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Investor and Analyst Day 2014
2014-05-20
Welcome speech by Chairman
2014-05-20
Introduction by CEO
2014-05-20
Li Ning Powerful in Mid, Solid in Low, Gaining Ground in Top
4
Gain Market Share Through Value Proposition Enhancement & Extension
5
Brand and Product Extension Working Basketball Shoes Example
6
Function Head Initiatives
Supply Chain Mr. Billy Den
Chief Supply Chain Officer
• Goal and composition of RBM • Enhance Supply Flexibility • Establish Retail Logistics System • Develop E2E Retail Management Platform
Marketing Ms Catherine Teng
Chief Marketing Officer
• Brand Mission • Brand Vision • Brand POD • Value Shares • Consumer's Awareness • Brand Preferences • Brand Images in Consumer's Minds • Estimated Sports Market Size • Marketing and Branding • Key Brand Building Strategies
Sales Operation
Ms Jenny Gu
Chief Sales Officer
• Innovation of Business Model Keep Consistent with Key Values • Under Current business model framework, achieve targets from multi angles • Retail Operations • Innovative products supply model- Drive sales performance • Integration of products operations • Retail Management Platform • Retail Operation Platform • Channels management and establishment • Promotion Plan for stores in different Categories
Products and Merchandising
Mr. Edwin Alexander Jonkers
Chief Product and Merchandising Officer
• 2013 + 14Q1 Product highlights • Efficiency • USP • Transformation– QS • Retail – HERO product expansion
Major Functions and Current Initiatives
7
Supply Chain
2014-05-20
Enhance Supply Chain Flexibility 1. Control over optimized supply base
2. Quick response to demand changes
3. Introducing leading technologies
1
Establish Fast Retail Logistics Network 1. Improved inventory efficiency
through VMI and batch delivery
2. FAST delivery to POS through
the well planned DC network 2
Develop E2E Retail Business Platform
1. Business Process/Structure Optimization 2. Retail IT Systems
3
Supply Chain – Enabling the Li-Ning Retail Business Model
9
Supply Base Optimization
• Invest in key Suppliers to have control
• Go West to relief labor shortages
• Buying from SE Asia to get cost savings
and additional capacity during CNY
Introducing Leading Technology
• Co-operation with Poh Chen for high-end basketball shoes
• Co-operation with Kolon for APP fabrics
Quick Response To Real Demand
• One Common Planning Tool for LN and 1st/2nd layer suppliers to ensure quick response to demand changes
• Lean line implementation to cater for retail needs of small order/high frequency/short cycle time
• Raw Material Risk Buy Process
• Green Lane for Quickstrike/Quick replenishment orders
Li-Ning Supply Chain Footprint
FTW
APP
New Suppliers
Vietnam
Cambodia
Hubei
1
Korea
GuangDong
FuJian
ShangHai
Enhance Supply Chain Flexibility
10
Li-Ning Logistics Network Inventory Optimization VMI (Vendor Mgmt Inventory) Warehouse Setup VMI Warehouse LN Regional DC Batch Delivery Reduced Inventory Risks Significantly LN Regional DC LN Owned Stores Auto replenishment Improves Inventory Efficiencies
FAST Retail Logistics Network - RDC is located closely to POS to ensure fast replenishment - Inventory pushed ahead to RDC as per actual sales trend - Track & Trace IT system - Direct coverage to Sub-Ds
4
Warehouse (5)
Regional DC(21)
2 Establish Fast Retail Logistics Network
1
2
3
1 2
3
4 11
2014-05-20
Brand & Category Overview
Mission
Through sports,
we inspire people the desire and power to
make breakthrough
Vision
Be a world’s leading brand
in the sports goods industry via world class brand and
retail management
Brand Mission & Vision
13
First mention Total mentions(Unaided)
Nike 18 70
Adidas 20 71
Li Ning 18 68
An Ta 12 44
361 12 53
X-Step 4 25
Peak 1 9
On Par
Data quoted:2013 UBA data from MB BrandZ database- Sports category
Brand indicators – Leading awareness
14
Value share
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Q1 Q2 Q3 Q4
Li-Ning Brand A
Brand B Brand C
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Q1 Q2 Q3 Q4
Li-Ning Brand A
Brand B Brand C
FTW TOTAL
Data source: China Sports Market U&A Study from MillwardBrown, 2013
Brand indicators – Stable value share in negative macro environment
15
13
-2
2
-8
-4
16
-4
-1
-10
-5
-3
3
-7
2
-4
Value for Money
Transcending yourselves
Inspiring
Championship
Spirit of challenging
Li-Ning Anta 361° Peak
Chinese Pride 88 30 27 22
Note: All of above data is come out based on the brand user’s evaluation of brand image.
Still the ONLY brand that could represent China
Data source: China Sports Market U&A Study from MillwardBrown, 2013
Better connected with consumers than other Chinese brands
2
0
9
3
-1
Brand indicators – Strong and Unique Brand Image
16
Brand indicators – Strong and Unique Brand Image
Only apparel brand on the list Data source: WPP Nov 2013 Survey 17
5 main sports categories
63%
Size
(Million) Share
Sports Life 2,757 5.8%
Running 1,449 6.8%
Training 1,601 11.0%
Basketball 997 9.0%
Badminton 327 9.0%
154,910(Million)
Data source: China Sports Market Audit from MillwardBrown, 2013 China Sports Market U&A Study from MillwardBrown, 2013 & Desk research
Sports Life
Running
Training
Basketball
Badminton
Our 5 priority categories represents 63% of overall markets
18
Categories
Target Consumers Category Drivers and Go To Market Approach Growth Initiatives
Bas
ketb
all • Professional Players endorsement on product/ brand
• Sports tournament (CBA/ CUBA etc) • WoM among sneakers and fans • Grass-root street basketball events • Targeted digital contact
• Wade signature • CBA fan pack • Campus collection • Mid-low price tier on court product • Established BB digital platforms
Ru
nn
ing
• Product delivers the performance • Mass media awareness • Running events, grass-root activities (10K, I-Run & highland marathon, cross-field run etc) • Targeted digital forums and KOLs endorsement
• Strengthen Hero technology platform (light, arc, etc) • Lower price tier collection • Professional line • Female
Trai
nin
g
• Professional endorsement i.e. Training coaches, top professional sports players • Celerity and upscale trend setters • Location seeding (gym, sports park etc.)
• Innovative material technology (Power shell) • Female indoor exercise collection • Value sportswear sets • China relevant training (i.e. group dance, modern martial art etc.)
Spo
rts
Life
• Asian fashion trend (ie. Korea, Japan style) • POP stars, youth idols, entertainment PR • Celebrity, fashion brands partnership/ Crossover • Youth events (i.e. music, movies, entertainment shows)
• Li Ning premium Studio Series • Crossovers • Youth Sports Apparel • Heritage collection
Bad
min
ton
• National team endorsement & sports events exposure • On-court media and coaches endorsement • Professional channel recommendation
• Best in class rackets/equipment technology • High performance shoes • Mid-priced apparel/ racket opportunity to expand trials
Cool, energetic campus youth
Committed, confident
white collar sports lovers
Disciplined, purpose oriented
sports practitioners
Trendy, stylish,
youthful sports
inspirers
Committed, amateur
sports enthusiasts
Differentiated Marketing approach by each category
19
50多万高活跃度分析
150多万高活跃度分析
李宁官方微博 李宁跑步官方微博
Leading in digital marketing – Leveraging social media platforms
20
Leading in digital marketing – Innovative ideas and events
21
鞋柜上贴供扫描购买。 产品相应二维码
Leading in digital marketing – Creates direct impact to business
通过微博和微信等引流线下店铺和官方商城
22
• Connect with the youth
• Authentic brand and product experience
• Go digital
• Enhance MKT ROI
Key Brand Building Strategies
23
Sales Operation
2014-05-20
From “push” to “pull”
Transformation theme Key elements in the value chain
Design
Production
Product architecture
Order
From national level sales management to differentiated sales
and retail management – by region, by
seasonality and by store segmentation
Sell-out management
Inter-store re-allocation (consolidate and replenish based on product depth)
In-Store management
Timing management (promotion, clearance)
Retail assortment
From fully authorized to end-to-end management
Store format
Network
Store ownership
From a wholesale organization to building
retail capabilities
Hardware (organization structure design)
Software (personnel, capabilities and company culture)
“How do we deliver right products to our consumer competitive?”
“How do we provide excellent retail experience or product and service?”
“Which channels can bring the best customers, highest orders and profit?”
How to create the largest value
“How to organize resources and capabilities to support business transformation?”
Retail operation
Product
Sales channel
Organization structure
Business model innovation and KPI need to be fully aligned
Retail operation
Product
Sales channel
Organization structure
25
Overall consumer experience • Price • Design • Value proposition • Brand • Product functionality • Retail experience • After-sales experience
Time • Weekly performance
tracking • In-season management
(particularly for the beginning and end of season)
• Product lifecycle management
• Annual product planning
Place • In-store visual merchandising • Assortment by store types (e.g. A,B,O) • Commercial Zone Management within a city • Network coverage by city tier • Product management by region (4 major climate zone)
Multiple dimensions need to be considered under the new business model framework
26
Product Design
Product
Product architecture
Order
Channel Store format
Network
Store ownership
Retail Operation
Sell-out management
Inter-store adjustment
In-Store management
Timing management
Retail allocation
Initiative Objective
▪ Opera A+ tracking report, good and bad ▪ current product SKU
R4
▪ Inside / outside system clearance R6
▪ Resource management platform P2
▪ New Product Seasonal Management (“NPSM”) P1
▪ Phased manufacturing and dispatch of product P3
▪ “NPSM” pilot R1
▪ Distributor project R2
▪ RBM project R3
▪ QSQR committee review R5
▪ Network strategy development C1
▪ Hypermarket/department store management C4
▪ Store format strategy development C3
▪ Channel type management C5
▪ Store management model project C6
▪ New store opening project C2
▪ Sub-distributor revival project C7
▪ Strategic tool to manage SO rate, differentiate by SKU performance and store types
• Systematic categorization of SKUs based on the performance and vintage
• Product differentiation by region / store, guarantee freshness
• Clear, executable guidelines with right level of specificity and discretion
• Holistic picture that covers categories beyond SKUs, and inventories (current and old)
• Individual stores provide feedback and receive replenishment at the fast speed
Retail Operation
27
• Optimize inline product line architecture, increase SKU efficiency
• Launch product by month - NPSM • Organize assortment by city commercial zone and
store segment • Pre-season hero SKU forecast, test through pilot
launch • In-season weekly A+/QS/QR tracking,
replenishment, re-ordering and price management
• In-season hero/flat/slow-moving SKU price and promotion management
• Increase new product proportion in regular stores • Increase new product sell-out rate and achieve
better margin, reduce inventory risk • Sales contribution of A+/Quick
Replenishment/Quick Strike continue to increase • Sales of A+/Quick Replenishment/Quick Strike
continue to lead by 5-10%
Innovative Merchandising and Go-To-Market Model Driving Sales Performance
28
Product order and action
Product management (Store level SKU management)
• Product launch • SKU width • SKU depth • Price management • Lifecycle management
• Pilot launch • New product launch • VM Display • QR re-order • Hero product push for maximization • Promotion and mark down • Transfer to clearance stores • Return to warehouse
Product Fresh Fast
Product launch
• Pilot launch • New product launch
Retail Management Platform
29
Product Design
Product
Product architecture
Order processing
channel Store format
Network
Store ownership
Retail operation
Sell-out management
Inter-store adjustment
In-Store management
Timing management
Retail allocation
Initiative FROM TO
▪ Opera A+ tracking report, good and bad current product SKU R4
▪ Inside / outside system clearance R6
▪ Resources management platform P2
▪ New Product Seasonal Management (“NPSM”) P1
▪ Phased manufacturing and dispatch of product P3
▪ “NPSM” pilot R1
▪ Distributor project R2
▪ RBM project R3
▪ QSQR committee reviewt R5
▪ Network strategy development C1
▪ Hypermarket/Shopping Mall management C4
▪ Store format strategy development C3
▪ Channel type management C5
▪ Store management model project C6
▪ Store opening project C2
▪ Sub-distributor rescueproject C7
非详尽 Channel management and development
• Not effectively attracting customers and is shrinking
• Optimize network to have stores at strategic purposes with healthy growth in numbers
• Franchisees posing risk of large number of closures
• Rescue franchisee rescue and migrate part of distributor franchisees to self-owned operation
• Focusing on street stores and not capturing new trend
• Restructure format combination to increase profit and capture growth (e.g., hypermarkets)
30
60+
Flagship &
Cat. E. Store
BIG300
Core Regular
Other Regular
Outlets、 Discount
Regular channel
Clearance channel
Basketball Running
Sports life Badminton
&
Training
Catego
ry focu
sed
stores
Sales History
• Refer to sell-out and sales contribution of Basketball/running/sports life in last 4 quarters
Channel information
• Refer to category strategy, sports development in the city, fashion forwardness of a city commercial zone, location proximity to high schools etc.
Frontline feedback
• LN Retail Operations and Product Sales teams to confirm with Distributors
+ +
Category stores development plan
31
Products and Merchandising
2014-05-20
CONSUMERS MINDSET Product
Efficiency
USP
Transformation
Retail
SOURCE: CHINA DAILY/ BUSINESS WEEKLY MAY 19. 2014 33
Product
Efficiency
USP
Transformation
Retail
Building the Platform
34
Product
Efficiency
USP
Transformation
Retail 2013 + 14Q1 Product highlights Superlight11
35
Product
Efficiency
USP
Transformation
Retail 2014Q1 SL11
Superlight Generation 11 Light and Cool running shoes
LN COOL SHELL brings cool and comfortable experience for Summer by breathable structure from the shoe tongue to the outsole with ice-yarn cooling material.
Full-length rubber provides better traction, Hollow structure makes the shoes much lighter.
FoamEVAlite, upgraded lightweight outsole formula.
Chinese traditional pane as the design inspiration with Ice-cracked graphic preserves the unique charm of traditional aesthetics, Support function only at necessary zone strengthens a larger area of breathability.
36
2014Q1 SL11 COLOR PALETTE Product
Efficiency
USP
Transformation
Retail
37
WOMEN
Style No.:ALKJ005-1
Style No.:ALKJ008-1
Style No.:ALKJ005-2 Style No.:ALKJ005-4
Style No.:ALKJ008-2 Style No.:ALKJ008-3
13Q2 13Q3 13Q4 14Q1
Transformation– QS Product
Efficiency
USP
Transformation
Retail
MEN
38
PRODUCT HIGHLIGHTS: APPAREL
Leverage SPORTS ASSETS to capture category specific business opportunities
NO: AYMH267-2 NO: AYMH267-3
NO: AJMH177-1 NO: AJMH177-2
13Q4 WADE: X’MAS PACKAGE
• Well integrate/leverage sports assets, to maximize performance category business opportunity.
• Best seller in 13Q4.
• Decent fashion design with Li-Ning high tech fabrics, bring customers great product experience.
Product
Efficiency
USP
Transformation
Retail
39
13Q4 Training sweat set
Competitive products at core business areas with unique selling points & value propositions
• Competitive products at core business area with unique selling points.
• Unique selling point of functional material/detail + ergonomic cutting ,basic color wary, easy to wear for consumer for both sports and daily use
• High value compare with local competitors
AWDJ099 AKLJ013
PRODUCT HIGHLIGHTS: APPAREL Product
Efficiency
USP
Transformation
Retail
40
Cotton feel polyester (new fabric)
Cotton hand feel
A+
139RMB
159RMB New fit
Running tee: slim fit, cotton hand feel performance material
PRODUCT HIGHLIGHTS: APPAREL Product
Efficiency
USP
Transformation
Retail
41
14Q1 Li-Ning Premium (LNP)
Premium business venture targeting international competitors
• Premium business venture targeting international competitors through design innovation
• Combination of sports performance
and market trend, Strong value proposition against target international competitors
PRODUCT HIGHLIGHTS: APPAREL Product
Efficiency
USP
Transformation
Retail
42
QS Inline
Rev unit: RMB, millions
Training & Sports life from
15Q3
Running from 16Q1
*Dec QS not planned yet
14Q1 14Q2 14Q3 14Q4
Article
TP Rev
USP– KCC Product
Efficiency
USP
Transformation
Retail
43
14Q2 Track Pants
269 RMB
Elasticity Light Fabric
Male Female
3D fitting
Nike 499 RMB
Anta 199 RMB
PRODUCT HIGHLIGHTS: APPAREL Product
Efficiency
USP
Transformation
Retail
44
EFFICIENCY – A+ RANGE
13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4
A+ Article% A+ Revenue% A+ contribution
Product
Efficiency
USP
Transformation
Retail
45
USP– Value proposition Product
Efficiency
USP
Transformation
Retail
46
KEY TAKE AWAYS
LI NING is the preferred national sports brand with Chinese Consumers
Retail Focus – Right product, at the right time and place
Continue to create inspirational products with industry leading value proposition
Continue to invest into innovation in functional technology and design concepts
Innovate in business with retail focus business model – quick strike and quick replenishment
Continue to increase our efficiency and profitability
Product
Efficiency
USP
Transformation
Retail
47
Progress of Transformation
2014-05-20
Re-cap: Transformation Plan
Management and Execution Capabilities
• Competitive cost structure in product and operations
• Effective marketing and channel spending
• Cash flow management
• Improve store unit economics
• Rationalize network coverage through retail profiling
• Strengthen outlets and direct stores
• Improve capabilities of retail and channel partners
• More retail-oriented and consumer-oriented
• Improve supply chain and ordering model to lower cost and time-to-market
• Increase A+ and quick response products
• Focus on core brand sportswear in China
• Strategic investments in brand (e.g., CBA and Wade)
• Make competitive products with exciting designs and technologies, in shorter development cycles to stay current with market demands
49
2011 2012 2013 2014E
Phase 1 (2011-2012) • Sell in > Sell out •Old inventory build-up •High AR •Negative cash flow
Phase 2 (2013) • Sell out > Sell in •Old inventory depletion •Cash flow recovery •Negative profit
Phase 3 (2014 and beyond) • Sell out recovery led by sell in
rebound • Higher mix of new product sell
out and higher GM% • Profit and positive cash flow
Sell in to Channel Retail Sell Through (Tag Price)
Inventory depletion
Excessive inventory
Transformation Through 3 Phase of Sell-in and Sell-out Adjustment
For illustration only
50
2011 2012 2013 2014E
Old Inventory Turnover Months (Rolling 12 months Turnover Average)
Sell Through Product % mix
Sell in Sell Through
Current, Last and Next Quarter Inventory (RMB) Inventory Before Last Season (RMB)
Successful Execution and On Track for 2014 Recovery
51
After 3 months After 6 months
v Open-to- Buy
Sell out rate
New Product Retail Sales
(YoY)
X
=
2011 2014E 2012 2013
1H 2H
5915 6434 8255 Number of Stores
1H 2H 1H 2H
New Product Recovery From 2H 2013 on Track
5700 - 6200
Recovery Formula
52
Gross Margin (% of Sales)
Regular Store Product Mix
Current, Last and Next Quarter Inventory (RMB) Inventory Before Last Season (RMB)
New Product Sales per Store per Month Productivity Growth (% YoY)
2012 2013 2014E
<50%
>65%
Typical Regular Store Economics (Approximate Average)
Double digits growth YTD
53
Summary
Sell in was reduced initially to de-stock inventory at steep discount, reverse big cash drain, and
rationalize the network, even though doing so meant sell through decline and current period
losses.
New product performance has been improving in terms of pricing, velocity, and sell-through
rates by virtue of various transformation initiatives, leading to robust recovery of sell-through
and sell-in of new product and store profitability from 2H of 2013.
Disciplined cost cutting enabled bold investment in platform building and strategic marketing,
and more cost cutting is expected as low-priority sports marketing assets roll-off over the next
few years.
YoY growth of five strategic categories has been high-double-digit in Q1 2014. As new products
focused on the five categories have continued to build momentum and fill the gap left by
declining clearance revenues, overall business in 2014 and onwards has stabilized and is poised
for growth in the near future.
Negative impact from channel recovery, bad debt, and inventory clearance will still drag down
2014 financial results, but will be largely over by the end of 2014, while profitable new product
business has been building momentum for profit recovery since 2H of 2013.
54