Nike and Adidas Are Caught Between China and the NBA. That's Fine With Li Ning

Houston Rockets general manager Daryl Morey’s tweet has sent the NBA and China’s relationship into a weeks-long tail spin, but one Chinese company may be uniquely poised for a windfall: Li Ning.

In the past few years, the Chinese sports apparel company has made one of the greatest turnarounds of any company in China’s history: from indebted, over-inventoried, and barely getting by, to internet-savvy, hip, and massively profitable. This turnaround into a strong and stable brand may also allow Li Ning to capitalize on the NBA’s controversy with China.

The global sports apparel giants Adidas and Nike have both long been invested in both the NBA and China, but in recent weeks the companies have been under pressure to reevaluate their business interests in China. Vice President Mike Pence even recently lambasted Nike “for checking its social conscience at the door,” due to the company’s decision to drop Houston Rockets gear from Chinese stores.

Li Ning has also long been invested in the NBA—since the 2000’s, Li Ning has signed endorsement deals with stars like Jeremy Lin, Shaquille O’Neal, and Dwayne Wade, who recently has been quietly appearing in the second season of Dunk of China, a Chinese basketball-based reality show. But Li Ning—which also cut ties with the Rockets—is suffering none of the criticism faced by Adidas and Nike.

Indeed, in the wake of Morey’s tweet, Li Ning’s stock jumped up a few points due to speculation that continued issues between the NBA, the U.S., and China would lead to more sales for domestic retailers.

Li Ning’s post-controversy jump is far from a one-time event, however. The company had been growing for many months before the recent controversy, and its stock price has roughly tripled on the Hong Kong stock exchange since the beginning of this year, leading some to call it the “world’s hottest sportswear firm”—a description helped by the brand’s recent decision to debut its own high-end clothing lines in international fashion shows.

Yet behind the Li Ning’s NBA relationships and splashes into the world of international fashion lies a company that has been quietly taking advantage of trends in the Chinese market and positioning itself as a global powerhouse in the sportswear industry.

“What’s really important is the structural aspect, what’s going on in the market behind the blip of the NBA thing,” said Pascal Martin, a partner at OC&C Strategy Consultants and expert in China’s retail industry. “Li Ning’s (success) reflects a more fundamental rebalance… from an environment which was dominated by foreign brands to an environment where Chinese brands have their say.”

Li Ning, the man

Li Ning is named after the company’s founder, who founded the company in 1990 after a decorated career as a professional gymnast. Li competed in China’s first Olympic appearance in over 30 years in the 1984 Los Angeles games and took home six medals, and he remains as one of China’s most decorated athletes.

While he competed in the following 1988 games in Seoul, Li did not medal and began looking beyond to opportunities outside of the gym. So two years later, at 26, Li had the idea to create a sportswear brand with “the simple goal of providing Chinese athletes a national brand to wear on the world stage,” according to the company website.

(Li Ning did not respond to multiply interview requests for this story.)

This period coincided with the opening of China’s economy, and Li’s company became an immediate success, sponsoring Chinese Olympic delegations and making affordable sportswear apparel for the masses. By the end of the decade, Li Ning would be making more than double the profits of Nike and Adidas in the Chinese market.

However, that dominance of the Chinese market waned in the lead up to the 2008 Beijing Olympics, as rivals Nike and Adidas focused more of their efforts on China and gained more control of the overall sportswear market.

This was most clearly exemplified at the Olympics, where Adidas beat out Li Ning to become the games’ official sponsor, even though Li famously lit the Olympic torch during the opening ceremonies while suspended hundreds of feet above the crowd (which represented somewhat of a marketing coup for the company).

Following the games, Li Ning’s stock soared but their prospects quickly soured as Chinese consumers opted for foreign brands. This, in addition to costly and rapid expansion in China and overseas, built up significant a backlog of unsold products and increased the company’s debt load.

After posting years of consecutive losses, Li Ning hit bottom in 2012 and allowed private equity firm TPG to take a massive stake in the company. This too proved unsuccessful, as the company continued to post losses even after TPG installed their own CEO, who would leave in 2015.

“The private equity company was not suitable [for them] and… it was a mess during that time,” said Walter Woo, Vice President at CMB International. “In terms of product quality and brand equity, they were not comparable to international brands, but they tried to place themselves at that level and they weren’t very good.”

In 2015, founder Li Ning returned to the company in a bid to launch a turnaround drive for the firm. Li’s efforts focused on reducing their massive stockpiles of unused inventory and attempting to rebuild the brand’s profile.

Specifically, the company’s early efforts to invest in China’s massively expanding e-commerce market proved incredibly successful and allowed the company to turn over inventory at a much higher rate.

“The Chinese online ecosystem is completely different than the rest of the world,” Martin said. “Suddenly you have Chinese apparel brands, who have their manufacturing base nearby, which enables them to be much more reactive with shorter cycles and more flexibility.”

At the same time, Li Ning also sought to raise their brand’s quality and reputation through creating a premium fashion line and presenting their work in international fashion shows. However, unlike a few years ago, such expansion wasn’t prohibitively costly or geared towards a global market, but rather aimed at raising their profile amongst Chinese consumers. The team of Chinese and international designers sought to combine the company’s sports history, Chinese heritage, and a modern aesthetic into an athleisure line.

“We are basically starting from the top and watching that it’s working and that it’s effecting our entire business and brand,” said Liad Krispin, a brand consultant for Li Ning who has worked on developing the company’s premium line. “Two years ago, they didn’t see Li Ning as on par with Nike and Adidas… [But] we’ve been able to awaken this Chinese pride that is there, and has been there. And that’s part of why it’s been so successful.”

Li Ning’s transition into the online marketplace, strengthening brand profile, and improved product quality have happened to coincide with favorable trends for domestic companies in the Chinese marketplace—including a not insignificant rise in nationalism.

“You are creating a perfect storm which is in favor of Chinese brands, there is no question about it,” said Martin. “The old thinking that quality equals foreign brands is not true anymore.”

The NBA’s recent crisis in China may indeed inject an extra dose of nationalist sentiment into the sportswear marketplace and benefit the company, yet Li Ning’s development over the past few years suggests that they are well-positioned for sustained success even without the extra help.

“We’re just getting started, the opportunity is so big, domestically in China and overseas,” Krispin said.” There is momentum that this is going to be long lasting, this is not just like a little sort of thing, trend, marketing activity, that Li Ning is trying out. This is the new direction of the brand.”

Nike and Adidas Are Caught Between China and the NBA. That’s Fine With Li Ning

Li Ning, the man

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