Li-Ning holds a press event to launch a new line of sportswear. (Photo/Xinhua)
Burdened by high rents, excess stock, and the sluggish economy, domestic sporting goods brands in China such as Li-Ning, 361 Degrees, Anta and Peak are struggling.
"We believe that a business model which relies on wholesalers is causing a bottleneck. As a result, we are switching to retail-oriented operations," says Li-Ning spokesperson Li Wei.
Massive excess inventory is a serious problem for Li-Ning, one which has prompted the company to overhaul its sales model in the hope of finding a long-term solution. Under the new program, the company will move to a more flexible, quick-response model better suited to matching real-time demand, offer customers a unified brand experience at its outlets and improve supply chain efficiency, thereby cutting costs and the time it takes to get a product to market.
According to its financial statements, as of June 2012 the company was laden with warehoused inventory valued at 1.1 billion yuan (US$176 million).
Presently, the Beijing-based company operates a retailer to agent to factory sales model. For most items, it holds four order placement meetings a year, when sales agents place orders based on their judgment of market demand. When retailers are optimistic about demand, they increase orders, prompting factories to expand production. When real demand falls short of forecast demand warehouses overflow.
"Li-Ning holds four order placement meetings a year, requiring sales agents to order in bulk, which imposes heavy pressure on sales agents. Although prices for the advance order placement are lower, sales agents often have to use discounting to clear inventories in just a few weeks once the new products hit the market, even selling at a loss," says one agent.
As a result, many agents minimize their orders at those meetings, risking the need to later have to purchase spot goods at higher prices should demand exceed expectations.
"Placing orders in advance is still the mainstream business model in the sporting goods sector. However, we have to modify the mechanism in order to cut inventories of backed up due to the old model, and phase in the new model," says Li Wei.