Li Ning CEO leaves as profit declines

By Chen Dujuan Source:Global Times Published: 2012-7-6 0:35:09

China's leading sportswear retailer Li Ning Co announced Thursday changes in its management team and a new turnaround plan, in the hope of improving its weakening performance.

The company said its Chief Executive Officer Zhang Zhiyong has stepped down, and Chairman Li Ning, a former Olympic gymnastics champion, would lead the company with Kim Jin-goon, managing director of US private equity firm TPG Capital, which has invested in the brand, until a new CEO takes office. Kim has been appointed as executive vice chairman of the retailer.

The company also released a plan to improve its profitability as it has suffered from huge inventories, weakening profits and plunging share prices.

The Hong Kong-listed company's shares closed up 7.25 percent to HK$5.03 ($0.65) on Thursday, after dropping by about 20 percent in the first half of 2012.

But a change in management alone cannot solve the company's problems, as Li Ning himself is not very clear about the company's positioning and Kim may not have enough knowledge about the industry, Wang Xianqing, director of the Research Institute of Circulation Economy at Guangdong University of Business Studies, told the Global Times.

"Li Ning has carried out restructuring, but has not been very successful in establishing a clear brand image among consumers," Wang said, noting that rapid expansion and lack of product innovation have also affected performance.

Due to rapid expansion, Li Ning Co's inventory increased 40.57 percent to 1.13 billion yuan by the end of 2011 from the previous year, bringing cost pressure. 

The company's net profit dropped 65.2 percent year-on-year in 2011 to 386 million yuan, much less than Anta's 1.73 billion yuan and Peak's 780 million yuan, although its revenue still topped the domestic sports brands.

It could take six to 12 months to return inventories to a normal level, Li Ning's biggest goal in 2012, Reuters cited Kim as saying Thursday.

Meanwhile, the sportswear industry is facing a downturn due to a supply glut and economic slowdown, Zou Ke, a sports industry analyst at Shenzhen-based consultancy Qianzhan Intelligence Co, told the Global Times.

The sports goods market expanded 16.3 percent year-on-year in 2011, compared with a 35 percent increase in 2007 and 2008, according to Qianzhan.

Casual wear brands like Zara and foreign sports brands expanding into the second- and third-tier markets also pose threats to firms like Li Ning, Zou said.

"Domestic sports firms need to enhance their brand value and services instead of expansion," Zou noted.

The whole sector has entered a tough period, and all enterprises have to undergo transformation, according to Wang Xianqing.

However, it is still possible for Li Ning to achieve a new round of growth if it makes right adjustments, Wang noted


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