All China in three stripes

China was once the main market for Adidas, but since the beginning of the pandemic, sales of the German manufacturer have been steadily declining there. With the performance of the entire group not too good, and the company close to the first annual loss in 31 years, Adidas decided to return to its former greatness in China.

Adidas’ financial performance in 2022 was disappointing, with the company’s net profit plummeting by 83%, from €1.49 billion to €254 million, and gross profit by 3.4%, dropping below 50%. At the same time, the company warned in March that 2023 is unlikely to be easier than the previous one. Perhaps the German manufacturer will even turn out to be unprofitable – for the first time since 1992.

China can help correct the situation for Adidas. It is on him that the new management of the company stakes. The new CEO of the company, Bjorn Gulden, spoke about this back in March, noting that the margin in China is higher.

The position of Adidas in the local market, which was once the main one for the European manufacturer, has seriously shaken in recent years. The local production of the company was hit by lockdowns due to the COVID-19 pandemic. In addition, local residents have become much less likely to buy products from Adidas and other European brands after the latest refused from buying cotton from the Xinjiang Uyghur Autonomous Region, accusing the Chinese authorities of using Uighur forced labor. And the place of Western brands in the baskets of Chinese consumers was quickly taken by local manufacturers. As a result, Adidas sales in 2022 decreased by 36%, to €3.2 billion.

The new head of the Chinese division of Adidas Adrian Sue said in an interview Financial Timesthat the company intends to re-win the “hearts and minds” of the Chinese.

Behind Mr. Sue’s beautiful words is the intention of the German manufacturer to become as Chinese as possible in the eyes of the people of China.

To do this, the company, firstly, intends to significantly increase production in the country. However, analysts are already warning that the transfer of production from neighboring Asian countries could result in a significant increase in costs for the company. Indeed, in Indonesia, Cambodia and Vietnam, where most of the Adidas products for the Chinese market are now produced, the labor force is noticeably cheaper than in China.

Secondly, the design of clothes, shoes and accessories will also be more local: if a couple of years ago, the local Adidas design team created less than 5% of the entire range of the company in China, then by the end of 2023 this figure should already reach 30%.

According to Mr. Sue, the new design should reflect elements of traditional Chinese culture in order to touch the “souls and minds” of Chinese consumers. However, a much more mundane option can be a good example. Such as the tracksuit from the company’s new collection, which Mr. Sue appeared in public with “China” written all over the chest, in Chinese, of course. It may not be as elegant, but it successfully plays on the patriotic feelings of the Chinese: according to the head of the Chinese division of Adidas, this suit is very popular. And this is much more important for the German manufacturer, desperately looking for ways to avoid loss.

Kirill Sarkhanyants