The rise and fall of sportswear company Li Ning, one of China’s best-known brands, is a cautionary tale for others seeking to make the final leap from cheap to cool, copycat to creator.

From shoes to smartphones and the virtual marketplaces where they are traded, China is evolving from being the factory of the world to more western-style branding and innovation — in the process swinging the spotlight to locally grown standouts such as Xiaomi and Taobao.

Once ranked among China’s most likely to succeed beyond mainland borders, Li Ning too seemed bound for branding greatness, with shops in even the smallest cities and a founder whose name resonated across the country — gymnast Li Ning was China’s first Olympic sports star.

When Mr Li levitated through Beijing’s Bird’s Nest stadium to light the cauldron opening the 2008 Olympics, his company scored a priceless global marketing coup. Filled with pride and overconfidence, Li Ning put titans Nike and Adidas squarely in its sights, briefly drawing neck and neck with the German brand in the Chinese market.

But it has been largely downhill since, say retail analysts and branding experts. This month, Li Ning warned of its third straight year of losses. It is struggling to find a new chief executive, after the one installed in 2012 by private equity backer TPG left in November.

The company’s Hong Kong-listed shares are now plumbing 10-year lows, having lost more than 90 per cent of their value since peaking at HK$31.95 in 2010. They were trading around HK$3.00 on Friday.

What went wrong?

“Li Ning has flipped and flopped from strategy to strategy over the past several years,” says Tom Doctoroff, Asia head of advertising agency JWT. He criticises the company for relying on the “strategic opiate” of Mr Li’s personal prestige.

After the Olympics, Li Ning abandoned its safe niche of value for money and tried to relaunch itself as a premium brand, complete with prices aligned with those of aspirational foreign rivals. Retail experts say the company fell between two stools: older, value-conscious consumers decamped to cheaper local rivals while trendy youngsters continued to prefer the cachet of Nike or Adidas.

“I don’t know if there is a strategic need for Li Ning in the market today,” says Mr Doctoroff, pointing out that former JWT client Anta, now the biggest mainland sportswear brand, has occupied the value-for-money position.

“There are still a lot of people who don’t know why they should pay 20 per cent above Anta and not pay another 20 per cent more to buy Nike or Adidas,” says Daniel Han Ming Chng, of the China Europe International Business School in Shanghai.

In China, where fewer consumers participate actively in sports, “sportswear is even more of an emotionally driven purchase as consumers choose between sports and casual wear brands”, says Torsten Stocker, greater China retail partner at AT Kearney. “It’s even more important to have a clearly defined position in the market”.

Li Ning and TPG declined to be interviewed for this article.

Spencer Leung, sportswear analyst at UBS in Hong Kong, wrote in a recent report that Li Ning’s “new product designs . . . have led to stronger consumer demand”. The company has predicted that financial performance for the second half of last year will mark an improvement from a first-half net loss of Rmb586m ($94m).

But as the company nears the end of a three-year turnround plan announced in July 2012, few analysts believe it has truly turned a corner.

The plan involved clearing out inventory built up by third-party distributors (and selling it at discount prices, which did not help the brand image), closing thousands of underperforming stores, and increasing the percentage of directly run shops. By June 2014, Li Ning had reduced store numbers from over 8,000 to under 6,000.

“They have a much better foundation now. But the big question mark is still: what do they build on that foundation?” says Mr Stocker.

“Li Ning is such a huge ship, it can’t turn around easily,” says one former company insider. “I am not optimistic about the future of Li Ning, even in five years’ time”.

After years of “chaotic management”, the company may return to profit “but it cannot regain the status it had in 2008,” says Ma Gang, an independent footwear and apparel analyst.

“Li Ning used to know exactly who they should be and who their customers were and they did exactly what they should do to be successful,” says Mr Chng. “Once they stopped playing to their strengths that was a big problem.”

He sees warning signs elsewhere in China Inc, for instance in the push by Xiaomi — which has made its name in inexpensive smartphones — into air purifiers, and Taobao online marketplace owner Alibaba’s move into content development.

Retail analysts warn the fortunes of brand China as a whole may depend on not repeating Li Ning’s errors.

Adidas forced to run to keep up with ‘athleisure’ rivals

Competition is rife in the world of sports retailing as big brands rush to embrace the “athleisure” trend that has prompted analysts to declare that sports leggings and yoga pants are “the new denim”.

Emerging brands such as Baltimore-based Under Armour and Vancouver’s Lululemon are gaining pace with fashion-conscious consumers, Germany’s Adidas and Puma are having to rethink their game plan.

Based in the sleepy Bavarian town of Herzogenaurach, both brands have thus far struggled to replicate the US-driven trend, described as the point where sportswear and fashion intersect.

Adidas, which reduced its revenue and profit targets in July, pleasantly surprised the market on Friday with a better than expected 2 per cent sales increase for 2014 to €14.8bn, saying it was on track to meet the new targets. This has eased pressure on chief executive Herbert Hainer as he attempts to turn round the brand.

Adidas also announced the $280m sale of its Rockport shoe and boot brand to retro sneaker specialists New Balance and private equity firm Berkshire Partners. Analysts, who had considered the brand “non-core”, speculated whether the group could now consider a sale of its Reebok sneaker business as well.

The Rockport disposal will have a “double-digit million euro” affect at its full-year results in March, Adidas said, as it calculated that its previous warnings about the effects of the falling Russian rouble would cause an €80m “goodwill impairment losses”.

Adidas shares have dropped by a third in the past year — partly because of fears of the brand’s Russian exposure — but rose 3.5 per cent on Friday.

But while the group boasted about “double digit” sales growth in Europe, China, and emerging markets, there was scant mention of the US market, where its golf brand TaylorMade saw sales veer off into a bunker last year, dropping 34 per cent in the third quarter.

Adidas has not only lost its spot as the number two US sports brand to Under Armour, which is known for its pared back and minimalist designs, but that brand has also lured away Andy Murray, the former Wimbledon champion, as its new sponsor.

A series of bumper trading reports has boosted Under Armour’s share price by 66 per cent in the past year, and the company is targeting $10bn annual sales by 2020.

Nike is still top of the podium for US consumers, and has concentrated its marketing on female consumers there. Puma has also moved to woo women — but it has a slightly different idea of its target market. In December, the brand signed pop star Rhianna as creative director for its womenswear brand.

Additional reporting by Zhang Yan

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