Sportswear firm Li Ning (02331.HK) has seen its share price surge 180 percent over the past 12 months as the brand has regained its popularity among young Chinese consumers.
Li Ning now has a market cap of HK$52 billion, making it the nation’s second-largest sportswear brand.
After announcing the end of his career as a gymnast in the 1988 Olympics, Li founded the eponymous sportswear firm.
In the early years, the brand took off quickly, capitalizing on its relatively more affordable pricing (about half the price of leading foreign brands like Nike and Adidas) and Li’s popularity as China’s sporting hero. The company listed in Hong Kong in 2004.
Li Ning’s surge came to an abrupt stop after the 2008 Beijing Olympic Games. By that time, Chinese consumers became more affluent and started turning to foreign brands, which were seen as a status symbol.
At the same time, the company suffered from corporate governance issues.
Soon, Li Ning was overtaken by other national sportswear brands such as Anta and 361 Degrees.
It’s very rare for a fashion brand to stage a comeback once it has fallen out of favor with consumers. But Li Ning has proven skeptics wrong.
The company posted a 33 percent jump in sales revenue to 6.3 billion yuan (US$882.68 million) in the first half of this year from a year ago, beating all of its domestic rivals. Its net profit surged 196 percent to 795 million yuan.
The company’s share price has soared 180 percent over the last 12 months, bucking the sluggish trend in the broader Hong Kong market. In fact, the share price has spiked over six times in the last three years.
Part of the turnaround could be attributed to TPG Capital that Li Ning introduced in 2012 as a strategic shareholder. The partnership has helped the Chinese sportswear firm improve its corporate governance considerably.
To brush up on his management skills, Li went to a business school.
But perhaps more important is a shift in consumer taste in favor of generic Chinese brands.
Having witnessed China’s ascent to become the world’s second-largest economy and a global leader in online shopping, e-commerce and some other new technologies, the young generation is said to have grown prouder of homegrown brands.
Many young Chinese now prefer indigenous products even if they can afford foreign brands.
This article appeared in the Hong Kong Economic Journal on Aug 23
Translation by Julie Zhu
[Chinese version 中文版]
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