Li-Ning: where did it all go wrong?

Li Ning, the Chinese sportswear brand whose meteoric rise once epitomized China’s own economic ascent, said today it expects to post its third straight full-year loss, as it grapples with a restructuring, bloated inventories and slowing demand following the 2008 Olympics.

Li Ning, which is backed by private equity powerhouse TPG Capital and Singapore wealth fund GIC, forecast a net loss of up to 820 million yuan ($132 million) for 2014 due in part to costs related to its transformation plans.

Founded by the Olympic gold medal gymnast of the same name, Li Ning was China’s first homegrown sports brand that stood a chance competing internationally. During the 2008 Beijing Olympics, Li Ning stole the show from Adidas and went on to compete with Nike and other western sportswear makers on their home turfs. It was also the first Chinese sportswear brand to list in Hong Kong.

Today, the company is saddled with high levels of debts and is facing intense competition from Adidas and Nike, as well as up-and-coming domestic upstarts like ANTA Sports Products. The company’s turnaround plan has it refocusing on the Chinese market and on basketball. Yet industry watchers say the company’s strategy may still be straying too far from what originally worked.

So where did it all go wrong? How did it get trapped in this dilemma?

Over-expansion

For a start, the hubris sparked by that iconic Olympic image – which catapulted Li Ning into the global consciousness, to the ire of Olympic sponsor Adidas – gave the company a false sense of security. Sales were booming, the share price spiked and, not content with being the number one sportswear firm in China, the company decided to take on Nike in its own heartland of Portland, Oregon.

That was perhaps its biggest mistake to date. As one New York-based retail expert memorably said about the U.S., “You could break into Fort Knox more easily than break into the basketball market”. Western firms often struggle when attempting to crack the China market, and so did Li-Ning in its attempts to globalize.

Re-branding

Secondly, its branding makeover had questionable upside and was very possibly damaging to the company. Li-Ning’s original logo was widely thought to be too similar to the Nike swoosh – no bad thing in the China market where copycats are expected and accepted in equal measure. It’s not clear if Nike ever threatened to sue, either in China or in the U.S., but a change was made and the new logo now resembles a cross between those of Anta, Kbird and Kinglike – three other Chinese sportswear brands. Meanwhile, the company’s English slogan “Anything is Possible” was launched in 2002 – two years before Adidas rolled out “Impossible is Nothing” – but the company unfairly took more hits for plagiarism and was forced to “Make the Change.”

Cognitive errors

Thirdly, the company failed to realize that China is less of one huge market and more of a conglomeration of many smaller ones. What worked in second and third-tier cities, namely affordable clothing and practical footwear, couldn’t simply be translated to the top-tier cities, like Beijing and Shanghai. Why would China’s most mature consumers want to wear clothes seen as cheap and provincial? The company attempted to relaunch itself as a premium brand, but when prices became comparable to Nike and Adidas – with little discernible increase in quality – the foreign cool factor won out every time in the big cities, while consumers in the smaller cities instead turned towards cheaper, local brands like Peak and 361°. Once again, hubris had got the better of the company.

Other players in China’s sportswear market have had difficulties, but with Li-Ning losing sight of its key demographic, the company has suffered more than most. Beijing’s Olympic flame has long since been snuffed, but Li-Ning must try to rekindle its fire.

Original title by Quartz: China’s formerly high-flying sportswear maker is a long way from a rebound

Forbes: Chinese Sportswear Brand Li-Ning's Long Road To Redemption