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?
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