Adidas initiates an investigation into allegations of “compliance violations” in China, one of its key markets for sportswear. This comes after reports that local executives in China had been accused of embezzling millions of euros. The accusations were made in an unsigned letter by whistleblowers who claimed to be employees of Adidas China. The company is currently investigating the matter with external legal counsel, and shares of Adidas fell 3.7% following the news.
The whistleblowers’ letter, sent to Adidas’ German headquarters and subsequently shared on social media, alleged that a senior executive in Greater China had embezzled large sums of money from the company’s marketing budget. The complaint also mentioned nepotism and workplace bullying by the senior manager, as well as the involvement of other employees in these activities. The whistleblowers threatened to involve the media and law enforcement if the company did not address the allegations.
Adidas Greater China’s promotional budget amounted to 250 million euros annually, including expenses for marketing, branding, and trade fairs. Despite being the world’s second-largest sportswear retailer, Adidas faces challenges in China, where it is the second-largest international sportswear brand behind Nike. Competition from local rivals, controversies over Xinjiang cotton, and a boycott in 2021 due to concerns about forced labor have impacted Adidas’s market share in China.
Adidas has rebounded in sales growth in China following the easing of Covid restrictions at the end of 2022. The company has historically leveraged celebrities in its marketing campaigns in China, working with popular actors and singers as brand ambassadors. However, the recent allegations of compliance violations could tarnish its reputation in the country and affect its business operations in the region, which contributes 15% of Adidas’s global sales.
The investigation into the compliance violations in China will likely have implications for Adidas’s operations and stakeholder relationships in the region. The company’s response to the allegations and the outcome of the inquiry will be closely watched by investors, consumers, and regulators. It remains to be seen how Adidas will address the concerns raised by the whistleblowers and prevent similar incidents from happening in the future. The results of the investigation could impact the company’s reputation and market position in China and globally.
