Adidas, the German sportswear giant, has announced that it is expecting a significant sales decline of 1 billion euros ($1.2 billion) due to factory closures in Vietnam caused by COVID-19 and disruptions in the global supply chain. As a result of this news, the company’s shares have dropped more than 5%, adding to the growing list of multinational companies facing manufacturing and shipping delays as the world economy recovers from the pandemic’s impact.

The factory closures in Vietnam, which took place between July and September, have resulted in a loss of capacity for 100 million items in the latter half of 2021. While the gradual reopening of factories since October has helped alleviate some of the impact, the lost capacity will still affect overall sales in the fourth quarter of 2021 and the first quarter of 2022. In addition, delays in container shipping at both origin and destination ports have further worsened the situation, with a significant number of shipments leaving Asia experiencing substantial delays.

Despite implementing measures to mitigate the challenges, Adidas estimates that it will face a sales decline of 1 billion euros. However, the company remains optimistic that its sourcing network will return to normal by the end of the year. Puma, a rival company, has also issued a warning about supply bottlenecks potentially leading to a shortage of its products in 2022.

Vietnam serves as a crucial sourcing market for Adidas, accounting for 28% of its sourcing activities, primarily in shoe production. To compensate for the capacity loss, Adidas has shifted production to China and Indonesia for 30 million units. Furthermore, the company is tapping into its stock redeployment from Asian markets currently under lockdowns and increasing its use of air freight to ensure timely delivery to customers.

In addition to these measures, Adidas plans to reduce the number of products offered at discounted prices and increase prices by approximately 5% in 2022. Despite the challenges it faces, Adidas’ Chief Executive Kasper Rorsted remains positive, anticipating “flattish” sales in the fourth quarter and projecting sales growth of at least 8-10% for 2022.

While Adidas reported a currency-neutral sales increase of 3% to 5.752 billion euros for the third quarter, its operating profit declined by 8.5% to 672 million euros, falling short of analysts’ expectations. The company saw a 15% drop in sales in Greater China due to renewed pandemic restrictions and the ongoing consumer boycott it has faced in the country since March.

In response to the boycott and to revive its fortunes in China, Adidas has implemented an action plan. This includes establishing a dedicated studio to generate faster marketing and increasing the production of products tailored specifically for the Chinese market. China has been a vital growth market for Adidas, and the company is determined to regain its position in the country.

Overall, while Adidas anticipates challenges in the months ahead due to supply chain disruptions, it remains committed to addressing these issues and driving growth in the future. The company’s actions demonstrate its determination to adapt and overcome obstacles on its path to success.

Useful links:
1. Adidas’ Supply Chain Strategy for 2021 and Beyond
2. Impact of Vietnam Disruptions on Retailers like Adidas