Adidas Feels Pain Of China Boycott

"BERLIN -- In March, Adidas AG called China its biggest growth engine, with the German sportswear company aiming to win over Gen Z consumers there and use the Beijing Winter Olympics in 2022 to showcase its brand.

Now China has become a liability.

On Wednesday, the company reported that its revenue in mainland China, Taiwan and Hong Kong fell 15% in the third quarter after dropping by 16% in the second.

Adidas was hit by a consumer boycott that began earlier this year after the company, as part of a consortium of Western brands, raised concerns about forced-labor allegations in China's Xinjiang region.

Adidas shares fell 5.6% in Germany.

Adidas's China problem highlights a dilemma facing Western companies in the country, as Beijing toughens rules for businesses and geopolitical tensions rise. Businesses are grappling with how to stand firm on human-rights issues, something that consumers in the West demand, while continuing to profit from the world's second-largest economy.

"It's kind of a lose-lose situation," said Ingo Speich, head of sustainability and corporate governance at German fund manager Deka Investment, which holds 0.8% of Adidas. "The options are limited."

China remains one of its strategic growth markets, Adidas said Wednesday. The company is working on a plan to mitigate the current downturn, it said, including brand campaigns, developing products for the local market, and expanding its stores network.

Addressing the consumer boycott, Adidas Chief Executive Kasper Rorsted told reporters that "the key will be to show consumers our appreciation and respect, to earn their loyalty and complement our global brand strength with a strong local angle and understanding."

"There are good reasons to remain excited about the opportunity in China as outlined in our strategy, but it's clearly also still quite some work ahead of us," he said.

Apparel companies such as Nike Inc., H&M Hennes & Mauritz AB and Puma SE have also felt the heat. Puma's CEO, Bjorn Gulden, said last month that the company still couldn't use Chinese influencers to burnish its brand, and shopper traffic in stores was down as it reported a 16% fall in China revenue for the third quarter.

The challenge is coming just as new, more competitive homegrown Chinese brands are emerging.

"We have to accept that China will be more difficult than we had hoped for as we started the year," Mr. Gulden said. "I think we are in a politically tense situation that we need to work through."

Besides the consumer boycott, supply-chain disruptions and factory closures have also affected sportswear demand in China. Adidas on Wednesday pared its full-year outlook, saying it now expects its top and bottom lines to be at the lower end of its previous guidance.

The company is more exposed than its competitors, analysts say. Mainland China accounts for close to a quarter of its revenue, compared with 17% for Nike and 5.2% for H&M, according to FactSet. Adidas's share price has lagged behind both Nike and Puma in recent months.

"The China dependency is an issue for Adidas," Mr. Speich said. "For Nike, the U.S. market is far more important. For Adidas, the European market is too small. They have to look to China for growth."

To be sure, Outside of China, Adidas and other sportswear companies are benefiting from factors such as a pandemic-induced boom of athletic wear.

On Wednesday, Adidas said its revenue in North America, Latin America and Europe, Middle East and Africa grew strongly last quarter.

But China is now the largest apparel and footwear market in the world, valued at $376 billion in 2021, followed by the U.S. at $330 billion, according to market researcher Euromonitor International.

There is a strong runway for further growth as China's sportswear consumption per capita is lower compared with other consumer goods such as electronics and luxury goods, Bank of America analysts wrote in a recent report to clients.

Adidas faces other challenges besides the boycott in China. Local sportswear makers such as Anta Sports Products Ltd. and Li Ning Co. Ltd. have improved in quality and design in recent years, analysts say. Anta increased its market share to 15.4% last year from 10.4% in 2016, while Adidas grew 1 percentage point in the same period, to 17.4%, according to Euromonitor." [1]

 

Landsbergiai, imitating Western companies, also rushed to pull the Chinese dragon by its tail (hitting China in Taiwanese story). Lithuanian business is licking big wounds because of that. But for Landsbergiai, this makes no difference. They quietly receive a share of the profits in the sale of golden spoons to the Lithuanian army, and profit from the deception of richer Lithuanian children organized by the long nosed Queen Marta. These sources of profit are not in danger from the Chinese anger.

 

1. Adidas Feels Pain Of China Boycott
Kantchev, Georgi; Woo, Stu.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 11 Nov 2021: B.1.