Adidas, the renowned German sportswear giant, has found itself embroiled in a potential bribery scandal in China, prompting an extensive internal investigation. The world's second-largest sportswear maker received an anonymous whistleblower complaint, which accused senior staff members of embezzling "millions of euros", as reported by people briefed on the matter to the Financial Times.
The anonymous letter, claiming to have been written by "employees of Adidas China", was briefly shared on the Chinese social media platform Xiaohongshu earlier this month. It specifically named several Chinese Adidas employees, including a senior manager involved with the company's substantial €250 million annual marketing budget in the country. The letter alleged that Adidas staff received kickbacks from external service providers commissioned by the German group.
Furthermore, the complaint accused a second senior Adidas manager, working in a different division in China, of receiving "millions in cash from suppliers, and physical items such as real estate". Adidas has confirmed the receipt of the letter on June 7, alerting them to "potential compliance violations in China". The company stated its commitment to complying with legal and internal regulations and ethical standards in all markets where it operates and assured that it is "intensively investigating this matter together with external legal counsel". However, according to people familiar with the matter, no accused individuals have been placed on leave as of yet.
This bribery scandal comes at a challenging time for Adidas in China, which until the Covid-19 pandemic, was its fastest-growing and highly profitable market. The company revamped its leadership in China last year after suffering an unprecedented crisis, with sales plummeting between 2019 and 2022. The brand was hit hard by prolonged lockdowns and a consumer backlash against Western brands over their refusal to buy cotton from the Xinjiang region, where human rights activists claim the industry involves forced labor.
The headwinds in China were a significant factor in the ousting of Adidas chief executive Kasper Rørsted, who was replaced last year by former Puma boss Bjørn Gulden. The newly appointed China CEO, Adrian Siu, hired from Chinese lingerie maker Cosmo Lady in 2022, pledged to win back "the hearts and minds" of Chinese consumers with patriotic clothing lines. Siu told the Financial Times last year that "we are marrying traditional Chinese elements with international product design".
Despite the challenges, Adidas expressed optimism in March, expecting a rebound in China this year with a predicted double-digit sales growth rate following a 37% surge in the fourth quarter of 2023. Interestingly, one of the senior managers targeted in the whistleblower report was hired by Siu, according to people familiar with the matter.
As the investigation unfolds, the global business community and consumers alike will be closely watching the developments in this alleged bribery scandal. The outcome could have significant implications for Adidas's reputation and its future in the crucial Chinese market. The company's commitment to transparency and adherence to ethical standards will be put to the test as it navigates this challenging situation.
