Shift towards e-commerce leads Chinese sportsware brand Li Ning’s recovery
The eponymous sportswear company founded by China’s former Olympic gymnast achieved staggering 58 per cent revenue growth in its e-commerce business in the first half of this year
Chinese sportswear brands are taking full advantage of the country’s fever for everything related to e-commerce, with online sales helping to boost revenue growth, while also forcing some smaller local stores owners to cater to this new generation of tech-savvy shoppers.
And none more so than Li Ning, the eponymous sportswear firm founded by China’s former Olympic gymnast, which achieved staggering revenue growth of 58 per cent for its e-commerce business during the first half of this year, as the recently-struggling firm finally got to grips with its operating efficiency compared with last year, according to its latest interim report.
In contrast, to other sales channels, direct retails had low single-digit growth compared with last year while wholesale through franchised distributors had a growth of about 5 per cent in the second quarter this year.
But the percentage of units sold by a retail outlets and distributed to it wholesale, including e-commerce, increased by about 13 per cent.
As at the end of June this year, the company’s had 6,329 points of sales in China after a net decrease of 111 in direct retail and wholesale sites.
The company closed another 200 stores at the end of last year, after reporting a loss of 781 million yuan (US$119 )million) in March 2015 and that its namesake founder would retake over as interim chief executive as part of a restructuring plan.
The company’s troubles started in 2010, when a plan initiated by former chief executive Zhang Zhiyong to focus on manufacturing high-end products led to overstocked warehouses and huge losses. Consumers did not buy into Li Ning’s strategy of quality products with higher prices.
China’s e-commerce sector is enjoying sizzling growth at an unprecedented rate, as tech-savvy millennial customers embrace the convenience of online shopping.
Online retail sales in mainland China amounted to 5.156 trillion yuan (US$764.85 billion) in 2016 – equal to 3,729 yuan per capita – up 26.3 per cent from sales in the previous year, according to the country’s National Bureau of Statistics.
From 2007 to 2016 the sector grew at a compound annual growth rate of 67.2 per cent.
“The love of online shopping can easily be explained. It is convenient. Could you imagine buying trainers and everything without even leaving your home a decade ago? Products sold online are also usually cheaper than those sold in physical stores as online stores need to bear less rental expenses. The choice is clear,” saidLo Ming-kit, a 26- year-old Hong Kong resident and Li Ning fan.
“I love buying trainers online,” Lo said.
Li Ning said the company has made continuous efforts in developing mobile internet services.
“We have fostered rapid development of our e-commerce channels with significant yearly sales growth recorded for the third consecutive year,” Li Ning himself said.
Sales from e-commerce channels amounted to 18.2 per cent of Li Ning’s total revenue for the six months ended June this year, up 5.4 per cent compared to the previous year.
There was a 5.4 per cent reduction in share delivered by its franchised distributors and owned stores to the company’s total revenue.
As the e-commerce channel has developed rapidly, it has consistently led to a yearly increase in commission fees to online platforms.
“However, at the same time, we further strengthened control over investments,” Li said.
“So accordingly, although distribution expenses increased yearly, the percentage to revenue decreased by 0.3 per cent,” Li added.
The company has also continued to push forward with a cross-channel delivery business between e-commerce and physical stores.
“Various performance indicators including orders responsivity, delivery accuracy, delivery punctuality and customer satisfaction showed improvement,” Li said.
“Aided with the full coverage of mobile payment, the shopping experience of consumers was enhanced.
“We will further improve the development of all-in-one system of inventory management in the coming half year.”
The company also made use of more technology in daily operations by intensifying investment in lean digital operation in its e-commerce business, while gradually developed and improved the sales trend forecast system.
Analysts approved of Li Ning’s efforts at boosting sales through e-commerce.
“We increased the company’s upcoming net profit estimate by about 2 per cent after factoring in better e-commerce sales but higher labour and rent costs,” Michelle Cheng and Samuel Wong, analysts at Goldman Sachs said in a report.
“E-commerce will continue to contribute 20 per cent to 24 per cent of sales in the upcoming financial year, up from just 14 per cent in 2016.”