August 29, Leading Chinese sportswear maker Li Ning Co. Ltd. (2331.HK) said it expects to restore growth momentum by 2012 through a corporate transformation that may involve changes in its product portfolio and sales channels.

“A transformation must take place in Li Ning, and I hope I can make it in due time,” chief executive officer Zhang Zhiyong told reporters at the company’s first-half results briefing last week.

Li Ning’s order volumes for the first quarter of 2012 rebounded after shrinking for 3 consecutive quarters, Zhang said, citing the increase as evidence the company has been successful in its reforms to boost sales.

“I expect the growth momentum to continue for the second quarter of 2012,” Zhang said.

Setbacks

Li Ning, founded by former gymnastic champion Li Ning, has focused on selling sportswear and sporting equipment to an older, more mature group of consumers.

The company started to reshape its branding last year, when it replaced its original slogan with a new one that was supposed to speak to a younger client base.

But that campaign didn’t come off well, and hurt its long-term target consumers, almost 50% of whom are aged 35-40 according to a market research conducted by Li Ning.

During the first 6 months, Li Ning’s sales revenue was RMB 4.29 billion, down 5% from the same period last year as a result of rising inventory.

Li Ning, for the first time, lost its No.1 position in the domestic sportswear market to rival Anta Sports Products Ltd. (2020.HK), which booked H1 revenue of RMB 4.45 billion.

As of Aug. 24, Li Ning has RMB 992 million worth of sporting goods inventory, up from RMB 806 million at the end of 2010.

Coping Strategies

Zhang told reporters during the briefing in Hong Kong that his company would open around 240 factory stores by the end of 2011 to consume the inventory

Li Ning has opened 191 factory stores so far this year, which have on average RMB 400,000 in monthly sales per store.

The CEO said the company had spent 6% of its January sales on clearing inventory, and that proportion is expected to climb to 15% of monthly sales before all the current inventory is consumed by the second half of next year.

According to Zhang, Li Ning will beef up investments in projects related to more popular sports like football and basketball over the next 18 months, saying that the company had been neglecting those market segments before.

In order to regain its price advantage, Zhang said Li Ning plans to raise the proportion of low-cost products starting in the first quarter of 2012 to counter rival brands including Nike and adidas.

“We have integrated approximately 256 stores as of June 30, and we hope to bring the number to 400 by year-end,” Zhang said.

Li Ning started to integrate its stores and sales channels at the end of last year in an effort to raise the efficiency of its large-scale store openings.

edited by Kendra KE