Author | Zheng Qiao
Editor | Wang Xiaojuan
After many twists and turns, Li Ning has once again turned its attention to overseas markets.
Recently, Li Ning announced that it will establish a joint venture with Founder Co, HongShan Venture, and HongShan Motivation through its indirectly wholly-owned subsidiary LN Co. According to the announcement, the total capital of the joint venture is HKD 200 million, with Li Ning and himself holding a combined 55% of the shares, while Sequoia China holds 45%.
The collaboration between the apparel giant and top investment institutions seems to be a win-win situation, and going overseas is a new narrative for many companies today, but the capital market's reaction has not been optimistic. The day after the cooperation news was announced, Li Ning's market value evaporated by over HKD 2 billion.
Li Ning is facing considerable pressure this year. In the first half of 2024, Li Ning's revenue increased without profit growth, with revenue of 14.345 billion yuan, a year-on-year increase of 2.33%; net profit was 1.952 billion yuan, a year-on-year decline of 7.98%. By the third quarter, Li Ning's sales points (excluding Li Ning YOUNG) recorded a mid-single-digit decline in retail turnover across the entire platform year-on-year.
In the past two years, consumers have become increasingly rational, and even luxury giants like LVMH and Kering have not performed well in the Chinese market.
However, influenced by events like the Olympics and the Gorpcore trend, many companies in the sportswear industry have achieved good growth. For example, Anta, Xtep, and 361 Degrees have all maintained double-digit growth in both revenue and net profit, making Li Ning's decline even more conspicuous in comparison to its peers.
Li Ning has also had its moments of glory. In 2018, &#34;China Li Ning&#34; made a stunning debut at New York Fashion Week, kicking off a trend of domestic product revival.
In 2021, Li Ning's growth peaked. Financial reports show that Li Ning's revenue reached 22.572 billion yuan that year, a year-on-year increase of 56.13%, with net profit of 4.011 billion yuan, an increase of 136.14%.
That was Li Ning's golden age, and it was in the spotlight for a time. At that time, Li Ning also aimed to leverage the popularity of the national trend to raise product prices.
However, the era of cost-effectiveness soon arrived, and faced with Li Ning's high premium, consumers began to lose interest. Moreover, compared to the peak period of product innovation, it has become increasingly rare for Li Ning to have standout products in the past two years.
Li Ning Group's co-CEO Qian Wei admitted, &#34;In the first half of this year, the offline operating environment faced pressure. Overall, consumers are becoming more cautious or prudent in their shopping habits, which poses challenges for the overall offline turnover growth in the industry. Companies are actively and proactively responding to these changes.&#34;
Like many companies planning to go overseas, turning attention to overseas markets may be one of Li Ning's strategies to cope with market changes.
In China, it is not common for VC and industry giants to jointly establish joint ventures. Generally, VCs prefer small equity investments to achieve high returns, as their funding scale is insufficient to support large-scale investments in joint ventures, and they primarily pursue financial returns rather than control.
However, with the development of the capital market and the increasing demand for going overseas, some VCs have begun to experiment with collaborations with industry giants, with Sequoia China being a representative example
As early as 2020, Sequoia China announced a strategic partnership with Starbucks China. In July 2023, pharmaceutical giant Pfizer reached a collaboration with Flagship Pioneering Ventures (under Sequoia China).
Many star companies are also part of Sequoia's overseas consumer investment landscape, including SHEIN, Amer Sports, Osprey, Aventon, Miracle Miles, and others. Sequoia not only participated in multiple rounds of financing for the Chinese fast fashion brand SHEIN but also helped the company with its globalization through its resource network.
Li Ning's partnership with Sequoia may be due to Sequoia China's rich experience in cross-border investment and project operations. The Li Ning Company also mentioned in its announcement that the joint venture will seek opportunities for an IPO in the future.
In fact, Li Ning has been planning to go overseas for a long time, but the journey has not been smooth.
Initially, Li Ning enhanced its brand image through opening specialty stores overseas and sponsoring sports teams, but the contribution of international market revenue was inversely proportional to the large investments made. In 2003, international market revenue accounted for 2.9% of total revenue, but by 2008, it had fallen to less than 1%.
In 2009, Li Ning ambitiously announced the goal of &#34;going global, aiming for overseas revenue to reach 20% within ten years.&#34; However, ten years later, the proportion of overseas revenue did not achieve the expected growth and instead declined in the past two years. In 2021, Li Ning's overseas revenue was 296 million, accounting for only 1.3% of total revenue.
Li Ning attempted to gain a foothold in the international market through acquisitions, acquiring Hong Kong clothing brand Porshe, the century-old Italian luxury brand Amedeo Testoni, and the century-old British footwear brand Clarks, but did not achieve notable performance.
In December last year, Li Ning Group spent HKD 2.208 billion to acquire a company primarily engaged in property investment under Hysan Development, whose main asset is the &#34;Hysan Place&#34; commercial building. After the acquisition, part of this building was used as Li Ning Group's Hong Kong headquarters.
Establishing a Hong Kong headquarters marks the acceleration of Li Ning's latest internationalization process.
Currently, uncertainties in overseas markets are increasing, and there are significant differences in operating models between overseas markets and mainland China. Qian Wei has publicly stated, &#34;Doing business overseas is not that simple.&#34;
Moreover, as a mature industry, international brands like Nike, Adidas, and Skechers have already established a strong foothold globally. For Li Ning to share in the pie, it must quickly achieve results in new markets and new businesses.
Cheng Weixiong, a senior brand management expert and founder of Shanghai Liangxi Brand Management Co., Ltd., stated that while the joint venture model has certain advancements in overseas business, exploration is still in a very early stage. The specific strategies and actions of the joint venture after its establishment will be key to evaluating Li Ning's overseas business.
This time, Li Ning seems to have made up its mind

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The business performance reveals the truth

- Li Ning has announced a joint venture with several partners, including Sequoia China, aiming to expand its international presence with a total capital of HKD 200 million.  
- Despite this strategic move, the market reacted negatively, with Li Ning's market value dropping over HKD 2 billion following the announcement, reflecting ongoing challenges in the competitive sportswear sector.  
- The company has faced declining profits and sales, prompting a shift towards overseas markets, although past international efforts have yielded limited success.

LI NING is set to expand into new markets overseas