Li Ning wants to be China’s answer to Nike

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Chinese brands such as Shein and Temu have taken over global shopping baskets. Sportswear brand Li Ning hopes to join them. At its peak in 2021, the company’s market value reached $30bn. But the apparel maker’s attempt to challenge the likes of Nike and Adidas is proving tricky.

In China, patriotic consumers have boosted sales of local brands in recent years. In 2022, Li Ning had a 10.4 per cent share of the market. Peer Anta had a 20.4 per cent share. Combined, they beat Nike’s 23 per cent. Li Ning’s operating margins exceeded 22 per cent too — a feat that has eluded most local apparel companies. Its flashy appearance at New York Fashion Week raised hopes that it would soon find a cross-border audience of consumers.

Yet despite these achievements, shares in Li Ning are down 82 per cent from their 2021 peak. At 11 times forward earnings, they trade at just a fifth of levels seen three years ago. Last year, Li Ning was one of the worst performing stocks on the Hang Seng index. This week it continued its downward trajectory, with the share price falling by more than a tenth.

There are a number of causes for concern. Consumer demand in China is faltering. This has already started to show in Li Ning’s third quarter sales. For foreign investors, investing in China carries political risks too. Plus, Li Ning has faced allegations of forced labour by the US. It has pushed back against the “incorrect and misleading” accusation. But the exclusion of Li Ning by Norway’s sovereign wealth fund, the world’s largest, from its portfolio in 2022 underlines foreign investor concerns.

Within China, Li Ning remains a formidable brand. But unlike some of its fashion peers, its audience remains largely local. For a turnaround in the stock and a return to the growth rates of 2021, it will need to find a following outside China.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore