Is the end nigh for Li-Ning?

It seems the Li-Ning Tower really is leaning and is in danger of crashing down. The company’s shares have fallen more than 25% since January 21, including a sizeable drop last week after the company announced plans to raise up to HK$1.87 billion by issuing convertible securities. In construction terms, that’s an awful lot of scaffolding.

The news comes just one year after massive investment from TPG and GIC. The company’s press release talked of a deteriorating situation, a build-up of inventory, sales problems, poor productivity and profitability, worrying debt levels and a need to transform the business.

In other words, company fans are already covered.

But then things got even worse. Shaun Rein, not always the most respected analyst but a well-known pundit nonetheless, piled on in a FT article, going so far as to say:

“They may not be able to continue as a standalone concern in a year or two”

and placing the blame squarely on Li-Ning’s “strategic missteps” rather than on a China slowdown.

Rein then received an earful from Li-Ning’s PR firm Brunswick, described by Rein on Twitter as an “emotional/angry call & email” due to his bearish view, commenting further that things “must be falling apart there”.

As George Best was once famously asked, where did it all go wrong?

The company was winning rave reviews back in 2009, just one year after founder Li Ning staged the ultimate in ambush marketing by lighting the Olympic flame in Beijing under the noses of official Olympic sponsor Adidas. By some accounts, it had even surpassed Adidas in China and was second only to Nike.

But it was all too much too soon. Li-Ning (the company, as opposed to Li Ning the man) even expanded into the US, somehow thinking that American teenagers would find their sneakers cooler than the rest. A symbolic store in Portland – the heart of Nike territory – was forced to beat a hasty retreat, though the company does retain US links through its sponsored athletes, none more notable than nine-time All-Star Dwayne Wade, who left Nike for Li-Ning at the end of last year.

But with the company saying that it wants to be the leading brand in China – rather than the leading brand globally – it’s clear than the partnerships with Wade and others are to keep the company’s reputation intact with NBA viewers in China, of which there are plenty.

If the company does go under any time soon – and some think even the investors may have given up the ghost – there will be two main problems.

Firstly, Dwyane Wade is going to have to flog an awful lot of shoes at bargain basement prices, just months after unveiling a new line of sneakers.

Secondly – and of far more importance – I’ll have to change the name of this blog [UPDATE: At the time this post was written, China Sports Insider was known as The Li-Ning Tower].

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