After enduring months of sliding sales, losses of market share and declining investor confidence at Li-Ning, the CEO of China's most famous athletic brand has resigned. Taking his place: the brand's founder and China's Olympic icon, Li Ning himself.
But does the gymnast turned entrepreneur still have the flexibility to bend his eponymous brand back into shape? And what does this mean for Li-Ning's global expansion aspirations?
Clearly, something had to be done. Following the 2008 Beijing Olympic Games, Li-Ning, whose founder spectacularly opened the ceremonies, seemed destined to become a globally dominant sportswear label. Sales rose. Grand expansion plans were laid to take America and other markets.
Last year, however, Li-Ning's net profit was down a crippling 65 percent. And the company just revealed in a presentation to investors that it expects this year's profits to be even worse. Li-Ning's share price, after halving over the last year, was down another 20 percent in 2012.
Li-Ning's share price was up 6 percent following the announcement, reaching a trading high of HK$5.20. A day later though, the gains were far more modest with the stock hovering on the Hong Kong Stock Exchange at around HK$4.88.
Li Ning will not be alone running Li-Ning as it searches for a new CEO and a new direction. TPG Capital, the American equity fund that bought a chunk of the brand, has appointed one of its managing directors to help the gymnast turn his namesake brand around.
Details on exactly how that will be done are unclear. But one hint is that the brand will stop focusing so much attention outside China in favoring of shoring up its domestic sales, which have suffered lately. The Wall Street Journal noted that Li Ning said that the brand would focus "on the Chinese market and will only look at partnerships in overseas markets." A change of pace since its 2011 rebrand that aimed at conquering the globe.
In the US, Li-Ning has already drastically scaled back its operations and retooled its entire strategy, aiming at online only sales. In May, the brand's U.S. VP of marketing, sales, and merchandising told brandchannel, "Our sales have met our expectations and the growth of our community of followers via our social medium platforms has trended ahead of forecasts. We're very pleased with the market penetration we've made to date."
That market penetration includes digging up unique sponsorships and opportunities as opposed to opening fire with a spending blunderbuss. The brand recently partnered with Red Bull for the Kings of the Rock tournament, sponsored the Battle for Ohio baseball game and designed the jerseys, and is the official sportswear brand of USA's gold medal hopeful, triple jumper Christian Taylor.
As if on cue, as the news of the Li-Ning shakeup hit, rehabbing NBA star — and Li-Ning spokesman — Evan Turner tweeted:
At the same time, "third fastest man in history" Jamaican sprinter Asafa Powell also tweeted his Li-Ning love:
Li-Ning's prospects — Barclay's grimly observed that the brand's stock is trading 23 times greater than its 2012 earnings targets — are compounded by a slowdown in China's overall athletic market.
After growing 30 percent in 2008 and 20 percent in 2010, the market contracted to grow just 13 percent in 2011. Also, Li-Ning may see a bump from China's participation in London next month, but it will not compare to 2008. Throw in increased competition from growing Chinese brands like Peak and more foreign brands (Nike, Adidas) and it's not surprising that Li-Ning warned that even with a turnaround, it could be 2015 before the company's earnings rise again.
But then, every sports fan loves a good comeback story.