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Chinese brands such as Shein and Temu have taken over the world’s shopping carts. Sportswear brand Li Ning also wants to join them. At its peak in 2021, the company’s market value reached $30 billion. However, attempts by apparel manufacturers to challenge the likes of Nike and Adidas are proving extremely difficult.
Patriotic consumers have boosted sales of local brands in China in recent years. In 2022, Li Ning’s market share was his 10.4%. Pia Anta’s share was 20.4%. In total, that was more than Nike’s 23%. Li Ning’s operating profit margin also exceeded 22%. This is a feat that few local apparel companies have been able to accomplish. Its flashy appearance at New York Fashion Week raised hopes that it would soon find a cross-border consumer audience.
However, despite these achievements, Li Ning’s stock price is down 82% from its 2021 peak. At a forward P/E ratio of 11 times, it trades at just one-fifth of its level three years ago. Last year, Li Ning was one of the worst performing stocks on the Hang Seng Index. The downward trend continued this week, with stock prices falling by more than a tenth.
There are many causes for concern. Consumer demand in China is sluggish. This is already starting to show up in Li Ning’s third quarter sales. For foreign investors, investing in China also comes with political risks. Additionally, Li Ning faces allegations of forced labor by the United States. He has pushed back against the “inaccurate and misleading” accusations. But the world’s largest Norwegian sovereign wealth fund removed Li Ning from its portfolio in 2022, underscoring concerns among foreign investors.
Within China, Li Ning remains a strong brand. But unlike some of its fashion industry peers, most of its viewers are local. To turn around the stock price and restore growth in 2021, it will need to find supporters outside of China.
Lex is the FT’s concise daily investment column. Expert writers from four global financial centers provide timely, informed opinion on capital trends and big companies.Click to explore