Zhang Zhiyong: Review Of Ups And Downs Of Li Ning Company

On July 4, Li Ning Ltd. (2331. HK) issued an announcement at the Hong Kong Stock Exchange announcing the adjustment plan of the senior management team. Zhang Zhiyong, the former chief executive, resigned from his post on July 4, and Jin Zhenjun, a partner of private equity fund TPG, served as the executive director and executive vice chairman of the company. Before employing the new CEO, Li Ning will be led by Li Ning, the founder and executive chairman of the company, and Jin Zhenjun, the executive vice chairman.

Zhang Zhiyong has worked in Li Ning Company for more than 20 years, and served as CEO since the company was listed in 2004. To his embarrassment, on the day of the change of senior management, the share price of Li Ning Company rose by 7% instead of falling. In the past two years, the share price of Li Ning Company fell by more than 70%. The attitude of investors is unknown.

After the glory brought by the 2008 Olympic Games, Li Ning Company has more confidence to make more ambitious plans. In 2010, the management team led by Zhang Zhiyong put forward a new strategy, which can be basically summarized in three words: fashion, youth and internationalization.

Fortune and misfortune depend on each other. A former senior executive of Li Ning Company commented to the reporter of Caijing that it was precisely 2010 that became the turning point of Li Ning Company. Since then, "the defeat has been decided". "In today's situation of the company, no senior manager is innocent, but Zhang Zhiyong absolutely has to bear the biggest responsibility."

Zhang Zhiyong is the top manager who was replaced due to strategic problems, but Li Ning's problems are far from simple. On the surface, the problems of Li Ning Company are considered to be inventory, supply chain, accounting period, channels, etc., but in depth, they are caused by its internal management, culture, and genes. Now, the problems of Li Ning Company did not leave with Zhang Zhiyong.

Ten year general review

A former member of the "Executive Committee" of Li Ning told Caijing that Zhang Zhiyong's resignation can be seen as a general review of Li Ning's achievements in the past decade. For a long time, the Board of Directors and the executive team made mistakes in predicting the market and future trends, lacked a trust mechanism, and did not discuss the company's operation openly and transparently. Now the company has to pay a price for this.

Many insiders of Li Ning Company interviewed said that after its listing in 2004, its founder Li Ning rarely participated in the specific management of the company. In June 2009, after lumbar surgery, Li Ning was completely divorced from the company's affairs for a long time. It was during this period that the management team led by Zhang Zhiyong launched several far-reaching reforms.

In 2009, the company announced that the future core of the Li Ning brand is badminton, which is a starting point. This strategy was questioned by many commentators, because although badminton matches Li Ning's pursuit of championship effect, compared with basketball and football, its user base is small and its extension is not wide enough.

At the end of June 2010, the management team launched the brand rebuilding strategy and launched the concept of "post-90s Li Ning" with the new logo as the symbol. When deciding which new bid to replace, the company held a board meeting and put four alternative logos on the table, so that Li Ning, who had not appeared in the company for a long time, could "come up with an idea". Li Ning only knew the news of the company's bid change a few hours earlier than ordinary employees.

Looking at the four alternative logos on the desktop, the founder of Li Ning said, "Can we not choose today? I have low back pain." Now, brand remodeling is considered by many people to be Zhang Zhiyong's most unsuccessful layout.

Later, when the management team decided to raise the price of the main product to more than 400 yuan, Li Ning created another opportunity for its competitors. Since April 2010, Li Ning has raised prices of shoes and clothing products for three consecutive times, trying to match international brands by raising prices. The price increase lasted until July 2011. In the middle of the process, Li Ning changed its logo. The products with the original logo immediately became out of season goods, which quickly pushed up the inventory.

The price of the new goods increased after the bid change became more expensive, which made it difficult for Li Ning's major consumer groups in the second, third and fourth tier cities to accept. The number of orders and orders declined by 17% year on year. Li Ning stuck itself between international high-end brands and market popular brands.

The management team also proposed a bold change plan in terms of channels. In order to solve the problem that small dealers are too scattered, Li Ning Company cut off a large number of small dealers with small scale and poor cooperation effect, hoping that 129 large dealers will take over the orders.

The channel transformation is very big. The products ordered by those dealers who were cut off suddenly in the current season returned to the company, increasing the inventory burden. At the same time, the channel reform has led to the distrust of other small and medium-sized dealers in the channels of Li Ning Company. In addition to conservative ordering, they are also faced with another increasingly attractive option: changing the door. Local brands such as Anta and 361DU targeted at Li Ning, and they even used cash to purchase some channels of Li Ning. At the same time, the old rivals Nike and Adidas have sunk their channels into the market below the third tier, which was once the headquarters of Li Ning.

A former senior person of the market system of Li Ning told the reporter of Caijing that if Li Ning wanted to solve the product problem, it must focus on sports and the Chinese market, which is Li Ning's dream. However, Zhang Zhiyong, who is a financial professional, is more concerned with the business indicators of the current quarter and the current year. He will report his performance to the Board of Directors. "Li Ning asked them for recent data, and the sales team told him that it was good because the color was beautiful. But they forgot that we sold sports goods. When you started to focus on color and beauty, you drove yourself to a dead end."

The result of strategic mistakes was a rapid decline in the performance of Li Ning Company. In 2011, the company's profits plummeted by 65%, while its inventory soared by 41%. By the end of 2011, the product inventory of Li Ning Company had increased by 200 million yuan compared with the same period of 2010. The inventory turnover days have changed from 52 days to 73 days.

Someone should be responsible for this. At that time, the senior management of Li Ning Company changed frequently. From April 2011, the chief brand official Shiwei, the chief operating officer Guo Jianxin, the general manager of Letu Business Department Wu Xianyong and other company executives left successively. Among them, Guo Jianxin is considered to be the most supportive of Zhang Zhiyong in the senior management.

On March 17, 2011, Zhang Zhiyong, who always talked about the future plan when the financial report was released, first talked about the problems of the company. Later, in many public occasions, Zhang reflected on the company's performance. This year, Zhang Zhiyong also made many efforts to recover the performance, such as opening 100 factory stores to solve the inventory problem.

An insider told Caijing that in July 2011, Zhang Zhiyong proposed to resign from the Board of Directors for the first time, but Li Ning did not agree. The founder wrote an open letter expressing his support for Zhang. He said: Today, we take the initiative to change and break the rules. In order to pursue a clearer strategic positioning, we will gradually establish the core competitive advantage of the brand in brand management, sports marketing, product design, channel optimization, operation system, human resources and other aspects. Therefore, the change will gradually involve all aspects from strategy to operation, and the Board of Directors will firmly support the management's change measures.

A former senior manager of the Marketing Department told the reporter of Finance and Economics that when he retained Zhang Zhiyong's team, Li Ning had offered Zhang Zhiyong three years to try to change the inherent deep-seated drawbacks of Li Ning and fundamentally solve the external problems of inventory, supply chain and accounting period. However, in fact, Zhang Zhiyong announced his departure after one year of Kankan.

Li Ning's patience with the management is more like a stopgap measure. He is just looking for a more suitable candidate to replace Zhang Zhiyong. It is reported that Li Ning began to contact TPG and GIC (Singapore Government Direct Investment Co., Ltd.) before the end of 2011. TPG is considered to be a private equity fund with rich experience in the retail industry. It has invested in Wumart, Daphne, China's fashion and leisure clothing, etc. In particular, in 2009, TPG successfully helped Daphne get out of trouble and transform.

At the beginning of February 2012, Li Ning Company announced that it would introduce TPG as a strategic investor in the form of equity transaction, and at the same time, it could also obtain an investment of 750 million yuan from TPG to ease the situation of tight funds. Within two days after the news was released, the share price of Li Ning rose by 21%.

Sports industry commentator Ma Gang He said that TPG had actually put forward a new plan when it entered Li Ning in January 2012. At that time, it did not make a relatively large adjustment immediately, because the directors and middle and senior managers of many departments left. In order to make Li Ning's team work well with TPG's new team, Zhang Zhiyong was needed as a transition, so Zhang Zhiyong was not allowed to leave until now.

Li Ning is back

In July 2012, Li Ning once again wrote to all employees: In the past few years, I have been less involved in the daily operation of the company. Today, I am very happy to report that I will be more deeply involved in the company's management and development strategy.

In the letter, Li Ning explained his ideas in detail: in the next 6 to 12 months, the focus will be on focusing on retail efficiency and channel inventory management, improving product and operating cost structure, improving channel efficiency, profitability and performance level, focusing on core products and the domestic market, focusing on brand building, strengthening organizational structure and execution ability.

This is exactly what TPG partner Jin Zhenjun suggested. Wang Yafei, an independent director of Li Ning, told Caijing that the current plan is not only Li Ning's plan, but also the plan for the integration of the whole industry. The problems of Li Ning Company are also faced by the industry, such as destocking, which exists nationwide.

The former senior manager of Li Ning's marketing department also told Caijing that the problems of Li Ning's company are inevitable in the industry. In the past decade, China's economy developed rapidly, and Li Ning Company enjoyed the dividend of rapid consumption growth. However, in the past two years, the sports industry was surplus, and all companies slowed down.

Most insiders of Li Ning Company interviewed believed that the problems of Li Ning Company could not be simply attributed to Zhang Zhiyong alone, or even to strategy, but to systematic problems over the years. It was hard to return, and managers were helpless, because the underlying problems were low efficiency, corporate politics and other issues.

For a long time, Li Ning has formed a culture that tends to treat symptoms rather than root causes. A middle-level person of Li Ning told the reporter of Finance and Economics that "some of the problems of Li Ning are those that the management does not want to change, and some are those that want to change but cannot" - the former refers to overstaffed personnel and internal management; The latter are inventory, accounting period, channel, supply chain, etc.

A former senior executive of Li Ning Company interviewed by Caijing said that the managers of Li Ning Company could not handle the external uncontrollable risks well, for example, the overseas strategy was formulated by the strategy department in charge of Zhang Zhiyong according to the resolution of the board of directors. "The board of directors has given the executive team an operable profit margin, but have the acceptable risk parameters of the board of directors been planned well? Does our team have the ability to execute? These are not planned well, and the strategy is implemented."

In 2011, many people in Li Ning's company once opposed to making a big splash to do the overseas Olympics, and many middle and senior executives even made negative resistance. But at that time, some people in the company persuaded Li Ning to run the torch relay in London.

It is worth noting that on July 4, Zhang Zhiyong left his post. Less than 25 days before the London Olympic Games, some on-site activities of Li Ning in London have been quietly cancelled. An insider of Li Ning said: "This only shows that the company is ready to give up the London Olympics."

Vacillate

Compared with peers, the main problems of Li Ning are cost, supply chain and terminal channels. For a long time, the supply chain cost of Li Ning is 20% to 30% higher than that of Anta and other domestic competitors, almost the same as that of Nike and Adidas.

Wange, a consumer industry analyst with China Investment Group, said that TPG's success in Daphne would not necessarily be replicated in Li Ning. At that time, Daphne was faced with the problem of income decline, and Daphne was mostly a direct store. Once the inventory problem was solved, the profit rose rapidly. However, Li Ning's revenue is not declining, but is close to loss. The 8255 stores of Li Ning Company are in the hands of more than 2000 dealers. The company needs to play games with dealers repeatedly to make a decision, and the efficiency of terminal channel management is extremely poor.

An insider of Li Ning company gave an example: everyone decided to give a discount when they woke up in the morning, Anta held a meeting in the morning, and all stores began to give a discount in the afternoon. However, Li Ning had to coordinate with dealers for several weeks, and it was only a month later that Li Ning began to discount.

In Li Ning Company, because of the shortage of funds, the inventory problem has always been put at the forefront of the reform chain before the end channel problem. In February this year, TPG's layoff in Li Ning saved 50 million to 60 million yuan of labor costs every year. But four months later, Li Ning Company invested another 2 billion yuan to become the sponsor of CBA's five season league equipment.

"I don't think there is anything new in the plan proposed by TPG now." The middle level of Li Ning said that Zhang Zhiyong had implemented such measures as reducing inventory, shortening account period and improving the supply chain, but so far the results have been rather poor. "The new plan can solve Li Ning's pressing problems, but I don't know whether it can solve all the problems of the company. I think Li Ning himself can't solve these problems. Everyone who contacts him knows that Li Ning is actually a man who can't make up his mind."

The formation of internal problems is closely related to senior executives including Li Ning and Zhang Zhiyong. These internal problems are difficult to be solved by insiders. At this time, the entry of TPG, which represents external capital forces, is a feasible option, although it is risky.

Ma Gang believed that TPG's plan was formulated according to the priorities of Li Ning's problems, but it was too difficult to implement. At the beginning of February this year, in the layoff plan implemented by TPG, the Chief Marketing Officer, Brand Marketing Director, Strategic Director, Director of Human Resources Department and Southern Sales Director of Li Ning Company were all laid off.

"TPG can only solve the cash problem in the short term, and it will take more than three years to solve the problem of inventory to the channel, because Li Ning has no money and no people," Ma Gang said.

A former executive in charge of Li Ning's overseas strategy said that the biggest and most fundamental problem of the company was that the corporate culture was biased, and managers could not figure out what company it was? This kind of environment without cultural cohesion causes more and more problems. "Li Ning's self healing ability is very poor."

Li Ning Company vacillated between different strategies, positioning and policies. A new strategy failed to work and returned to the old way, probably because the new strategy involved too much and complained a lot.

The relationship with dealers is an example: Li Ning's attitude towards dealers has been vacillating between appeasement and strength. When the contradiction between the two gradually exposed after the Olympic Games, Li Ning Company began to promote the merger and integration of dealers, hoping to improve the disadvantages of dealers not self supporting and too decentralized. In 2010, Li Ning Company planned to cut down the small dealers with poor operation, but it slowed down because of the fierce response of dealers. When TPG formulated the "three-step" plan for Li Ning, the channel rectification was postponed to the last stage.

In fact, Li Ning, the founder, was very clear about the crux of the problem. After changing the helm, he said publicly: Generally speaking, the company team has been looking for changes and breakthroughs in the past two years, but when implementing, some decisions were not so firm, or the trade-offs were not clear, and they had to consider some practical issues, such as performance, Internal balance of each department, dealers' ideas, etc.

At noon on July 10, 2012, Li Ning Appeared at Chunxi Road, Chengdu to investigate the sales of the flagship store in Chengdu of Li Ning Company. For him, this more means that Li Ning attaches importance to and will repair the relationship with these dealers - this indecisive company has once again overturned the policy of two years ago and returned to the old strategy of being renovated.