Adidas Group Begins Investigation into Explosive Whistleblower Claims

This past week, the adidas Group has been all over the Chinese media for all the wrong reasons.

It all started during the Dragon Boat Festival when someone claiming to work for adidas China took to the social media platform Xiaohongshu to expose what they claimed were serious issues at the company. The post accused top executives of bullying employees and taking kickbacks. The detailed post, which included images of the whistleblower letter, caused a massive stir both inside and outside the industry and catapulted this internal matter into the limelight.

Following this, adidas Group broke their silence with an official statement. In an email, they confirmed that their headquarters received the whistleblower letter on June 7th and have started an investigation with the help of external legal experts. However, the email was scant on details but made it clear that they are taking the matter very seriously.

Despite the attempt to cool down the public furor, the controversy looks set to simmer for some time. The ball is now in adidas's court to resolve the issue convincingly and manage this PR nightmare adeptly.

However, adidas faces a bigger immediate challenge: boosting their sales and profits.

On March 13th, adidas revealed their financial performance for 2023, showing signs of recovery with a smaller-than-expected drop in profits. Their gross margin improved slightly by 0.2 percentage points to 47.5%, and they managed to slash inventory levels, which had been a major headache, by 1.5 billion euros.

Market-wise, the Greater China area is bouncing back after being hit by the "Xinjiang Cotton" boycott. In Q4 of 2023, adidas's sales in this region soared to 670 million euros, up by 36.8% year-over-year, marking the third consecutive quarter of strong growth since they turned things around mid-last year. Overall, the region's annual revenue grew by 8.2%, reaching 3.19 billion euros. Bjørn Gulden, the CEO, pointed to 2023 as a pivotal year for adidas in China, noting steady improvements in performance.

The uproar over the whistleblower incident has mostly reverberated through the Chinese internet.

Over the last year, adidas's stock has climbed 56.3%. While the online storm has rocked the boat a bit, the stock's overall trajectory remains steady.

After several tough years losing ground to competitors like On and Hoka, which have been drawing away its loyal customers, 2024 is shaping up to be a make-or-break year for adidas.

In the fashion industry, where the strength of a brand significantly influences product value, the extent to which internal management issues can impact consumer perceptions and competitive edge is still up for debate. This ongoing scandal at adidas might just shed some light on this issue.