Monday, February 4, 2013
Sportswear Li Ning Faces Inventory Crisis
We are all familiar with successful supply chain management stories in the clothing industry, such as Zara. But clothing companies in some emerging markets are facing inventory crisis caused by business expansion.
Li Ning (HKEX: 2331) is a sportswear company established by former Olympic gymnast Li Ning. In this article I read, it describes how Li Ning shops in China are eager to dump their inventory by large sales events, including discounted price for the new collections. (http://www.scmp.com/business/china-business/article/1066663/sportswear-retailer-li-ning-faces-harsh-winter)
Excessive inventory is a serious challenge for other Chinese mainland sportswear companies as well. The industry went through a boom after the 2008 Olympics, and companies like Li Ning were expanding rapidly to take a share of the market. However, the overexpansion finally led to excessive inventory, which is caused by the slowing down of the economy as well as poor supply chain management. By 2012, Li Ning has shut down 1,200 stores in mainland China and Hong Kong, which is a substantial amount of cost, but there seems to be no better solutions.
Poor inventory management puts Li Ning in a very awkward situation. On the one hand, the company has to offer huge sale to get rid of its inventory. On the other hand, as the price of its products plunges, its brand value will also shrink, making it even harder for Li Ning to compete with global sportswear brands such as Nike and Adidas in China.
Question to consider: In emerging markets, when sportswear or clothing companies expand aggressively to establish an advanced position in the market, what strategies can be used prevent excessive inventory?