Lining: Upward Pain

At the 1988 Seoul Olympic Games,

Triggered by a notice

At the 1988 Olympic Games in Seoul, the "Prince of gymnastics", who was highly regarded as "high hopes", made a mistake in the ring race, then landed in the vault and sat down on the ground.

After returning home, Lining suffered many people's eyes.

Now, Li Ning Co, who founded and became the largest local sports brand in China, has experienced a sharp decline in share prices and a continuous decline in investment banking in the past month.

For the prince with a grizzled hair on the temples, I do not know whether he will rethink the frustration of that year.

2010 was the 20th anniversary of Li Ning Co.

At the beginning of this year, Li Ning Co opened its first store in Portland in Nike's hometown of Portland. In March, it announced that it had successfully surpassed Adidas and jumped to the runner up of domestic sales in 2009. In the middle of the year, after a wave of publicity slogans and slogans were launched, it was signed that Evan Turner (NBA 2010) was going to have a perfect ending. Li Ning Co had suffered from the unprecedented capital market.

On Friday, December 17, 2010, Li Ning Co listed in Hong Kong regularly announced the second quarter of 2011, Lining.

In this regard, Li Ning Co CEO Zhang Zhiyong explained: "this year's sporting goods industry's retail environment has obviously encountered greater pressure.

On the one hand, the mode of excessive reliance on distributors to promote growth in the past has been unable to continue; on the other hand, the cost of retail operations is also rising rapidly.

Under such circumstances, the operation of the group's independent distributors is difficult to avoid, making their growth expectations for next year more conservative. "

But for the investment banks who used to see Li Ning Co's two digit or even more than 20% growth in the past few years, the news that there was no difference between them was specially read.

Even worse, on the same day, another 08032.HK, a listed Li Ning Co related company, also issued a notice, saying that the Hongkong stock exchange's gem listing committee ruled that the extraordinary China's acquisition of Li Ning Co's equity paction was anti takeover.

A sudden stock disaster began.

After a two day break on the weekend, in December 20, 2010, with the opening of the Hong Kong stock exchange, Li Ning Co's share price plummeted due to a sharp reduction in its trading volume, the lowest in the intraday market to HK $16.6, the lowest since May 2009.

Among them, J.P. Morgan bought 12 million 883 thousand shares at a price of HK $18.24 per share, while Li Ning Co's target share price dropped by 23%.

Big brokerages have also reduced Li Ning Co's investment rating from original "holding" to "selling": Deutsche Bank has lowered its target share price by 40% to 14.68 Hong Kong dollars, while Goldman Sachs has lowered its target price of 15% while pointing out that Lining has great problems in brand building. "Lining's brand positioning is between the global high-end brand and the domestic mass market brand. This kind of position without clear value and risk in the middle is risky."

"This has never happened before. It was the last time that Lining fell in the stock market or the resignation of CFO two years ago."

Sarah Xing, an analyst at Paris securities (Asia) Limited, recalls business week.

After the bloody day, Lining's share price plummeted 15.86%, closing at HK $17.88.

In the next few days, the selling tide is still surging.

In December 21st, JP Morgan continued to hold 9 million 774 thousand shares at HK $17.07 per share, and 10 million 699 thousand shares in second days, with an average price of HK $17.31 per share.

So far, JP Morgan's stake in Li Ning Co has shrunk to 11.77%.

The US capital group also sold 651 thousand shares at HK $17.26 per share in December 22nd.

Accompanied by rumors of Lining's closing shop.

It has been reported that Lining will close the store with poor performance and increase the sales revenue of single store to promote the growth of the company's performance. The market is expected to close to 500-600 stores.

"We did not expect the reaction of the capital market to be so intense, but we can not blame the financial investors."

Li Ning Co spokesman Zhang Xiaoyan called it "misread".

He recalled to business weekly that his phone was almost blown off in those days. In the face of inquiries from media reporters, he kept explaining: "Lining is not a closed shop but a low efficiency distributor."

In December 27th, Li Ning Co officially released the media clarification letter, saying, "one of the important measures is to integrate about 500 to 600 low efficiency distributors, which is two different concepts of closing stores".

Then, in December 30th, Zhang Zhiyong accepted the joint interview of two domestic financial newspapers, explaining the problems of "closing shop door" and Lining's ongoing brand remodeling and distribution channel reform.

Nevertheless, Li Ning Co's market value evaporated nearly HK $5 billion in 10 days.

As of the end of January 2011, Li Ning Co shares remained at a low level of around HK $15, the lowest since May 2009.

At the same time, other stocks listed on the sporting goods board in Hong Kong were also affected by Li Ning Co and fell to varying degrees.

Shop or shop?

Just as many founders such as Shi Yuzhu and Robin Li have publicly said "do not care about share price", the fall in share price does not mean that the enterprise itself is on the decline.

But there is no doubt that aside from the theory of "smash the conspiracy theory", a listed company whose share price has plummeted will have a lot of pain.

What is the problem of Li Ning Co?

As an important fuse for this round of stock price fall, Li Ning Co's second quarter 2011 orders will be held in mid November 2010 in Beijing.

At the subsequent analyst meeting, the company revealed that it would integrate the distribution channels in 2011, and plan to close 500 to 600 single stores, and increase the proportion of discount stores to 10%, while increasing the wholesale discount by 3 percentage points.

At that time, it was known as "following the remodeling of the brand, Lining is brewing a new round of reform", but soon became the direct source of Li Ning Co's "shut shop door".

"In fact, Li Ning Co's orders for the first quarter of 2011 will not be ideal."

Sarah Xing indicates.

According to the information released by Li Ning Co in September 28, 2010, the order amount calculated by the retail price tag increased by 12% over the same period last year.

Among them, the average retail price of footwear products rose by more than 7%, the number of orders increased by more than 5%, the average retail price of clothing products rose by more than 11%, and the number of orders increased by only about 1%.

"We usually have only 1 stores in the two or three tier cities.

With the intensification of competition in recent years, dealers at the same time are facing many pressures such as rising rent and their own distribution level. Li Ning Co has recently raised the price of products accordingly, and the drop in orders is also expected.

Zhang Xiaoyan explained to business weekly that based on the above reasons, Li Ningcai decided to integrate distribution channels.

Zhang Zhiyong said in an interview: "the whole Chinese sports apparel industry is beginning to encounter bottlenecks -- the way to increase sales through continuous shops is at the end."

Goldman Sachs estimates that in the past few years, the growth rate of China's sportswear shops has indeed slowed down, with an average growth of 80% in 2007 compared with the same period last year, compared with 18% in 2010.

This is because the sales growth rate of the same store is lagging behind that of other retail sectors, and the increase in rentals also leads to a decrease in profit margins.

Deutsche Bank also believes that 2011 will be the "year of adjustment" for the sports apparel industry, because the pace of traditional expansion driven by new stores has begun to slow down.

Over the past few years, it can be counted as the golden age of Chinese sportswear brand horse racing enclosure, including Lining, Anta, PEAK and many other Jinjiang sports brands are expanding their stores.

Zhang Xiaoyan disclosed that as of the end of 2010, the 7900 store plan set by Li Ning Co early this year has been realized.

According to the previous plan, the number of shops in the company will reach 1 by the end of 2013.

Anta currently has more than 7000 stores and plans to reach 1 stores by the end of 2011.

In addition, Nike and Adidas have announced plans to enter China's two or three tier cities in the next few years.

But Chen Shixin, the author of "Anta never stops," said: "the development mode of promoting sales growth by constantly opening stores is far from over."

In his view, the capacity of the high-end brand stores is between 8000 and 1, and the purchasing power of China's two or three line and even four line cities will increase some people's ability to afford mid-range sports products.

He said to Business Weekly: "China's sporting goods industry is not experiencing bottlenecks, but has entered a real stage of shuffling."

According to the plan, Li Ning Co will continue to expand sales channel coverage in the future, and promote the pformation of sales channel system, integrate some poor performance stores, and focus on improving sales channel influence, including the management and service capabilities of distributors, distributors and retail terminals, and strive to enhance store efficiency and retail market share.

But Chen Shixin did not approve of it.

He believes that there is limited space for the sale of single store sales, and the performance of stores can not be maintained at a higher level every year.

"Channel adjustment, optimization or integration is not new in the footwear industry, but regardless of the interests of distributors, it will likely lead to serious consequences without considering appropriate efforts."

In his view, the deep crisis that Lining may have at present lies in the formulation of business strategy.

In addition, it is worth noting that while the order quantity of Li Ning Co is decreasing, other sports brands are mostly optimistic.

At the end of December 2010, when Lining was deeply besieged, 01361.HK, President Ding Wu, excitedly announced the success of the order meeting on his personal micro-blog: the total amount of orders in the year of 31st 2011 increased by 23%, and the average selling price of clothing and footwear increased by 13% and 12% respectively.

When the average selling price of sports shoes and clothing increased by 5%, Anta (02020.HK) increased by more than 23% in the first quarter of 2011, and Anta CEO CEO even said, "Lining is not an opponent of Anta".

Tied to the Li Ning Co with only one of its close relatives is the Chinese trend led by general manager Chen Yihong, former Li Ning Co General of Beijing (03818.HK).

The volume of orders for China's first quarter and the second quarter of 2011 increased by 11.8% and 2.8% respectively, which is lower than the domestic industry and market expectations.

All major investment banks have also lowered the ratings of China's trend, even worse than Li Ning Co.

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Brand difficulties

In fact, as Anta directly crossed the Li Ning Co to target Nike and Adidas in the first camp, Li Ning Co has not seen the Jinjiang wolves behind them for a long time.

It is said that when Li Ning Co was listed in 2004, it set the target: "it takes 15 years to surpass Nike in the Chinese market and regain the throne."

This moment is almost ahead of schedule.

Thanks to Lining's "flying in the sky" at the opening ceremony of the 2008 Beijing Olympic Games, the Li Ning Co did not win the sponsorship business as a sponsor.

In 2009, the company's sales revenue reached 8 billion 387 million yuan, an increase of 25.4% over the same period last year.

In addition, Adidas overestimated the stimulation of Olympic marketing on market demand, and was struggling to cope with inventory pressure all through 2009. Li Ning Co successfully surpassed Adidas in the year and was also close to Nike.

But Lining management understands that the gap between Lining and Nike and Adi is not quantitative.

In June 30, 2010, the Li Ning Co officially launched the brand reform for 3 years: a new higgled new LOGO, which was abstracted from the pommel movement "Lining crossover", instead of a symbol that has long been considered to be similar to Nike. A brand new slogan, "Make The Change", which is easy to be associated with Obama, has replaced the "Everything is possible" similar to Adidas slogan.

"You see, Starbucks has changed 4 times in its 40 year history, and this is the first time we have been in 20 years."

Zhang Xiaoyan sat in Starbucks, pointing to the Starbucks LOGO cup and laughing to reporters.

Although the new logo and new slogans are still not seen by some people after they are released, he said: "we must remain steadfast."

Lining's bigger change is positioning.

This brand of consumers has always been biased towards the middle and old age groups after 60 and 70, and the company aims directly at the younger generation after 90.

Regarding this, Trout (China) partner Xie Weishan told business weekly: "Lining is very dangerous in this move. Enterprises can not think of problems from inside to outside, but should follow the customers' mind and cognition. Otherwise, it is very likely to pick up sesame and lose the watermelon."

Li Ning Co has been trying to get into the high-end ambitions for many years, and it has been magnified by this bid change. The most intuitive manifestation of high-end is price.

According to Zhang Xiaoyan, "we expect more value consumers, not price consumers".

From 2000 to 2004, the average price of shoes made by Lining brand was 150 - 250 yuan, and now it is over 350 yuan.

"It could be worse before he gets better."

In its report, Goldman Sachs pointed out that Lining was positioning "ambitious" and believed that Li Ning Co's strategy of concentrating on developing the first tier cities would lead to the loss of the share of the two or three tier cities.

Al Chis, the "father of location," has proposed to Lining: "for Lining, a better strategy is to have two brands: a high-end, a low end" Al Ries.

High end brands can compete with Nike and Adidas on the global market, and low-end brands can compete with other local brands in the Chinese market.

From the perspective of brand layout, Li Ning Co is indeed the first attempt of multi brand operation. In those years, the Italy sports brand KAPPA was chosen, and then the French outdoor brand "AIGLE" was introduced, and the "brand new" (Z-DO) was created by itself. The Italy brand "Lotto" was introduced to acquire the sports equipment dealer red double happiness and sports equipment maker Kaisheng.

At the same time, the company also subdivided the Lining brand, cut into children's sporting goods and sports life, and became a flagship of multi brand and multi category sporting goods.

But the move has not yet achieved much effect.

In January 17, 2011, the Li Ning Co released the 2010 performance forecast announcement, claiming that its gross gross profit margin and net profit margin in 2010 were the same as those in 2009.

However, due to changes in the market environment, Li Ning Co's other brands (including red double happiness, Lotto, Z-DO, AIGLE and Kaisheng) together with low revenue growth will affect Li Ning Co annual overall sales revenue growth.

Li Ning Co expects that the proportion of other brands in the company's total sales revenue in 2010 is equivalent to that in 2009.

Like Lenovo's bid, Li Ning Co's bid change also implies an international strategy.

In addition to the establishment of the design and Research Center in Oregon in 2007 and the opening of the first Lining experience store in early 2010, in August 2010, Lining also cooperated with Champs, the largest sports brand operator in the United States, to sell Lining sports shoes on the west coast.

According to Zhang Zhiyong, Li Ning Co will invest $10 million in 2011, and further expand the US market by working with Acquity Group LLC, a brand consultancy in Chicago.

Unlike in the past, this investment will be used in the development of e-commerce market.

"Expanding the US market through e-commerce is a creative move, or it can achieve 42 wonders."

Sports brand observer Ma Gang analyzed business weekly. Li Ning Co can gradually test the US market through e-commerce, and the result may be better than opening stores.

However, far from the water, Lining group's current online retail business accounted for just over 1% of the total revenue, and overseas business accounted for 1% of the total revenue of Lining.

For those Li Ning Co who want to enter the top five of the international sports brand in 2018, the road to internationalization is still a long way to go.

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The confusion of capital operation

In addition to being in trouble with channels and brands, there is another important reason for Lining's share price diving, that is, the paction of the 30.9% stake in China's acquisition of Li Ning Co has not been approved by the Hongkong stock exchange's GEM Listing Committee.

It has nothing to do with the Li Ning Co on the surface. It is only related to Lining himself. But for a company that uses the founder's name as a brand, his every move will inevitably implicate the fate of the company.

In April 12, 2010, the Hong Kong Equity Growth Enterprise (08032.HK) announced that it would issue 5 billion 479 million preferred shares and a HK $300 million convertible bond to a BVI (British Virgin Islands) Company Lead Ahead at a price of HK $0.073 / share, and two subscriptions totaling HK $700 million, accounting for 80% of the energy saving.

Lining and his brother Li Jin have 60% and 40% stake in Lead Ahead respectively.

Happy energy saving, originally known as "Greater China Technology", is a major Chinese and Western medicine distribution and green energy enterprise. Its performance loss has been around for about 0.1 Hong Kong dollars for a long time.

Happy energy saving said that after the subscription was completed, Lining's relationship network would be used to continue to develop the company's existing green energy business, while diversifying other businesses, including sports related businesses, except sportswear, shoes and equipment business.

"This is the personal investment behavior of Lining and his two brothers. The Li Ning Co still focuses on the sporting goods market."

Zhang Xiaoyan explained to reporters at that time.

He stressed that Lining brothers intends to expand business in the fast energy saving company will not overlap with the scope of Li Ning Co operation. The two will not constitute any conflict of interest, nor will they form a competition relationship.

In June 3, 2010, Lining was appointed as the new chairman with quick energy saving.

In August 31st, happy energy saving announced three pactions: buying 30.9% stake in Li Ning Co with fast energy saving new shares and convertible notes; purchasing 400 million yuan for China Sports Holding Co., Ltd., which is engaged in sports promotion business, and buying Shenyang real estate project for 700 million yuan.

Through the acquisition, the energy saving will have 99% rights and interests of Shenyang trillion yuan industrial park and 100% of Shenyang trillion real estate investment. It will have the right to develop and manage the first phase of the construction of the industrial park in the Shenyang Development Zone and the development of chesspan mountain land.

In the announcement, there is also a city reconstruction project called "Shenyang eco city", which is estimated to occupy an area of 1 million square meters.

Lining said in a subsequent press conference that the project involved 40 billion yuan of funds for a period of 5 to 8 years.

He acknowledged that the reorganization mainly embodied his determination to develop "big sports" and set up a more flexible holding platform.

In the face of doubts about the Li Ning Co's entry into the real estate business, Lining explained that in the face of fierce market competition, Li Ning Co needs a broader development platform and larger development space. The ultimate goal is to develop sports industry in China rather than simply sporting goods.

In November 24, 2010, after the successful acquisition of the extraordinary China, "happy energy saving" was renamed "extraordinary China".

But its acquisition of Li Ning Co is not going well.

Because once China has a 30.9% stake in Li Ning Co, it is a major shareholder, and the company that has just injected sports assets is clearly unable to swallow the elephant.

The acquisition was finally ruled out by the Hongkong stock exchange.

The Chinese side said that at present, the company is trying to promote acquisitions through other ways.

One theory is that if the relevant land assets are purchased smoothly, the assets will grow rapidly and the acquisition of Li Ning Co will become possible.

But for the Li Ning Co, the main business is not in existence. How will Mao be attached? When Lining sat heavily on the ground at the Seoul Olympics, he immediately stood up and smiled to show how quickly the Li Ning Co would get up.