The new containment measures imposed in China are seriously affecting the German sports equipment supplier.
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Between January and March, Adidas group sales fell 3% to 5.3 billion euros and profit plunged 38% to 310 million. In mainland China, activity is in free fall: it has plunged by a third compared to normal activity. The closure of stores has reduced footfall to a level never seen before.
It’s a whole corporate culture that is called into question, at least temporarily during the crisis. But the shock is violent. Like many Western groups, the German sports equipment manufacturer is suffering from the disorganization of production and supply chains. Historically, much of Adidas’ production was sourced in China before moving to Southeast Asia. Its profitability has proved to be particularly comfortable with an operating margin – the company’s financial performance – of up to 40%. This is thanks to the lower social charges in the Middle Kingdom compared to Europe.
Further than Adidas, it is the German model which is, in part, called into question. The war in Ukraine has a lot to do with it, especially with Beijing’s ambiguous position vis-à-vis Moscow. Under Chancellor Angela Merkel, German exports to China have almost tripled over the past decade.
With just over one hundred billion euros in purchases, China is Germany’s second largest customer. In the current geopolitical context, turning its back on Beijing would be tantamount to shooting itself in the foot for Berlin. The setbacks of Adidas in the first quarter serve as an example.