In 2023, as public health awareness continues to rise, the social atmosphere of national sports will become stronger, and sports consumption will also flourish.

In this context, Li Ning is deeply involved in a “single brand, multi-category, multi-channel” strategy to comprehensively enhance brand competitiveness. Li Ning (02331), one of the leading sports brands, also handed over a steady and progressive “report card” during this earnings season.

In 2023, Li Ning achieved a record high of 27.598 billion yuan in revenue (same unit), an increase of 7% over the previous year. Compared with 2019, the group's revenue doubled in five years, and the compound annual revenue growth rate reached 15%.

In terms of net profit, the company focuses on investment and layout to drive long-term returns. During the reporting period, the company achieved net profit of 3.187 billion yuan, with a net profit margin of 11.5%. From 2019 to 2023, net profit increased by 142% over the five years after deducting one-time non-operating income, with a compound annual growth rate of 19%.

At the same time, Li Ning also revealed an important piece of information in the financial report — that is, gross margin improved significantly year-on-year in the second half of the year. In 2023, the company's gross profit increased 6.9% year over year to 13.352 billion yuan, and gross margin remained stable at 48.4%. Among them, gross margin improved significantly year-on-year in the second half of the year, and offline discounts also improved year-on-year. Gross margin is not the only criterion for investment decisions, but it is a key that opens the door to analysis. It certainly bears witness to Li Ning's correct layout of paying more attention to development efficiency and quality.

The improvement in these core financial indicators clearly highlights the resilience of Li Ning's performance in an uncertain market environment.

However, what is worth further thinking about is what strategic layout has been implemented behind Li Ning's steady growth? What about future growth potential?

Deeply consolidate brand power and help steady growth in performance

Judging from the uniqueness of consumer brands, every brand has its own circle of competence. This is especially true for mature group companies. They often have mature brand images and strong brand effects, thereby strengthening the resilience and elasticity of performance in many aspects.

And the core reason why Li Ning can continue to grow through uncertainty and resilience also stems from this.

In 2023, Li Ning will continue to exert its brand effect, using the “Li Ning” brand as the cornerstone, to enter the core sports with the most participation in the Chinese public, and continue to strengthen its market advantages in the core categories represented by basketball, running, and sports life.

More specifically, based on Li Ning's strategic layout:

In terms of brand strength, increasing investment in R&D for a single brand will promote growth in all categories of products. In the reporting period, Li Ning's R&D investment increased 16% year over year. In the past 10 years, Li Ning's total R&D investment for a single brand has exceeded 3 billion dollars.

Moreover, Li Ning has also strengthened the company's brand barriers in every dimension. On the one hand, enhancing the core technology and design of the product, helping Li Ning's various professional categories to be recognized on vertical tracks, and promoting Li Ning YOUNG to become the preferred professional sports children's clothing brand for Chinese children; on the other hand, during the period, Li Ning also increased the strategic layout of top professional sports resources to strengthen the professional awareness and influence of the Li Ning brand.

For example, since the 2012-2013 season, Li Ning Group has worked with the CBA for 12 seasons and has provided more than 47,650 pairs of sneakers in more than 5020 top games. Relying on the highest-level professional basketball league stage in China, Li Ning Basketball continues to strengthen the strength and image of professional sports with CBA practice as proof.

Thanks to the comprehensive layout of brand power, Li Ning's major product growth data during the reporting period was also quite impressive, contributing significantly to the brand's performance.

In 2023, Li Ning's three core sports categories of basketball, running, and fitness accounted for 64% of sales, with the running and fitness categories showing outstanding performance, with turnover increasing by 40% and 25%; judging from the revenue share of shoes, clothing, and accessories, the high-technology footwear business accounted for 49% of revenue, higher than the clothing business, which highlighted the brand's professional sports competitiveness; in addition, Li Ning YOUNG's children's clothing sector continued to unleash its potential, with a sharp increase of 30%-40% in the middle of the sales volume.

In terms of channel strength, focusing on channel expansion and optimization, while better matching the company's development strategy, it also further enhances the consumer shopping experience.

In 2023, Li Ning continued to optimize the channel structure and improve channel efficiency, actively handled inefficient stores, improved the overall store structure, and continued to expand its business layout in high-quality shopping centers, and achieved a major breakthrough in the Super Olay channel.

By the end of 2023, Li Ning had a total of 7,668 sales outlets, a net increase of 65 over the same period in 2022. At the same time, after 3 years, Li Ning has also completed the high-level market channel expansion card slot layout goal, and the entry rate of core businesses has increased to close to 90%. In addition, the company is also speeding up the upgrading of its store image. By the end of 2023, it had opened and upgraded more than 230 new 9th generation stores, further enhancing the consumer shopping experience.

In addition to continuously optimizing the channel structure, Li Ning also strives to improve the business performance of the same stores in direct channels through continuous strengthening of retail operation capabilities, which in turn gave impetus to the group's development — in 2023, the number of Li Ning's direct-run stores reached 1,498, a net increase of 68 over the previous year.

While strengthening retail operations, Li Ning also continues to support and empower dealer partners to pursue long-term steady development. For channel health, distribution channel delivery volume was strategically adjusted according to market dynamics in the second half of the year to ensure efficient collaboration in terminal business. In the long run, Li Ning will continue to empower dealers and improve the efficiency of terminal retail operations to promote healthy channel development and sustainable growth.

What can be clearly seen is that after continuously optimizing the channel structure and improving channel efficiency, Li Ning apparently also invisibly strengthened the company's brand effect after providing consumers with a better consumer experience, thus empowering the company's performance growth.

According to the latest financial data, in 2023, the company's direct revenue increased by 29%, offline discounts improved year-on-year, wholesale sales achieved a low growth of 10%-20% throughout the year, and the overall offline business performance was stable.

Combining these actions, Li Ning has undoubtedly built the company's brand “moat” in many ways. While saving the company greater strategic potential, the moat also provides the company with a steady stream of growth vitality.

Nugget “Chaoyang” track, wait for heavy snow on the slopes

If Li Ning's strong brand power provides the driving force for the company's performance, then the development momentum of the sports consumer industry has opened up Li Ning's growth ceiling.

Reviewing the domestic sports footwear market is roughly divided into three stages: 2001 to 2010 was a period of rapid development. Mass consumption capacity increased significantly, compounding the sports boom brought about by the Olympics and other events, and local sports footwear brands developed rapidly. The period from 2011 to 2013 was a period of industry stagnation. Affected by the subprime mortgage crisis, etc., the growth rate of the sports footwear industry slowed; after 2014, the growth rate of the sports footwear industry slowed down. After the epidemic, the development stagnated in 2020, but after the post-pandemic era, driven by multiple factors such as policy promotion and rising residents' income, the market size also increased by 13.66% to 354.947 billion yuan, with a slight year-on-year increase in 2022. It is expected that the size of the industry will grow steadily at a growth rate of 5% to 12% in 2023-27.

The 100 billion scale combined with a double-digit growth rate clearly highlights the large development potential of the current sports consumer market, thus providing inexhaustible imagination for relevant sports footwear companies.

However, from the source analysis, the booming development of sports consumption is based on “change.” For Li Ning, this “change” is unquestionably positive and forms a unique “strategic window period” for it.

On the one hand, as the social atmosphere of national sports intensifies, the public's attitude towards sporting events changes from watching to participation, the enthusiasm for popular sports consumption has been unleashed at an accelerated pace, and demand for professional sports equipment has increased. On the other hand, driven by policy guidance, pop culture, etc., trendy sports continue to be popular, and “trendy sports” equipment continues to be popular, thus boosting the growth of sports products in segments such as skateboarding, skiing, and outdoor hiking.

And why are these positive changes viewed as Li Ning's unique “strategic window period”?

First, Li Ning's “single brand” has formed a strong brand effect.

Outsiders have always liked Li Ning's “single brand” strategy as a comparison with the industry's “multi-brand” strategy, believing that multiple brands can better expand segments, share back-office resources, and facilitate business growth. However, in reality, the strategy itself has no advantages or disadvantages; it only selects its own development path based on different enterprise genes and advantages, and the market seems to have overlooked the powerful effect of focusing on single product strategies, that is, a single brand can help enterprises establish a unified brand image and enhance popularity and recognition; while consumers are more likely to be loyal to a single brand, reducing the possibility of switching brands, and more conducive to the long-term development of enterprises.

In the case of Li Ning, the sports story of founder Li Ning was used as a carrier to build a brand image. Then, it further focused on the single-brand strategy, highlighting “professional” characteristics. Speaking of professional sports, people think of Li Ning. There is no doubt that this kind of brand recognition is strong and long-term.

Compared to global sports brands, the world's strongest sports brands are currently also dominated by single brands. Take Nike as an example. In fiscal year 2023 (June 2022 to May 2023), its brand revenue reached 48.7 billion US dollars, of which the Nike brand accounted for about 95% of revenue. As can be seen, relying on the booming domestic sports consumer market and strengthening consumers' awareness with the “Li Ning brand”, Li Ning undoubtedly has huge room to explore the market.

Second, the incremental space opened up by deepening multi-category racetracks based on a single brand should not be underestimated.

According to Li Ning's development strategy, it can be seen that its original intention was to use a Li Ning brand to enter core sports categories such as basketball, running, badminton, and table tennis, and enter the core sports with the largest participation of the Chinese public. In fact, through the Li Ning brand's deep cultivation of multiple categories, the product power brought about by this style of play is fresh for a long time. That is, after the corporate brand is superimposed with the product brand, the vitality of the product brand continues to grow, and the accumulation becomes deeper and deeper.

Furthermore, in the author's opinion, whether it is a multi-brand or single-brand strategy, the ultimate foothold or product strength, this also means that product strength is the key to the company's growth power. According to CITIC Securities analysts, Li Ning's core base and undertones (that is, an excellent product matrix and product development team) are expected to help the company stay ahead in the next round of industry technology iterations. In the R&D model, Li Ning mainly uses a centralized+decentralized model, that is, by increasing R&D investment in a single brand to achieve cross-category technological innovation, which in turn can promote the company's product development in various categories to be more “specialized”. Taking light elastic technology as an example, Li Ning has achieved cross-category technological innovation, which is used in basketball, running, fitness, badminton, and even sports lifestyle products.

Obviously, the technological strength and product strength built by Li Ning are also very good enough to be fed back into performance. Taking the running category data as an example, in 2023, the IP sales volume of Li Ning's core running and basketball shoe products exceeded 12 million pairs. Among them, the running category's three core running shoe IPs, ultra-light, red rabbit, and flying electric, which are needed for daily jogging, advanced training, and racing competitions, reached a total of 9 million pairs throughout the year. Among them, the Feiden 3 Challenger sold more than 1.3 million pairs of single models throughout the year, making it a phenomenal IP among carbon board running shoes.

From the above, it can be seen that under Li Ning's single-brand strategy, a multi-category product matrix layout has been achieved. This style of play not only has “specialty” characteristics, but also has diversified development characteristics, accumulates its own brand assets, leverages brand value, and follows a longer-term and steady path.

This style of play is currently also a good match for the current sports consumer industry's comprehensive and professional strategic window. Therefore, for Li Ning, although it has been very difficult to achieve a “single brand” every day for ten years, the heavy snow that belongs to it has already become apparent.

epilogue

Based on the above, it is easy to see that Li Ning's steady growth in 2023 is not an accident; it is the result of the company's strong growth logic.

More importantly, from a long-term perspective, Li Ning's dedicated brand power, product power and channel power may lay a solid foundation for its steady performance in 2024 and beyond.

At a time when confidence in development was sufficient, Li Ning also gave back the trust of shareholders and investors with real cash dividends. For the year ended December 31, 2023, Li Ning's annual dividend will be 54.74 points per common share, with an annual dividend payout ratio of 45%, which is a high level in the industry. This massive dividend payment not only reflects the importance the company attaches to shareholders' returns, but also reflects the shareholders' confidence in the company's future development prospects and recognition of its growth value.