Li Ning's operating cash flow also "substantially improved to near break even", compared with 932 million yuan net operating cash outflow in 2012, said the athletic footwear maker's annual report, published on the Hong Kong stock exchange.

But the group saw a 12.8 percent decline in revenue for the year, from 6.676 billion yuan in 2012 to 5.824 billion yuan last year. That was because of "sell-in reductions, inventory clearance and optimization of store network", said the report.

"Our first-phase turnaround is nearly complete, with encouraging core trends, but a little more time is needed to resolve the last group of weaker channel partners and the final batch of old products," Li Ning, executive chairman of the company, told a media briefing.

Li added that it will take 18 to 24 months for the sportswear company to digest the problems as well as to shift its focus to building a network of more direct-retail and self-owned shops.

"Because the transformation is ongoing, our focus at this stage is on a healthy growth rate of the share of new products in the inventory," said Kim Jin-goon, executive vice-chairman and interim CEO.

According to Kim, Li Ning's inventory turnover has declined from the more than eight months it was two years ago to fewer than seven months by the end of February this year. The share of new products had grown to 38 percent by the end of February from 27 percent a year ago.

While the total number of stores dropped from 8,255 in 2011 to 5,915 by the end of 2013, the share of the company's subsidiaries in retail revenue grew from 21 percent in 2011 to 35 percent in 2013.

Apart from restructuring the retail network and tipping the scale toward new products, Li said the company also is investing heavily in innovation and branding.

According to Kim, the company cut operating costs by 2 billion yuan in 2013 and invested 637 million yuan into marketing, nurturing talent and expanding self-owned retail channels.

"We are repositioning the brand to offer the best value-price equilibrium to take the lead in the mid-end market and target a growing number of middle-class consumers," Li said, adding that the company is focused on the five most popular sports in China: basketball, running, badminton, training and sports life. "We intend to be the No 1 or 2 in each of these areas."

Li Ning getting leaner, meaner, firm says

"Homogeneity is in the products and the business model. Some of the sportswear makers are very capable of copying popular designs because they have a strong background in manufacturing," he said. "But the consumers now are seeking experience, which makes the business more complicated. We believe Chinese consumers will demand more functional products because more people are taking part in all kinds of sports."

Li Ning's improved results, achieved through its direct retail sales, inventory digestion and transition from a wholesale model to retail sales contributed to its narrowing loss, said Zhang Qing, founder and CEO of Beijing Key-Solution Sports Consulting Co Ltd.

He said that the fact that one-third of its retail sales are direct sales improves its channel efficiency and fast response to customers' needs. Its focus on basketball, running and women's sports shoes also put the brand back on track.

He added that after being sandwiched awkwardly between high-end international brands and low-end domestic brands, Li Ning now must develop premium products at reasonable prices in order to compete with its rivals.

The uptrend of domestic brands, led by Anta and Li Ning, does not mean the return of all Chinese brands.