Li-Ning’s stock price has plummeted once again. Over the past year, Li-Ning’s market value evaporated by over 150 billion yuan. This downturn is attributed to declining profitability and a collapse in consumer reputation. In 2022, Li-Ning’s net profit growth was a mere 1.3%, a significant decrease from the previous year. Recently, Li-Ning released its third-quarter financial report for this year, showing revenue of 14 billion yuan, up by 13%. At first glance, this seems promising. However, when considering the net profit of 2.112 billion yuan, it represents a 3.11% decline compared to the same period last year. Additionally, Li-Ning’s popularity among the general public is also deteriorating, often associated with expressions of defeat. Previously, people lamented not having the money to purchase Li-Ning products; now, the sentiment remains, compounded by a controversial fashion show last year that further damaged its public image. How did Li Ning rise to fame, and how did Li-Ning gradually lose its appeal to the masses?
Li Ning
Let’s rewind to 1982 in former Yugoslavia, where a 19-year-old Chinese lad, Li Ning, clinched six gold medals and one bronze medal, hailed by media as a godly presence in gymnastics, considering there were only seven events in men’s gymnastics at the World Cup. Over his 15-year career, Li Ning amassed 106 gold medals in domestic and international competitions, including eight world championships. In gymnastics, it’s customary to name highly difficult moves after the first athlete to perform them successfully. Hence, we have moves such as the “Li Ning” on the rings, “Li Ning swings” on the parallel bars, and the “Li Ning loop.” However, genius often fades amidst melancholy; at the 1988 Seoul Olympics, Li Ning faced setbacks on the rings and fell during the vault, leading to his retirement that year with his reputation besmirched.
JianLibao Group
Yet, the athletic genius Li Ning was preparing to transition into a brilliant businessman. You might think he immediately set out to establish the Li-Ning brand, but instead, he joined his friend Li Jingwei’s company as an assistant general manager. Li Jingwei, also the founder of Jianlibao Group, recognized Li Ning’s business acumen, which, coupled with his athletic experience, prompted him to suggest that Li Ning start a sports brand. Thus, the Li-Ning sportswear and footwear brand was born, initially lacking in recognition despite the athlete’s fame, primarily due to a lack of advertising. Recalling Jianlibao Group’s early struggles and subsequent fame through sports event sponsorships, Li Ning adopted a similar strategy. Investing over 2 million yuan, he secured the sponsorship rights for the 1990 Asian Games. In August 1990, dressed in Li-Ning apparel, he received the Asian Games torch on the Tibetan Plateau, marking a pivotal moment broadcast to millions, skyrocketing the factory’s orders to 15 million yuan in a single month. Tasting success, Li-Ning continued to sponsor various sports events, including the Olympics from Barcelona in 1992 to Athens in 2004, culminating in a memorable moment during the 2008 Beijing Olympics when Li Ning lit the Olympic torch, deeply moving many. Through strategic sponsorships, Li-Ning significantly increased its brand exposure, and sales, and embarked on an aggressive expansion of offline stores, opening over a thousand new outlets in a single year.
By 2011, Li-Ning had reached a total of 8,255 directly operated and franchised stores. Magazine reports indicated that, by then, Li-Ning’s footwear was in such high demand that factory shipments could be directly transferred by dealers without even needing to unload at the warehouse. However, a crisis also emerged in 2008 with the outbreak of the financial crisis, leading to a reduction in consumer enthusiasm and a buildup of unsold Li-Ning products. From 2012 to 2014, due to inventory clearance efforts, Li-Ning reported a total loss of 3.152 billion yuan, with rumours of a broken capital chain circulating. In these challenging times, Li-Ning made a risky decision to pursue a premiumization strategy. Despite the inventory backlog and insufficient product development, the brand announced three price increases and changed its slogan from “Anything is Possible” to “Let the Change Happen,” aiming to reposition itself as a mid-to-high-end product. The result, as can be anticipated, was a failure.
In the second quarter of 2011, within an industry that saw overall market growth of nearly 20%, Li-Ning’s order growth stagnated at zero, and its stock price plummeted by 23% in a single day. The attempt to enter the mid-to-high-end market was unsuccessful, and the low-end market was captured by Anta and 361 Degrees. However, Li-Ning had no choice but to double down on product innovation and creativity. A turning point came in February 2018 when Li-Ning first participated in New York Fashion Week. The show was highlighted by the use of Chinese red and Chinese elements, significantly improving Li-Ning’s image from being perceived as outdated and unsophisticated to fashionable and modern. Following this event, Li-Ning signed various sports stars and launched new series, such as “Wudao” and “Way of Wade.”
Li-Ning’s second peak occurred in March 2021, following a statement by Swedish fashion company H&M announcing it would no longer work with any garment manufacturing plant in Xinjiang or source products or raw materials from the region. This statement stirred considerable controversy, and Chinese brands, including Li-Ning, experienced a surge in popularity. Attentive consumers quickly dubbed Li-Ning a “national pride” brand, leading to explosive sales. That year, Li-Ning’s revenue growth soared by 56%, with net profits increasing by more than 100%. However, this success was short-lived, as just a year later, Li-Ning faced a significant decline in reputation and stock prices.
The primary reason for Li-Ning’s decline in reputation was that its fashion sense became controversial. Initially, Li-Ning gained popularity with designs featuring Chinese red, among others. However, some of its later designs sparked significant backlash. In September 2021, Li-Ning staged a runway show at an airport in Hubei where models walked down from an aeroplane. The event was innovative at first, but controversy erupted over a few cotton garments featuring large hood designs in military green, reminiscent of Japanese army caps during the invasion of China. These peculiar designs led to widespread mockery. Subsequent revelations that Li-Ning’s CEO, Qiang Wei, is a Japanese national of Chinese descent further fueled the controversy.
At this point, a simple apology from the company acknowledging the designer’s mistake and lack of rigorous review could have sufficed to mitigate the situation. However, Li-Ning’s response was counterproductive. The General Manager of Li-Ning’s e-commerce department commented on the matter, suggesting that consumers lacked an understanding and appreciation of Chinese culture and heritage, implying the issue was due to consumers’ ignorance. This approach was seen as a public relations disaster, as it not only failed to address the design concerns but also insulted the consumer base. The backlash was immediate, with Li-Ning’s stock price dropping by 13% on the day of the outcry.
Li-Ning’s public image suffered not just from this incident but also from its association with Xiao Zhan, a Chinese actor and singer, in March 2021. The announcement of Xiao Zhan as a global ambassador for Li-Ning was met with immediate boycott calls on social media, as he had recently been involved in a major controversy. This incident, too, tarnished Li-Ning’s brand, although it didn’t fundamentally shake the company’s foundation, as controversies involving brand ambassadors are not uncommon.
Price is another factor that has alienated consumers from Li-Ning. For instance, the Way of Wade 4 All-Star silver-white sneakers were resold for as high as 48,000 yuan, a 31-fold increase over the retail price of less than 1,500 yuan, due to their limited edition status. Li-Ning’s response was to distance itself from the sneaker resale market and implement measures to prevent price speculation. However, its move towards premium pricing, as seen in the 2021 Li-Ning 1990 series, with prices 1.3 to 1.5 times higher than usual, has also been met with resistance. The pricing of sportswear and down jackets, for instance, was seen as prohibitively expensive by many consumers, leading to comments about Li-Ning being more expensive than international brands like Nike.
Quality concerns have also plagued Li-Ning. Social media platforms have seen numerous consumers sharing their poor experiences with Li-Ning products. A notable incident occurred during the 2021 National Sports Games, where badminton player Chen Yufei was injured by her Li-Ning shoes, highlighting quality issues. Despite Li-Ning’s high point in 2021, driven by a surge in national pride, its success was short-lived. The company’s strategy of increasing prices while clearing inventory has led to a contradiction in its brand image.
Chinese consumers, generally receptive and supportive of brands that exhibit corporate conscience and national identity, have shown they will not easily abandon such brands. However, they also demand rational reasons for their loyalty. Brands must continually justify why they are worth the investment, a challenge that Li-Ning faces today amidst its efforts to navigate consumer expectations and market dynamics.