Adidas: declining market share in China reflects growing strength of local brands  

Write-offs are looming for Adidas. It has a €1.2bn pile of unsold Yeezy merchandise after it axed its collaboration with disgraced rapper Ye, formerly known as Kanye West. But China is set to be a much longer-lasting problem for the German sportswear company.

First-quarter sales in the greater China market fell almost a tenth in currency-neutral terms, Adidas said on Friday. That followed a decline of more than a third in the last fiscal year. Part of last year’s weakness can be attributed to lockdowns. But the declining trend in Adidas’s market share started well before the pandemic. It has been hit by a consumer boycott against global brands that shunned Xinjiang cotton over forced labour allegations.

Those boycotts left a large gap for the two largest local rivals Anta Sports and Li Ning, which pledged to continue to use Xinjiang cotton. Last year, Anta’s sales in China outpaced those of Nike for the first time. It also reported strong sales outside of China from its growing portfolio of global sportswear brands including Fila, Salomon, Wilson and Peak Performance. It is now the world’s third-largest sporting goods company, just behind Nike and Adidas.

The local duo’s shares trade at a steep discount to Adidas on a trailing earnings basis. For Anta, a large part of that reflects a $1.5bn stock placement at a discount to the market price last month.

It also reflects the reluctance of foreign investors, especially US institutions, to invest in the name. That is due to geopolitical risks arising from US-China tensions, as well as the Xinjiang allegations. The company’s financial practices came under scrutiny from western short sellers including Muddy Waters in 2019, though the attacks proved ineffective.

At home, in the world’s second-largest sportswear market, little stands in the way of Anta’s ambitions to grow its market share. Further cuts to the revenues of foreign rivals should be expected.