Adidas is trying to win back Chinese shoppers after it was caught up in an uproar in March with several Western companies over their stances on China’s Xinjiang region. US and European authorities say forced labor of Uyghurs and other Muslim groups is widespread in the region’s giant cotton industry, charges fiercely denied by the Chinese government and consumers who boycott companies they accuse of slandering China.
On a call with investors and analysts today, CEO Kasper Rorsted said the company saw a “significant drop in traffic across physical and digital channels at the end of March” in China, but added that shoppers had begun to return in the past couple weeks. The situation has left Adidas and numerous other companies trying to walk the line of appeasing China’s large and valuable audience of shoppers while professing a zero-tolerance policy for forced labor to customers in the US and Europe.
“When it comes to consumers, we have to the extent possible engaged in dialog with them in a respectful way, respecting their tradition and culture,” Rorsted said. “That has initially been somewhat constrained because of where the situation was. That is more normalizing now and that’s why we’re seeing a slow and steady recovery.”
Rorsted did not mention Xinjiang by name on the call, echoing H&M’s oblique approach to the situation, but said Adidas has not changed its position regarding the Better Cotton Initiative (BCI), an advocacy group for sustainable and ethical practices in cotton farming that has been at the center of the anger in China. Adidas joined the BCI in 2010.
In 2020, BCI said it would cease its work in Xinjiang, which included licensing farms, because it couldn’t be sure they were free of forced labor. It was largely prior company statements relating to BCI’s decision that circulated on Chinese social media in March, sparking calls for boycotts. (China’s government has consistently denied that it is repressing Uyghurs in Xinjiang and emphasized to its citizens that the allegations are false.)
Adidas has suffered from the fallout. In a March 5 note to clients, investment firm Morningstar Research estimated the company’s sales on Tmall, China’s largest business-to-consumer e-commerce platform, plunged 78% in April compared to last year. The channel can make up more than 10% of the sales of Western sports companies, according to Bloomberg Intelligence analysts. At the same time China’s fast-growing sports brands, Anta and Li-Ning, appear to be gaining customers, with sales surging into May and raising questions about the long-term consequences for companies such as Nike and Adidas.
“While we reiterate that Chinese consumers’ current buying behaviors are most likely temporary, we also must admit that the level of impact we see today has already surpassed our guesstimates made in late March,” the Morningstar analysts wrote.
Rorsted said it’s too early to say what the effect on sales will look like in detail but emphasized that Adidas’s priority is “to show our consumers appreciation and respect.” In the second half of April, Adidas also started to resume more regular marketing online in China, he said.
He also noted that despite the setback, Adidas expects a strong year of sales in the country, where sports and fitness continue to grow. “There is no question that China will remain a fast-growing market and one of our long-term growth drivers,” he said. Meanwhile, the tensions between the West and China over Xinjiang show little sign of abating anytime soon.