Li Ning Co "Closing Stores" Is An Integrated Distributor.

Declining orders and shrinking share prices have made Li Ning Co Ltd a tough day.

After the news of "closing 500 to 600 stores", Li Ning Co yesterday threw out a series of reform measures for the distribution system, including the integration of 500-600 inefficient distributors, adjusting the store structure and increasing the wholesale discount by 3 percentage points.

Li Ning Co said that the reform measures will bring short-term pain, the next two quarters, Lining brand orders may be under pressure.

Location and sales crisis

Declining orders is the biggest trouble facing Li Ning Co.

Li Ning Co previously announced that in the second quarter of 2011, Lining products.

Subsequently, Goldman Sachs released a report that Li Ning Co has plunged into brand positioning and sales of two major crises, especially

In June 30th of this year, Lining announced the change of brand logo, playing the positioning of "Lining, 90", locking the target consumer group in the young group.

An industry insider commented, "this positioning change is not very successful, because for young people, the top priority is international brands, and the two or three tier middle class of 35 to 40 years old, which Lining originally attracted, is also gradually losing."

"Integrating distributors is not a closed shop".

"The key to future development is to improve the efficiency of existing stores."

Li Ning Co spokesman said yesterday that the reform of the distribution system was mainly to integrate 500 to 600 inefficient distributors.

Data show that as of June 30th this year, Li Ning Co has 129 distributors and more than 2000 distributors.

However, Li Ning Co believes that most retailers' retail management capabilities, procurement capabilities and product lifecycle management are relatively weak, leading to poor store performance and operating margin. Moreover, these distributors lack scale effect.

"Most of the distributors are relatively small in size, with an average of 2 stores, of which more than 1700 distributors operate only 1 stores."

Li Ning Co responsible person said, distributors and distributors are facing the pressure of rapid cost rise, especially labor costs and rent increases. For this reason, Li Ning Co must increase the efficiency of the integration of inefficient distributors, so that more efficient and larger distributors or distributors who want to further develop will buy low efficiency distributors' stores.

At the same time, Li Ning Co will encourage large dealers to increase the number of direct outlets.

In response to recent news about Li Ning Co's "closing stores", Li Ning Co yesterday responded publicly that it planned to integrate 500 to 600 inefficient distributors, not to close 500 to 600 stores. So far, Li Ning Co's target of reaching 7900 stores has not changed.

As of June 30th this year, the number of Li Ning Co's stores was 7478.

In addition, in order to help dealers cope with the pressure of rising costs, Li Ning Co said it would increase the discount rate for dealers.

According to partners, the original Li Ning Co wholesale dealer discount rate is 57%~58%, adjusted discount rate will increase by 2%~3%.

At the same time, for the recent Li Ning Co to enter the special field of China (market, information, commentary) (08032.HK) into the field of sports real estate, it has been faced with the unusual Chinese "anti takeover" incident. Li Ning Co yesterday publicly responded: "because China is currently appealed against the incident, Li Ning Co is temporarily inappropriate to comment."

Agencies downgraded

In the past year, Li Ning Co's share price has been worse than its sales performance.

Compared with the highest HK $31.95 share price in April this year, Li Ning Co yesterday closed at HK $16.96, or nearly half.

Guotai Junan lowered the sales and gross margin forecast of Lining brand yesterday, while downgrading the company's rating to reduce its target price from HK $27.1 to HK $17.21.

Guotai Junan said that as the upstream raw material and labor costs rise, it will eventually be pferred to the company, Li Ning Co may take longer to get back to the right track to achieve moderate growth.

Deutsche Bank lowered Lining's investment rating from its original holdings to selling and lowered its target price from HK $24.4 to HK $14.68, down nearly 40%.