Adidas demonstrates Western dependence on the Chinese market

German sportswear brand Adidas has lost profits and revenue this spring, even though Western consumers are eager to buy again. New Covid lockdowns and a boycott in China outweigh double-digit growth in America.

Nothing quite like China

Adidas’ latest quarterly results show how important Asia has become for brands and retailers, and how much the West has lost its place. With sales growth of 13 % in Western countries, mainly thanks to a 38 % growth in Latin America, one might think that the shoe brand is rubbing its hands. But nothing could be further from the truth.

For the quarter as a whole, sales fell by 3 %, which represents 400 million euros in lost sales. The cause: in China, sales fell by 35 %, and the entire Asia-Pacific region recorded a 16 % drop. Adidas has been struggling in China for a long time due to a boycott and increasing competition from cheaper brands, but now new Covid restrictions in China and Vietnam are making things even worse.

Europe: not even worth mentioning

Elsewhere, the sports brand has also faced supply problems that have limited its growth, particularly in the Middle East. More than half of the sales lost due to inventory problems occurred in EMEA. However, there is no double-digit growth in Europe either. In fact, the German company does not even mention its home continent in its press release.

Unsurprisingly, the difficulties are also weighing on margins. Gross margin fell by 1.9 percentage points to 49.9 % in the last quarter, mainly due to significantly higher costs for raw material and logistics. Adidas has also sold fewer premium products in recent months and has seen a decline in e-commerce growth compared to the pandemic period. The brand has only sold 2 % more online, although this is still 5 0% more than at the start of 2020.

Other operating costs increased by 10 % to 2.26 billion euros, resulting in a sharp drop in net profit: from 502 million euros in 2021 to 310 million euros today.

CEO is not giving in to pressure

“In this environment of difficult external challenges, it is imperative that we remain focused on our strategic goals,” said CEO Kasper Rorsted. “While we will remain agile, we will not compromise our long-term growth opportunities for short-term profit optimisation.”

The company expects to return to growth in the second quarter, despite the continued decline in sales in China and a 200 million euro negative impact due to supply issues. In the second half of 2022, Adidas expects net sales to increase by more than 20%, hoping that supply issues are resolved by then, Western markets continue to do well and major sporting events continue.