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Company profile: The most recognizable domestic sportswear leader
Li Ning Company is a sports goods company founded by Mr. Li Ning in 1990 by the "Gymnastics Prince". The company's founder Li Ning created a myth in the history of world gymnastics, winning fourteen world championships and winning more than 100 gold medals in total. The founder's unique background determines that the Li Ning brand itself is the company's most important asset, and also makes the company the most brand recognition and distinctive sportswear brand in China. In June 2004, Li Ning Company was successfully listed in Hong Kong. In 2008, founder Li Ning, as the last torchbearer of the Beijing Olympics, strolled around the bird's nest for a week and lit the torch, becoming an eternal memory of a generation, once again consolidating the deep foundation of the brand. Benefiting from the development of the industry before 2010, the company's growth momentum remained strong. From 2010 to 2014, due to industry adjustment + strategic mistakes, the company was in a difficult period, and its revenue and profits were under serious pressure. After 2015, with Li Ning's return and a number of reform measures were implemented, the company's "difficulty reversed" and returned to rapid growth.
The company's performance has begun to recover since 2015. The company's operating income has maintained double-digit growth since 2015, reaching 10.53 billion yuan in 2018, a year-on-year increase of 18.4%; the net profit attributable to shareholders turned from negative to positive since 2015, and in 2018, a year-on-year increase of 715 million yuan, a year-on-year increase of 39%, with a good recovery momentum. In terms of gross profit margin, since the adjustments in 2014 and 2015, the company's gross profit margin has steadily increased, reaching 48% in 2018, an increase of 1pct year-on-year, mainly due to the increase in the proportion of e-commerce business with higher gross profit margins, the increase in the proportion of new products retail and the improvement in the cost ratio of tags. Judging from the net profit margin attributable to shareholders, it remained at 8%, 5.8% and 6.8% respectively from 2016 to 2018.
According to the latest data in 2019H1, the company maintains strong growth momentum. In 2019H1, the company achieved operating income of 6.254 billion yuan, a year-on-year increase of 32.7%, and its net profit attributable to shareholders was 795 million yuan, a year-on-year increase of 196%, and its net profit attributable to shareholders was 12.7%. If the profit and loss attributable to shareholders was deducted from one-time profit and loss that was not related to operations, it was 561 million yuan, a year-on-year increase of 109.1%, and its net profit attributable to shareholders was about 9%.
From the perspective of revenue composition, split by product category, the proportion of clothing products in the company in 2019H1 was 49%, lower than 62% of Anta (mainly the FILA brand clothing products accounted for a high proportion), footwear products accounted for 47%, accessories and equipment accounted for 4%; split by sales channels, the proportion of Lining brand wholesale sales channels in 2019H1 was the highest, reaching 47%, and the proportion of direct retail, online and international markets was 30%, 21% and 2% respectively.
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Look back: Dilemma reversal, Phoenix Nirvana
The development history of Li Ning Company is one of the typical cases of "dilemma reversal" in the optional consumer field. Before 2010, benefiting from the growth dividends of the Chinese market, domestic sportswear leaders seized historic development opportunities, among which Li Ning's annual compound growth rate of operating income from 2004 to 2010 reached 31%. After 2010, as the industry fell into a period of adjustment, the operations of leading enterprises were also seriously affected. Looking back on history, we found that the development of Li Ning's company is closely related to the strategic choice of professional managers at the time. Zhang Zhiyong and Jin Zhenjun played an important role in the dilemma period (2010-2014), and the founder Li Ning was the most critical figure in leading the company out of the dilemma (after 2015). Therefore, we will take the change of professional managers of Li Ning Company as the main line and analyze in detail the reasons why the company fell into trouble and got out of the predicament in the last round.
Dilemma period (2010-2014): Industry adjustment + strategic mistakes, the company fell into pain and adjustment
In 2008, the company seized the opportunity of the Beijing Olympics to significantly expand the scale of the channel and hit a new high. In 2010, the company's revenue and net profit averaged to the peak of the industry at that time, with operating income of 9.49 billion yuan, a year-on-year increase of 13%, and net profit attributable to shareholders of 1.11 billion yuan, a year-on-year increase of 18%.
In this context, due to misjudgment of future industry development trends, the company launched a series of reform plans that were slightly radical and controversial at the time, including the "brand reshaping + channel integration" plan implemented in 2010 and the "three-step" transformation plan after the introduction of the TPG team after 2012. They all ended in failure, and the company's revenue and profit levels declined year by year. At the same time, Anta came from behind, surpassing Li Ning in operating income in 2012 and became the first in the industry, and continued to consolidate its industry position in subsequent years.
We believe that there are two main reasons for the failure of this round of reform:
1) The choice of the reform point is poor. In our industry report "Golden Track, the Stronger", released on August 15, 2019, we pointed out that the sportswear industry experienced a round of deep adjustments from 2012 to 2014, and since then, the industry has truly begun to transform from extensive development to retail and branding. Li Ning's reform in 2010 began on the eve of the industry adjustment, and the management seriously underestimated the impact and impact of the industry adjustment on the company.
2) The company's middle-level execution ability is not strong. Looking back now, the reform plan proposed by the company at that time was basically correct in a general direction, but the poor middle-level execution and terminal communication implementation resulted in the inability to implement the top-level strategic plan in detail. For example, in 2012, both Li Ning and Anta realized the importance of "retail orientation". However, Anta took the lead in 2014 with its relatively efficient execution ability, and was relatively less affected by the industry. On the contrary, Li Ning was facing huge shocks from the management at that time, and the company's execution ability was poor. It did not recover slowly until the founder Li Ning returned in 2015.
"Brand Reshaping + Channel Integration" Transformation led by Zhang Zhiyong (2010-2012)
In June 2010, Li Ning Company officially launched the "Brand Reshaping" plan under the leadership of Zhang Zhiyong, then CEO, and simultaneously launched the "channel integration" plan. At that time, the dispute over the reform was mainly concentrated on the "brand reshaping" plan, and there were major differences within the company even before it was officially launched. The specific measures of the reform were as follows:
1) By changing the brand logo and brand slogan, try internationalization: the replaced logo is more abstract, abstractly integrating the original gymnastics movement "Li Ning Cross" of founder Li Ning, using the "personal" creative ideas to interpret sports values, and encourage everyone to express themselves through sports. The company's slogan has also changed from "Everything is possible" to "let change happen", reflecting the evolution of the brand from daring to daring to daring to doing, and encouraging everyone to be brave enough to seek change and breakthroughs. The reason why the company's brand logo and slogan changes is for the international development layout
2) proposed Li Ning, the post-90s generation, pursued brand rejuvenation: "post-90s generation" has two meanings. One is to represent Li Ning in 1990, which has been 20 years as of that time. The other is to focus on expressing the youthfulness of the post-90s generation, proactiveness and enthusiasm for things. The original intention of the post-90s generation is not exclusive, but I just hope to highlight the excellent characteristics of the post-90s generation, such as enthusiasm, positiveness, and enthusiasm to transform Li Ning.
From the original intention of the reform, on the one hand, the company hopes to achieve brand expansion overseas through "brand reshaping", and on the other hand, it hopes to change the age structure of the target consumer group and attract more young consumers of the "post-90s". However, from the actual results, the original intentions of the two reforms have not been realized. We believe that there are two main reasons: First, Li Ning's domestic sales situation at that time could not support the capital investment required for overseas expansion, and blind expansion could only increase the company's cash flow burden; secondly, the concept of "post-90s Li Ning" unexpectedly had catastrophic side effects in attracting target consumer groups. The target "post-90s" people did not fully accept the renewed Li Ning brand because they did not understand the brand story and connotation. However, the original mainstream purchasing group (such as post-90s Li Ning) faced the company's large-scale promotion of "post-90s" Li Ning, and felt that they were abandoned by the Li Ning brand.In terms of the "channel integration" plan, the company proposed four measures in 2010, the most important of which is to improve the "improve the economic effect of scale in the retail link", including promoting the integration of dealers/distributors and reducing the proportion of single-store distributors. In 2011, the company cleaned up a total of 425 inefficient single-store distributors and initially achieved the target for the year, but the sales situation was getting worse. We believe that from the present perspective, there was no problem with the reform measures and focus at that time, but in the context of the overall adjustment of the industry at that time, the inventory pressure of dealers and the tight capital chain of the capital chain led to a sharp decline in their ordering intentions, further amplifying the pain of reform that the company suffered.
"Three-step" transformation plan led by Jin Zhenjun (2012-2014)
In 2012, Li Ning in trouble received investment from TPG (Texas Pacific Group, Detai Group). TPG then sent 8 people including its Greater China head, Jin Zhenjun, to intervene in the specific management of Li Ning Company. Under the strategy of "returning to the essence of sports", the company focuses more on three directions, namely, focusing on core business (i.e. sports goods business), core market (i.e. domestic market), core brands (i.e. Li Ning brand), and on this basis, it announced the company's future strategy for operations, including channel efficiency, brand and products, operational capabilities and business model reforms. In order to implement the above strategies, Jin Zhenjun proposed a "three-step" transformation plan in July 2012, aiming to transform Li Ning Company from a traditional wholesale model to a retail model-oriented model featuring "guided ordering order + fast replenishment + fast response".
In order to enable the smooth implementation of the new strategic route, Jin Zhenjun introduced a large number of external executives with the intention of improving decision-making efficiency and improving execution. But this also caused huge shocks in the company's internal management. A series of senior executives such as COO Guo Jianxin and CMO Fang Shiwei resigned one after another. Managers familiar with Li Ning culture and Li Ning dealer systems also continued to leave, resulting in further deterioration of the execution of the company's middle and grassroots level. The deployment of the upper-level strategy could not be truly implemented at the terminal sales level, which eventually led to the complete failure of the reform. Jin Zhenjun resigned as acting CEO in November 2014, and the middle-level management backbone resigned on a large scale.
We believe that although Jin Zhenjun's reform failed, the concept of its leading retail model-oriented model has been continued in the company's future development, laying an important foundation for the company's future reversal of its difficulties.
Dilemma Reversal Period (after 2015): Li Ning returned, and a series of reforms led the company to regain its upward trend. In 2015, with the return of founder Li Ning, the company's management became stable, and gradually began to implement the "correct" part of Jin Zhenjun's reform, and carried out deeper reforms in terms of brand, products and channels. Since then, all core financial indicators have gradually returned to normal and achieved a reversal of difficulties. Specifically, they are: in terms of inventory turnover days, the improvement began to be significantly improved in 2015, and it dropped significantly to 80.4 days in 2016, and then it has also decreased year by year, maintaining a relatively healthy level; in terms of channel inventory share, the proportion of inventory in 6 months or less has steadily increased, from 57% in 2014 to 71% in 2018, while the proportion of inventory in December has continued to decline, from 39% in 2014 to 12% in 2018, indicating that the channel inventory structure has been continuously optimized and the inventory problem has been basically solved; in terms of operating cash flow, it turned positive for the first time in 2015, returned to the level of 1 billion in 2017, and achieved in 2018 The year-on-year growth of 44.3% proves that the company's operating capabilities have also been significantly repaired and enhanced.
2017 After 2017, the company's performance has gradually gained recognition from the capital market, and the stock price and valuation have been greatly repaired. Judging from the PE multiple (TTM), it rose from the lowest point of 18.8 times in early 2017 to the highest point of 55 times in mid-2019. In 2019H1, as the company's net profit attributable to shareholders increased by as much as 195% year-on-year, the PE multiple switched to about 38 times.Since then, the capital market's recognition of Li Ning has continued to rise, and the stock price has also continued to rise. As of November 11, 2019, the latest PE (TTM) was 42 times, and the stock price was HK$25.4. From 2017 to 2019 to the present three years (2019 ended on November 11), the company's stock price rose by 29.98%, 32.7% and 204% respectively.
The following is a review of the reasons why the company has reversed its difficulties from three aspects: brand, product and channel:
Brand: original strength + fashion week series promotion, becoming the leader of national trends in one fell swoop
Restart founding slogan "Everything is possible", which shows determination to reform. At the end of 2014, the board of directors formally appointed Executive Chairman Li Ning as the acting CEO and returned to the front line of the company. In July 2015, Li Ning Company announced that its strategic direction will be transformed from sports equipment providers to "Internet + Sports Life Experience" providers. On August 8, 2015, on the 25th anniversary of the company's establishment, Li Ning restarted the founding slogan "Everything is possible". In addition, the company began to gradually strengthen its control over expenses. At the end of 2014, the company officially announced that it would give up sponsoring the national gymnastics team. Since then, the company has continuously streamlined its expenses and reduced unnecessary TV advertising and non-sports star endorsements. The proportion of advertising and marketing promotion expenses in revenue has continued to drop from 24.2% in 2013 to 8.9% in 2019H1.
On the other hand, in terms of brand marketing, the company's biggest breakthrough is to promote Li Ning's products to internationally renowned fashion week. After achieving great success, it transformed its overseas influence into the domestic market through the "China Li Ning" brand and won the recognition of young consumers. We believe that Li Ning's success in this brand change has its inherent necessity, which is mainly reflected in the following two aspects:
1. Before entering the Fashion Week, the acceptance of local brands by young domestic consumers began to rise, and the national trend has begun to take shape. According to data from China's trendy consumption development white paper, from 2016 to 2018, consumers' consumption preference for domestic brands continued to rise, from 61% in 2016 to 76% in 2018. According to a report released by McKinsey in 2017, Chinese consumers have a more detailed understanding of global and local brands than before. 34% and 42% of consumers choose "slightly favor" or "favor" local brands for clothing and footwear categories, respectively. The post-90s and post-00s are more open and inclusive to local brands, emphasize themselves more, and are eager to create their own unique style, and have a deeper understanding and discernment ability of brands and products.
2. Among domestic brands, the company respects originality and designer culture more. Since its inception, the company has attached great importance to original design. Founder Li Ning always believes that originality is a career worth sticking to and striving for. In 1998, eight years after the company was established, China's first clothing and shoe product design and development center was established, and it was the first to become a self-developed Chinese sports goods company. Since then, the company has successively established design and development centers in Hong Kong, Portland, Beijing and other places to consolidate its product design and development capabilities. Therefore, we believe that the amazing products presented by Li Ning during the fashion week were not achieved overnight, but were derived from the company's long-term persistence and precipitation of original design, thus helping Li Ning seize the initiative in the rise of the national trend.
Li Ning's appearance at Fashion Week can be divided into three stages:
Stage 1 (2018 New York Fashion Week ): It debuted at the international fashion week, the transformation from sportswear brands to "domestic products"
With the help of the "Tmall China Day" event, it was the first to debut at New York Fashion Week. In February 2018, with the help of the American Fashion Designers Association CFDA and Tmall's project called "Tmall China Day" launched during New York Fashion Week, Li Ning appeared at New York Fashion Week with brands such as Peacebird and CLOT, becoming the earliest sportswear brand in China to enter the international fashion week. During this fashion week, Li Ning focused on highlighting Chinese elements and attracting young consumers. This Fashion Week, with the theme of "Intellecting the Tao", Li Ning proposed the concept of "Li Ning's fashion product line" for the first time, trying to combine popular culture and national style to form a new product style.During the entire fashion week, Li Ning's Baidu search index rose rapidly, once surpassing Nike , Adidas and Anta. In addition, the company has also initially tried to monetize traffic to maximize marketing value. During this show, Li Ning simultaneously sold products through the Tmall platform "See now and buy now" and displayed the products, and many products were in short supply. Li Ning's Tmall flagship store once saw a surge in customer flow, and the sales of catwalks accounted for the top three in the sports industry that day after the show.
This fashion week can be understood as a successful attempt by the company to develop fashion trends. This time, Li Ning's preparation time for participating in the Fashion Week was tight, the process was hasty, but the effect was much greater than expected. According to interviews by Chen Lijie, chief designer of 18FW New York Fashion Week, Li Ning Company received the task of a fashion show at the end of December 2017, completing the entire process from team formation to design and formulation within two months. Although the preparations were hasty, the overall event achieved very good results. The clothing displayed at New York Fashion Week coincided with the domestic consumers' hope of "Chinese products going to the world", and successfully aroused national identity.
Stage 2 (June 2018 Paris Fashion Week ): Marketing is a driving force, the transformation from "domestic products" to "national trend"
This fashion week company takes "China Li Ning" as the theme, takes Li Ning's personal sports career as the main line, and enters from the perspective of trendy products to create "national trend" and resonate. After Li Ning's products participating in the Paris Fashion Week were exposed, nearly 40,000 communication briefings were collected, including domestic and international mainstream media actively speaking out. After the Paris Fashion Week ended in June 2018, the #China Li Ning# Weibo topic read 140 million; there were more than 30,000 related Weibo posts, including nearly 200 Weibo accounts with more than one million fans. In addition, the company has strengthened its cooperation with traffic stars. The company has created hot spots in advance to attract attention by releasing big show posters and some show products, and cooperating with popular rappers GAI. At the same time, we cooperate with celebrities such as Wang Ziyi , Dong Youlin , Zhou Yanchen, Xu Kaicheng, Lanbo, etc., and combine popular forms such as live show broadcasts to continuously spread the scope of product dissemination, increase user trust, and enhance the reputation of the product.
We believe that after the accumulation of experience in New York Fashion Week, Li Ning's performance at Paris Fashion Week has become more mature, paying more attention to marketing, and maximizing the hot spot effects of fashion week.
Phase 3 (New York Fashion Week in February 2019, Paris Fashion Week in June 2019): Extend the life cycle of national trends, focus on word-of-mouth and traffic monetization
dig deep into the brand genes, and combine Chinese culture to create the core IP "China Li Ning". After the Paris Fashion Week first proposed the concept of "China Li Ning" at Paris Fashion Week in June 2018, at New York Fashion Week in February 2019, Li Ning integrated the content of Chinese traditional culture and Chinese traditional philosophy, implemented the "super brand" strategy, and released three sub-series combinations under the theme of "Start" to expand the display product series matrix; Paris Fashion Week in June 2019 combined the elements of Li Ning of the 1984 Summer Games with clothing culture, paying tribute to the upcoming 32nd Summer Olympics. The combination of history and the future once again consolidated the reputation of "national trend" and "China Li Ning" and continued market attention.
In addition, the company has taken a step further in terms of traffic monetization and has laid out a large number of independent stores of "China Li Ning". In the first half of 2019 alone, the number of stores increased by 204%, and achieved very good sales results in the terminal.
Through the development of fashion week and other marketing activities, Li Ning's brand power has been further deepened and consolidated. Through the analysis of C-BPI statistics, we can see that in 2019, Li Ning's brand power in the sportswear category has surpassed Adidas, ranking second in China and second only to Nike; in terms of sports shoes, Li Ning ranked third in China, second only to Nike and Adidas. In terms of sportswear and sports shoes, Li Ning's brand power scores have significantly surpassed local brands such as Anta, 361 degrees, and Xtep.
Product: Focus on the five core categories, and the fashion design is closely related to the market trend
Although the company first proposed the strategy of "refocusing on stable core sportswear" as early as 2013, we believe that the company has significantly increased its efforts to explore and invest in the market potential of core categories after 2015, which is specifically reflected in various aspects such as cross-border cooperation, expanding sponsorship, building an ecosystem, and increasing R&D investment. Each category has different focus and methods.
After 2015, the above reform measures have gradually begun to show results. Judging from the retail turnover and shipment situation, after 2015, the five major categories basically achieved double-digit compound growth every year, while non-core categories began to gradually shrink. After 2018, the growth rate of the other four categories except running exceeded 20% in 2018, and the proportion of retail sales of new products increased significantly, from 67% in 2014 to 80% in 2018, and the proportion of core categories also increased from 77% in 2014 to 98% in 2019H1.
It should be pointed out that after 2018, the company's fashion sports products ushered in an explosion, which is inseparable from the company's forward-looking layout and investment in recent years. For example: at the marketing level, the company actively signed contracts with popular entertainment resources and launched a series of products such as "BADFIVE" and "WADE" to integrate basketball trendy style; at the product promotion level, Li Ning Company uses the co-branded product model as the main means to use entertainment elements, opinion leader endorsement, etc. to explore the fan economy. In addition, the emergence of "China Li Ning" products has also provided an important support for the development of fashion sports brands.
Channel: Retail-oriented reform has begun to take effect, and online business has grown significantly
0 At the end of 2014 With the full deployment of the retail business platform, the company gradually shifted to a market-oriented retail business model. After two years of deployment, the retail business platform has basically been in place. The main features of the platform include: 1) Real-time sales data collection and analysis, allowing products and retail teams to capture and predict market demand trends; 2) A unified procurement and classification comprehensive plan to sell appropriate products in the appropriate locations; 3) Equipped with a push/pull supply chain model, truly achieving rapid response, supporting mass production and delivery, thereby significantly improving inventory efficiency and reducing risks. Since the end of 2014, the company has the ability to make sales operation decisions on a weekly basis, and has made timely adjustments to the decision-making support through real-time store data collection, daily sales trend analysis and weekly inspection of demand and supply conditions.
channel stores have begun to resume expansion. The company's overall number of stores achieved a net opening of 507 stores in 2015, the first time it has opened a net opening in four years. By channel, the number of net stores opened by wholesale channels after 2015 returned to the positive, while the number of net stores opened by retail channels after 2012. In the "channel revival" plan in the previous two years, the company eliminated some distributors operating in single stores and a large number of seriously inefficient and loss-making stores, and actively promoted the optimization and expansion of shopping mall store locations to optimize the store and brand image. Thanks to the transformation of business model, the overall platform's same-store growth rate has turned from negative to positive since the second half of 2014, and has maintained year-on-year growth of more than a medium-sized unit number every year.
In addition, online channels are developing rapidly and their proportion increases rapidly. Since 2014, the company has actively explored online sales channels, focused on opening up online and offline sales connections, and achieved omni-channel sales. From 2014 to 2019, the company's online business continued to maintain a rapid growth trend, with an annual compound growth of more than 40%. By the end of 2018, the proportion of revenue had reached 19%, becoming one of the important sources of driving force for the company's performance growth.
Outlook: The company's upward trend remains unchanged, and the improvement of scale and management efficiency is the biggest highlights
Li Ning big goods have grown rapidly, China Li Ning and Li Ning YOUNG full highlights
Li Ning big goods: actively deploying large stores and comprehensive stores offline, and it is expected to maintain rapid growth online
Li Ning big goods retail data has performed strongly, and the growth rate of online and franchise channels is impressive. From the perspective of the entire platform (excluding Li Ning Young), the year-on-year growth rate has exceeded 20% since Q1 2019, and the growth rates from Q1 to Q3 are 20%-30% low section, 20%-30% low section and 30%-40% low section respectively.From the perspective of splitting, the driving force for growth mainly comes from franchise and online channels. According to the latest data, the growth rate of franchise channels in 2019 Q3 is as high as 30%-40%, and the growth rate of online channels is as high as 50%-60%.
Online: We believe there is still a lot of room in the future, and it is expected that the compound growth rate from 2019 to 2021 will be able to maintain at around 30%. The main driving forces are: 1) Product innovation and launch more independent product lines: Currently, there is an independent product line "Counterflow-trace" series in online channels. The products are positioned at mid-to-high prices and sports shoes and clothing with street trends and Chinese cultural characteristics. The reputation of the product continues to improve and has been recognized by consumers. We believe that more independent product lines will be launched in the future to further stimulate online consumption. 2) Improve consumer experience and attract more new consumers: In the future, the company will further increase its investment in visual content, marketing planning and store experience, accurately grasp consumer needs through big data means, and at the same time, it will also attract more consumers through trendy methods such as WeChat mini-programs and live broadcasts to enhance user stickiness. 3) The online monetization rate of core marketing projects has increased. As early as when Li Ning in China debuted at Fashion Week, the company achieved monetization of reputation and traffic through online simultaneous sales. In the future, with the increase in Li Ning's exposure and the rich marketing gameplay, it is expected to provide more incremental growth for online sales.
Franchise: With the improvement of brand power and the company's refined and control over the franchise system management, we believe that the future growth of the franchise business is relatively certain. Thanks to the enhancement of product strength and further improvement of brand awareness, Li Ning has performed stably and well in recent ordering sessions. According to the latest disclosed data, the year-on-year growth rates of orders in the three quarters of 2019Q4 to 2020Q2 were 10%-20% middle section, 10%-20% high section and 10%-20% low section respectively. According to our grassroots research, since this year, the company's management of franchisees has gradually been refined and systematic, and the franchise discounts have been increased. The application of strategies such as rebates has become more flexible, and the control of the franchise system has become increasingly strengthened. For some direct sales with poor management, the company also actively transfers them to excellent franchisees to operate. Therefore, we believe that the company's franchise business will continue the current better growth level in the future and have high growth certainty in the future.
In addition, from the perspective of channel layout, the company will continue to focus on opening multi-category, efficient stores and flagship stores in domestic shopping centers and other channels to further enhance the company's brand image and same-store sales. Judging from the flagship store and experience store data disclosed by the company, the single store area of some renovated stores has exceeded 400 square meters, of which the single store area of the experience store located on Chunxi South Road, Chengdu is even more than 900 square meters. Judging from the key same-store data indicators, they all performed well. In addition, according to our grassroots research and calculations, the theoretical store efficiency level of pure large goods Li Ning (simple conversion of the total store and average store efficiency of non-mature old stores) is slightly lower than that of Anta, and the gap is greater than that of foreign peers, and there is still a lot of room for improvement in the future.
Li Ning YOUNG: The children's clothing market is broad and is expected to become the company's potential growth point
The children's clothing industry is in a high prosperity and has broad space in the future. According to the Forward Industry Research Institute, the compound growth rate of the children's clothing industry will reach 13% in the next five years, ranking among the top two in the market along with sportswear. Judging from the amount of children's clothing consumption in various countries, the per capita consumption in China in 2017 was only US$19.2, a huge gap compared with developed countries. In addition, the relaxation of the second-child policy has also helped the development of the children's clothing market. According to data from the National Bureau of Statistics, the birth rate of second-child babies has begun to increase significantly since 2015, from 1.2% in 2015 to 2.4% in 2018.
2016 After 2016, the company gradually increased its investment in the newly launched children's clothing brand Li Ning YOUNG. In 2016, on the basis of retaining the original LI-NING KIDS, the company launched the children's clothing brand LI-NING YOUNG and set it to become the focus of the company's children's clothing business. The two series have clear positioning. The target age of the KIDS series is 3-6 years old, while the YOUNG series is 7-12 years old, and its product categories are more abundant.The company's investment in Li Ning YOUNG is specifically reflected in the following aspects:
1. Channel: In January 2018, Li Ning YOUNG's business took over 361 dealership stores under the agent and accelerated its own store opening speed. Since then, the number of Li Ning YOUNG's stores has grown leapfrog. As of 2019H1, the number of Li Ning YOUNG's stores has reached 872. During this period, the company continued to promote store image upgrades, retail work systematization, retail execution standardization, policy process standardization, etc. The company is also actively expanding online channels and has currently opened a Lining Children's self-operated flagship store on JD.com.
2. Product: The company grasps the market trend and has successively launched fashion products including fashion week parent-child models and Disney cooperation models. At the same time, the company has also continuously improved the professionalism and functionality of the products. For example, in 2018, it successively launched innovative shoe technologies such as refit stretchable midsole and lightweight Li Ningyun .
3. Marketing: It already has its own digital marketing matrix, including official Weibo, WeChat, Douyin , etc., and uses the help of mother and baby circle KOLs, sports experts, celebrities, etc. to maintain interaction with consumers to enhance user stickiness.
4. In terms of supply chain: An exclusive supply chain system has been built, and the production links such as product development, design, and cost are currently continuing to integrate production links to optimize production processes and promote efficiency improvement.
Since Li Ning has been working on the children's clothing business relatively late, various indicators have a lot of room for improvement compared with its competitor Anta. Judging from the number of stores, Anta Kids in 2019H1, far exceeds Li Ning YOUNG's 872 stores. In addition, Li Ning YOUNG has room for improvement in product portfolio, supply chain, terminal operation, store efficiency, etc. We believe that with the deepening of Li Ning's own brand power, Li Ning YOUNG is expected to gradually narrow the gap with its competitors, and in the context of the relatively high prosperity of the children's clothing industry, it is expected to become the company's potential growth point.
China Li Ning: Improve the brand tone and drive large-scale sales. It also has a large store expansion space
"China Li Ning" brand positioned as a mid-to-high-end, and has a certain competitiveness compared with mature trendy brands. As mentioned above, the appearance of the International Fashion Week has given domestic consumers an intuitive understanding of the "China Li Ning" brand. Judging from the price ranges intercepted on the official websites of each brand, China Li Ning's latest catwalk clothing is close to the hot-selling products of brands such as Adidas, Aape, FILA and IZZUE, all in the price range of 700-1,000 yuan (but the price range of mature trendy brands is wider and there are more high-priced products). "China Li Ning" is positioned as a young group who pursues fashion trends, and this group has relatively low price sensitivity.
We believe that the "China Li Ning" brand has three main contributions to the company:
1. It greatly improves the overall tone of the Li Ning brand and expands the young consumer group to store consumption.
China Li Ning's iconic design style, national trend labels and the continuous promotion of overseas fashion week have won the favor of a large number of Chinese people born in the 1990s and 2000s, and have also improved the overall internationalization, youthfulness and tone of the brand. Because of Li Ning, China, more and more young consumers have entered the Li Ning comprehensive store, further strengthening the communication and interaction between the brand and young consumer groups.
2. Improve the efficiency and discount level of Lining's comprehensive store, and drive Lining's large-scale goods sales.
According to our grassroots survey, the sales share of Li Ning in many Li Ning comprehensive stores has increased from about 5% to about 15%, and is expected to further increase to 20% in the future. Considering the difference in unit price, multiplication and discount rates of Li Ning and Li Ning large goods in China (there is basically 10% off for China’s Li Ning terminals, and the Li Ning large goods terminals are basically 7.5-7.8% off), with the increase in the proportion of Li Ning comprehensive stores and the increase in the sales share of Li Ning in comprehensive stores in China, there is a lot of room for improvement in the single store efficiency and profitability of Li Ning comprehensive stores.
"China Li Ning" independent store has outstanding store performance, with an average monthly store efficiency of over one million. At present, "China Li Ning" stores are mainly concentrated in high-end business districts in super-large and second-tier cities, with mostly 150-200 square meters of shop area, mainly small and medium-sized stores.Judging from the situation of several excellent stores disclosed, the average monthly store efficiency in 2018 and 2019 was more than 1 million yuan, and the square footage and store efficiency were at the forefront of the industry.
3. "China Li Ning" independent stores still have a large room for expansion in the future
"China Li Ning" currently mainly chooses to open stores in shopping malls or high-end business districts in high-tier cities in terms of channel strategy, and is still in the stage of rapid expansion. As of H1 2019, the number of independent stores in Li Ning in China is only 70, and it is expected that the number of stores will reach 100-120 by the end of 2019. Considering that China Li Ning's positioning and popularity in shopping malls and shopping centers are similar to FILA brands (with different styles), a simple analogy of FILA channels (as of 2019H1, the number of FILA stores has reached 1,788, and the gap is still large), we believe that China Li Ning independent stores will also have greater room for expansion in the future. Considering factors such as brand cultivation and maintenance, product richness and supply chain, we judge that the possibility of rapid expansion of China's Lining independent stores in the short term is not high, but in the medium term, it will help China's Lining go more steadily and farther.
Corporate governance is constantly improving, and operational efficiency and profit margin are expected to improve
On September 2, 2019, Takeshi Takasaka was appointed as the co-CEO and executive director of Li Ning Company. At the same time, the founder Li Ning stepped down as acting CEO and transferred to the co-CEO. Takeshi Takasaka was born in mainland China in 1971. He went to Japan to study in 1990. He started as a clerk at Uniqlo in Osaka, Japan. He has experienced stores, production, sales, management, etc. Since 2005, he has served as the COO of Uniqlo China, and later served as the CEO of Uniqlo Taiwan. In 2017, he was transferred to the CEO of Uniqlo South Korea. He has 23 years of rich work experience at Uniqlo.
According to the announcement released by the company on September 19, 2019, Li Ning's board of directors decided to grant a total of 3.1558 million shares to Takeshi Takasaka to subscribe to a total of 3.1558 million shares under the 2014 share option plan. Each share option will give the option holder the right to subscribe to one share at an exercise price of HK$22.52 per share.
We are optimistic about the changes and contributions to the company by taking the place of Takeshi Kosaka and the continuous improvement of subsequent corporate governance, mainly based on the following reasons: 1) From the perspective of resume, Takeshi Kosaka has been in operation and management at Uniqlo for a long time, with extremely rich work experience, and is highly in line with the company's needs to improve operational efficiency. It is expected to improve the company's management style of state-owned enterprises in the medium and long term; 2) Compared with the former professional manager Jin Zhenjun Times, the current development of the company and the industry is in a period of rapid growth, giving the new management more room for organization and operation optimization. According to data from the Forward Industry Research Institute, the growth rate of the sportswear industry has accelerated year by year since 2015, with a year-on-year increase of as high as 20% in 2018, the fastest in the past decade. 3) Li Ning, the founder of the company's spiritual leader, is still the co-CEO, and can stabilize the overall situation of the company and avoid major management turmoil.
below, we will combine the development history of Uniqlo and the current development stage of Li Ning Company to make three inferences about the possible help that Takeshi Takasaka's entry into Li Ning:
inference 1: Grafting cutting-edge supply chain management and retail operation capabilities
Uniqlo is known for its advanced supply chain management capabilities in the industry. In recent years, it has been constantly innovating on the basis of the SPA model to consolidate its advantages in the industry. For example, in 2018, Uniqlo cooperated with logistics company Daifuku Co to invest 100 billion yen to establish a new distribution system, gradually realizing the automation of warehousing and distribution systems. Take the Ariake warehouse in Tokyo as an example. With full automation, the number of warehouse staff will be reduced by 90% and can operate 24 hours a day. The new distribution system can shorten inventory management and production cycle times, better support online sales growth, and provide consumers with the convenience of same-day or next-day delivery.
In May 2019, Li Ning's supply base in Guangxi was officially launched. Through the first self-built factory, it has successfully entered the upstream production and manufacturing link of the sports goods supply chain. Through this move, Li Ning will gradually improve the control of upstream production, stabilize product supply, and enhance its rapid response ability to the retail end.At the same time, with the help of the geographical location of Nanning ASEAN, we can get more convenient logistics and radiation opportunities to the Southeast Asian market. We believe that at this point in time, Takeshi Takasaka's entry will promptly make up for the company's shortcomings in supply chain management and enhance and strengthen the group's overall control over the upstream.
In addition, in terms of retail operation capabilities, Li Ning has more room for improvement. Judging from the year-on-year growth rate of direct sales and franchise retail, the company's offline direct sales channels have always been lower than that of franchise channels; from the perspective of sales expense ratio, Li Ning's sales expense ratio has always been far higher than Anta, and there is still a gap of 8.1 pct in 2018 (due to the increase in FILA sales, Anta's offline direct sales ratio is higher, and if this is excluded, the gap is even greater), which directly leads to the low final net profit margin level of Li Ning's company. We believe that Takeshi Takasaka's entry is expected to bring Uniqlo's advanced retail operation concepts, improve the company's operating efficiency and profitability, and it is expected to improve the system-oriented components of Li Ning's corporate culture in the medium and long term, making the company's operation more efficient and flexible.
Inference 2: Further improve the ability to create joint-branded hot products and enrich new marketing gameplay
Uniqlo has rich experience in co-branded models. Uniqlo has launched joint models through cooperation with well-known designers, animation IPs, movies and TVs, etc., to achieve cross-border cooperation. Borrowing each other is a major marketing method for Uniqlo to attract young consumers. Gintama, One Piece, LEGO, Marvel, Disney, etc. have all been moved to Uniqlo's shelves. On June 3, 2019, Uniqlo and street art master Kaws jointly launched a trendy clothing. It was sold out in 3 seconds online, and the search volume increased by 37 times. Offline physical stores also saw customers queue up, run and enter the market overnight, and even fight to grab clothes.
UQLO's animation IP, street cultural artists and other elements have also attracted a large number of male consumers. In April 2018, Uniqlo collaborated with the serialized comic magazine "Weekly Boy Jump", which published representative comic works such as "One Piece", " Saint Seiya ", "Dragon Ball", "Football Player", " Naruto ", and "Gintama". All 44 T-shirts launched at that time were sold out. In June this year, Uniqlo and artist KAWS co-branded T-shirt were launched on sale, and it was sold out online and offline. Kaws was born in the United States and became popular for creating secondary graffiti on street billboards. Street culture in the United States was prevalent in the 1990s, and Kaws' graffiti creation was also widely praised and gradually became popular around the world. The iconic sagging head, XX symbolic eyes, and strong sense of street culture have attracted many male users. This time, Uniqlo X kaws has swept the screen and won the shortfall, which is also one of the manifestations of the rise of male consumption power.
In contrast, Li Ning Company has also increased its investment in joint models in recent years, and is expected to further learn from Uniqlo's successful experience in the future. Since 2018, Li Ning has followed the development of the fashion trend market, continuously increased investment in co-branded products, captured hot IPs in a timely manner, and successfully launched a series of co-branded products that conform to fashion trends through cooperation with popular celebrities and groups, which has been recognized by the market, but there is still a clear gap compared with Uniqlo. We believe that with Takeshi Takasaka entering Li Ning, the company may strengthen its strength in joint IP selection, product design and marketing in the future, and further play the positive role of joint products in maintaining brand image and creating a fashionable product line.
Inference 3: Help the development and exploration of digital retail
In 2017, Fast Retail Group officially proposed the "Youming Plan" and announced the transformation to a "digital consumer retail company", comprehensively reforming all supply chain procedures from planning to design, to raw material procurement, production, logistics and sales. After that, the company has successively cooperated with consulting company Accenture, technology giant Google, and logistics company Daifuku Co, and has continued to move towards clothing technology companies.
In terms of consumer terminals, Uniqlo launched a mobile flagship store (four major entrances for official website, official APP, WeChat mini program, offline QR code scanning) in 2018. Consumers can use the "one-click shopping" function to directly enter the online mall to purchase through WeChat, Weibo, store and other online channels, and choose to receive goods at home or pick them up at the store, shortening the intermediate links of shopping.At the same time, the company has also launched the "Free Band" function to provide consumers with clothing recommendations for different occasions to solve consumer matching problems; the "Free Band" function can give clothes to friends around them, making the flagship store on the palm of your hand have the attributes of social e-commerce. At Uniqlo, online and offline is not a diversion relationship. Wu Pinhui, CMO of Uniqlo Greater China, once explained the relationship between online and offline channels in this way: "Online stores are just one of many stores. No matter what channel online and offline, the most important thing is how to amplify our products, services and experience through these channels and means."
In addition, Uniqlo also launched unmanned retail stores around the world. In August 2018, the company launched the vending machine "Uniqlo to Go" at airports and shopping malls in 10 cities including Oakland, Hollywood, Highlands, Houston and New York, using new retail methods to save manpower and rental costs.
In contrast, Li Ning, as early as July 2015, the company announced that the strategic direction would be changed from sports equipment providers to "Internet + Sports Life Experience" providers, but there is still room for improvement in the speed and effect of advancement. In recent years, the company has gradually increased its efforts in communicating and interacting with consumers and improving consumer experience, mainly including three aspects: promoting the construction of digital stores, strengthening marketing promotion and consumer interaction, and strengthening member expansion and member marketing. We believe that the addition of Takeshi Takasaka may bring valuable practical experience in digital retail and accelerate Li Ning's future transformation in this area.
Profit forecast and investment advice: slight
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(report source: Oriental Securities)
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