Adidas China Sales Take a Hit From Boycotts, Flooding and Lockdowns

Sales at Adidas were stunted this quarter, thanks to a slump in Greater China.

Overall revenue in the third quarter grew just 3% to 5.752 billion euro. Executives said pandemic-related lockdowns and supply chain issues in China caused overall revenue growth to be reduced by about 600 million euro this quarter. In China, specifically, sales declined 15%.

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Adidas stock was down more than 5% in trading midday on Wednesday.

Excluding these problems, Adidas said it would likely have seen a total revenue growth of about 14% this quarter. Since the second half of July, regional COVID-19 related lockdowns and flooding across China have contributed to a sales decline in the region.

“In Greater China, we remain confronted by several range challenges,” said Adidas CEO Kasper Rorsted in a call with investors. “The geopolitical situation with the resurgence of COVID-19-related restrictions, as well as natural disasters delayed top line recovery.”

Adidas said it is actively working on solutions and forming a team of leaders to fully focus on mitigating the business impact in China. According to Adidas CFO and board member Harm Ohlmeyer, “A detailed action plan has been developed and is already in execution,” which involves strengthening brand heat, commercial impact, range and physical stores, as well as removing extra product from the market. Adidas said it has already reallocated more than 10 million units of product from China to other markets in short supply.

Within China, Adidas is developing localized marketing campaigns from a new creation studio in Shanghai that features relevant Chinese athletes. The goal, Ohlmeyer said, is to make sure that one third of new products in the country are tailored specifically to the Chinese consumer.

“Let me be very clear: Greater China is one of our strategic growth markets, and we remain confident about the long-term opportunity,” Ohlmeyer said.

China is largely considered the crucial market for footwear companies looking to establish global dominance. In recent months, home-grown shoe brands such as Anta Sports and Li-Ning have grabbed market share as a result of a boycott against Adidas, Nike and other Western brands that have refused to source cotton from China’s Xinjiang region, due to allegations of forced labor among the Uyghur population in that area.

“As you know, we are currently operating in an environment that is characterized by severe challenges on both sides of the equation,” said Ohlmeyer. “All industries are being impacted, and the sporting goods sector is clearly no exception here.”