Li Ning, a sports brand, faced external problems, and dealer distributors competed fiercely

What happened to Li Ning?

In six months, Li Ning’s shareholders experienced two sudden jumps. One time was due to the decline in orders at the end of 2010. Li Ning’s market value shrank sharply; on May 24, Li Ning’s stock price fell by 8%.

The direct cause of the decline was the turmoil in personnel. On May 24, Li Ning left two senior executives and a middle management. The two executives were Li Ning vice president and chief market official Shi Wei, vice president and chief operating officer Guo Jianxin. Another middle-level executive is E-commerce. Director Lin Hao.

Although Li Ning Company affirmed that the three people left for personal reasons, belonging to normal personnel changes, the company has enough talent reserves to continue to carry out their work, but from the perspective of the qualifications and background of the three people, things may not be so simple.

Guo Jianxin and Fang Shiwei are members of Li Ning’s seven-member executive committee, and are the main executors of the brand transformation and channel transformation that Li Ning launched last year. Fang Shiwei joined Li Ning in 2007 and is mainly responsible for Li Ning’s brand marketing and communications, while Guo Jianxin has been working in Li Ning. For 14 years, he is responsible for the overall operating system and manages the Li Ning brand and operating system. Lin Hao led Li Ning's official online shopping mall and Other projects that Li Ning cooperated with IBM. Now that the reforms are in the middle of the moment, they have gone to India and placed them in any company. The departure of such core executives is unusual.

The resignations of Guo Jianxin and Fang Shiwei were submitted in April and May successively. Now Guo Jianxin’s work is taken over by CEO Zhang Zhiyong. Fang Shiwei’s work is taken over by Chen Ji’an, former general manager of strategic marketing. Before leaving the company, their power has been weakened. Li Xiaoning, director of public relations Zhang Xiaoyan, said that after Li Ning changed the original branch structure into three relatively independent units in the north, east, and south, some of the functions originally assigned by Guo Jianxin and Fang Shiwei were also delegated to the heads of the region. The latter could Independently determine the targeted promotion strategy in the region. The leaders of the region come from the headquarters sales team led by Guo Jianxin in the past.

The reinvention of the Li Ning brand and the channel transformation that began in June 2010 are clearly undergoing severe tests. It wants to become younger and more fashionable, becoming a "post-90s Li Ning," gaining a higher brand premium and seizing 14 to 25-year-old consumer groups instead of the 40-year-old middle-aged people originally attracted; The channel reform is a tactical reform. Li Ning CEO Zhang Zhiyong said in his 2010 annual report that "in the past, the use of distributors to speed up the store's growth model was unsustainable," and "to increase retail efficiency and increase same-store growth."

Li Ning’s other staff who had left recently speculated that it is possible that Li Ning’s need to implement this strategy is more suitable for candidates. This time the departure of executives may be just the beginning. Zhang Zhiyong estimated in an interview in December 2010 that this is a reform that will last for at least two years.

It seems that Li Ning chose the right path, but the method of implementation it chose was quite radical. Moreover, it chose a time before the interception and after the interception. It is highly probable that in the process of change, there have been major differences between the two former executives and Zhang Zhiyong.

In the channel reform, Li Ning chose to make the most powerful group of 129 large dealers to acquire those who had a low monthly income in a single shop, or to allow these splurgeers to eat small fish. This means that the weakest 1/3 of distributors are either acquired by large distributors or changed to court. For the latter, Li Ning ceased the delivery of the contract when it expired.

This impact on Li Ning is too great. Among the small and medium-sized distributors with more than 2,000 of them, most of them are relatively small in scale. They operate an average of two stores and more than 1,700 distributors only operate one store. But it is they that helped Li Ning surpass Adidas to become the second child in the Chinese market. These stores quickly spread their tentacles to places that are not reachable by large-scale dealers. They are even more resourceful to get the best stores on the third and fourth-tier markets.

However, these distributors are mostly self-employed and do not have professional storefront retail management systems and experience. This is a somewhat outdated growth in the sporting goods market today. At least Li Ning needs more dynamic terminal stores to drive same-store growth.

Li Ning is favored by large dealers who have been closely linked in the past. Headquartered in Harbin, the distributor Shenger Sports was the first to initiate the channel reform for Li Ning. Shenge Sports received a portion of Li Ning shops transferred from other dealers and acquired some distributors in the past three or four tier cities, such as Jiamusi. Li Ning store.

For large distributors, the reforms can be scaled up to facilitate their unified promotion of big promotions to boost sales. In April 2010, there were 77 Li Ning audiences at Shen Ge Sports, who had a full discount: 7% off on Li Ning stores in Category A, 5 to 7% off in Classes B and C, and as low as 30% off in factory stores.

However, it is very easy to bring pressure to the original Li Ning store in the same area and exacerbate competition. Because large distributors can get lower discounts, this allows them to compete with local distributors at lower prices.

After the reform was implemented six months later, on December 20, 2010, Li Ning’s stock price plunged by nearly 16%, and its market value evaporated HK$3.5 billion in one day. The direct reason is that due to product price increase and some distributors' dissatisfaction with the reform policies after channel adjustment, Li Ning’s order amount decreased by approximately 6% in the second quarter of 2011 from the same period of last year. While the opponents performed well during the same period, the amount of orders for 361 degrees in the spring of 2011 increased by 23%.

In the 2010 annual report released in March, Li Ning also said that in the third quarter of 2011, the ordering meeting, due to channel reforms and the improvement of the retail environment will still take some time, it is expected that the growth rate of orders will not be higher than the first two quarters. It also expects that in 2011, due to wholesale discount policies and rising production costs, the gross profit margin was unchanged from that in 2010, which was 1 percentage point lower than in 2009.

Contradiction such as this, let Li Ning's same-store sales growth rate rise instead of falling. Its 2010 third quarter report showed that the brand same-store sales growth slowed down to 4% in 2010. Same-store sales growth in the first and first half of the year was 5% and 4.6% respectively.

Moreover, for small and medium-sized dealers, in addition to conservative orders, another option is increasingly attractive to them: change the court. The gap between domestic brands such as Anta and 361 Degrees and Li Ning is narrowing. Li Ning’s 2010 performance report shows that the company’s total revenue was 9.475 trillion yuan, while Anta’s revenue for 2010 was 7.41 billion yuan, which was higher than Li Ning’s growth of 26.1%. In terms of net profit, Anta achieved 24% growth, reaching 1.551 billion yuan, which exceeded Li Ning's 1.108 billion yuan. In this case, Li Ning’s change policy is tantamount to sending distributors to opponents.

Moreover, old rivals Nike and Adidas are also pushing channels to sink deeper into the three-tier market that used to be the Li Ning headquarters. Among them, Adidas has recovered from the 2009 inventory crisis. Its first quarter 2011 financial report shows that Adidas' global revenue increased by 18% year-on-year, and Greater China sales revenue increased by 36% in the first quarter. The once-overdue company is also undergoing channel reforms. In addition to the existing large distributors, it has set up a special group to divide the mainland market into five regions, each of which has a dedicated channel investigation department. Needless to say, those markets that have reached a certain level of per capita disposable income but have not yet been developed will have new markets open there.

It is not difficult to imagine the pressure Zhang Zhiyong is facing at the moment. He also seems to be fighting for more time for reforms. In a recent interview with the media, he said that to upgrade the Li Ning brand to a new platform, "it takes three years."