Adidas Says China Margins to Normalize as US Margins Swell

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Adidas has been enjoying substantial margins in its China business, and though that’s expected to stabilize in the long-term, less substantial U.S. margins are expected to spike in the near term.

The company’s new CEO Kasper Rorsted said during his first visit to China since taking office in September that the 35 percent margin in Greater China the company enjoyed last year will “stabilize and slightly decline,” Reuters reported, and that it’s 6.3 percent U.S. margin is playing “catch-up,” though he didn’t elaborate further on the statement.

In March, Adidas said its sales in Greater China grew 25 percent in the fourth quarter of 2016, and sales were up 29 percent in North America. The company’s gross margin improved 1.6 percentage points to 48.8 percent thanks to more favorable pricing, product and channel mix and lower input costs. Adidas expects double-digit revenue growth in both its North America and China markets for this year. Though its sales in Greater China were just half of its North America sales in 2013, China sales now account for 16 percent of its global total—right behind North America’s 18 percent.

On the heels of numbers like that, Adidas has plans to invest heavily in China to tap into what it believes will be long-term potential. According to Reuters, Rorsted said Adidas will add 2,000 stores in China, reaching 12,000 stores by 2020.

And contrary to what Donald Trump might be hoping for, Rorsted said apparel and footwear companies that make the majority of their goods in Asia aren’t just going to shift and start making much of that product in the U.S., or the EU for that matter.

The plants in Asia are simply too large in comparison to the West, and “They are highly automated today and the entire supplier base is based out of Asia,” Reuters reported Rorsted as saying. “Just financially it’s illogical and so it’s highly unlikely this will happen.”


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