Li Ning's closure of its only branch in Hong Kong is part of a larger closure of 1,200 stores across China, representing 15% of its total outlets. (Photo/Xinhua)
The recent closure of the Hong Kong outlet of Li Ning, a Chinese sporting goods company founded by the country's gymnast of the same name, highlights the difficult challenges facing the company as Li returns to the helm of the company, Guangzhou's 21st Century Business Herald reports.
On Sept. 12, the company confirmed that its only store in Hong Kong, opened in October 2009, had been closed as part of its plan to refocus on the Chinese mainland market.
When the Hong Kong store opened under the tenure of former CEO Zhang Zhiyong, the company was aiming to become one of the top five global sporting brands by 2018.
However, the company did not see significant growth in revenue from overseas operations, which only contributed 1.4% to its overall income in 2010 and 1.9% in 2011, the newspaper said.
The closure of Li Ning's Hong Kong store is another blow to the company's overseas operations, following the bankruptcy filing of its Spanish distributor LN Plus Iberoamerica in early July, because of the deteriorating local market.
While the closure means Li Ning is scaling down its overseas operations, a sports marketing expert told the newspaper that the move would protect the company from being hurt further by the several issues it is facing in China.
The company has closed down 1,200, or 15%, of its shops, which had performed poorly during the first six months of this year, revealed Jin Zhenjun, the executive vice-chairman of Li Ning, when the company released its semi-annual report on Aug. 22.
Between January and June, Li Ning's revenue declined 9.5% to 3.88 billion Chinese yuan (US$612.94 million) from last year, while its net profits dropped 84.9% to 44 million yuan (US$6.95 million).
Li Ning's performance was in stark contrast to its rival Anta Sports Products, which reported 3.93 billion yuan (US$621 million) in revenue and 770 million yuan (US$121.64 million) in net profits during the same period.
Besides scaling down its overseas operations, the newspaper said the company has formulated a three-step strategy to protect itself from further decline. The first stage of the plan aims at reducing inventories and improving the retail channel's profitability in the face of higher inventory turnaround times, the newspaper said.
According to the company's financial statements, the turnaround time for the company's goods had risen from 2010's 52 days to 2011's 73 days and 95 days during the first six months of this year, almost double that of Anta, which has the shortest turnaround time in the industry.
The expert said targeting its inventory is the right move for Li Ning, as a high inventory affects all operations starting from design to purchasing and sales.
Li Ning will also improve its supply chain, the planning process and marketing of its products during the second phase of its plan, with the third phase focusing on its profit structure, retail efficiency and return on investment, the newspaper said.
Although the company expects to see the results of its efforts later this year at the earliest, Bank of America Merrill Lynch does not expect to see improved profits until the second half of 2013 because of the uncertainties in the company's reform plan.