Xinjiang Cotton Incident Affected Nike ADI'S Revenue Decreased By 15.9% Year On Year

The impact of Xinjiang cotton incident in March this year is reflected in the quarterly financial report data of major European and American sports brands. In the quarterly financial meeting, the performance change of Greater China region is also one of the most concerned issues of analysts.

On the whole, under the premise that most of the sports brands' performance rose and the annual expectations were raised, the performance of some European and American brands in Greater China was not good. The latest case is Adidas. Under the premise of currency neutrality, the revenue of Greater China region decreased by 15.9% in the last quarter, and the growth rate of other markets was at least double-digit.

The impact on e-commerce business is greater. "We did see the impact due to geopolitical tensions, especially our online business in China in the second quarter," Kasper Rosted, Adidas CEO, said on August 5, during an analysis of the results in Greater China on CNBC's television program, squawk box Europe. But we think it will normalize over time. "

Of course, adidas' Greater China performance may also be partly affected by the business recovery in the same period in 2020. Adidas said in a press release that the development trend of (Greater China in the second quarter) also reflected the strong recovery in the second quarter of last year, when sales in Greater China grew at double-digit rates in May and June.

But puma, a German sports brand, has a similar situation, which means that the Xinjiang cotton incident has a greater impact.

"There is no doubt that our normal growth trajectory in China is 25% - 30%, but we lost business in that quarter," said BJ ó RN gulden, puma's CEO, when he released quarterly results at the end of July In the second quarter ending June 30, revenue in Greater China fell 5% year-on-year, one of the few bad news for Puma during its recovery.

Due to differences in fiscal year settings, Nike announced its quarterly results as of the end of may in June this year, but the situation in Greater China is not optimistic. In the quarter ending may, Nike's revenue in Greater China increased by 9% year-on-year after exchange rate adjustment, higher than the same period in 2020, but lower than 22% in the same period in 2019.

In the context of Xinjiang cotton incident, these European and American brands controlled the market launch and new product listing in Greater China in the last quarter. Even during the Tokyo Olympic Games, the advertising of European and American sports brands was very few.

Nike is a typical representative. At the financial meeting, Nike CFO Matthew friend revealed more information: (as of the end of May) fourth quarter results were affected by market dynamics. After a strong March, our Greater China business was affected in April, and we adjusted our operations by suspending marketing activities and product launches.

At the same time, mainstream android app stores have suspended the download service of Nike ADI's apps for a short time, which means these apps can't add new users. At the end of March this year, users were unable to download apps from Nike and Adidas in the app stores of mobile phone manufacturers such as Huawei, Xiaomi, vivo and oppo, as well as Tencent app. The keyword search results show that the service has been adjusted and the download is not available for the moment. Please understand. Until the middle of April, Nike's snkrs and Adidas's confirmed began to return to the shelves.

　　 Source: Beijing Daily

The mentality of consumers has also changed, and it seems that the consumption intention of European and American sports brands is declining. At the financial meeting, Adidas CEO Caspar rother analyzed: "we now believe that, compared with global brands, (consumers) demand is more focused on local brands."

John Donahoe, Nike's new CEO, wants to ease tensions with the Chinese market, saying at last quarter's financial meeting: "we've been in China for more than 40 years, and we've invested a lot of time and energy in China early on. Today, we are a sports brand in China. We are a brand that belongs to China and serves China. "

From the monthly sales data of the mainstream sports brand tmall flagship stores, consumers' willingness to consume European and American sports brands is indeed declining in the second quarter of this year. For example, even if lululemon, a Canadian Yoga brand, has not responded positively to the cotton problem, few people know that it is also a member of BCI Association. However, in June, it has been ushered in summer courtesy season and tmall 618 has been greatly promoted in the past two years, which has not significantly increased the sales growth rate.

At the same time, in the second quarter of this year, the sales growth rate of tmall flagship stores of FILA and Li Ning increased significantly in different periods. This is inseparable from FILA, Li Ning in the new spokesperson, new sponsorship and other marketing promotion.

But the influence of the Xinjiang cotton incident also seems to be gradually fading away. According to the slide file of the second quarter financial meeting released by Adidas, since the end of March this year, the growth rate of e-commerce sales in Greater China has gradually declined to a negative number compared with the same period in 2019, but the e-commerce business has recovered since April, and has recovered to the same level in 2019 in June this year.

Kasper Rosted, Adidas CEO, was optimistic about the prospects for Greater China: "we saw very, very strong growth in North America, Latin America and Europe (last quarter), and we also saw uncertainty in China, but I am very, very confident that the Chinese market will also be very, very successful this year."

Matthew fried, the CFO of Nike, also mentioned the recovery of Greater China since April: "we are beginning to see the trend of performance recovery. The year-on-year decline in May has narrowed to single digits, and the performance has improved continuously in June. The retail sales trend since June is close to last year's level. " Puma CEO gulden also mentioned that the situation in Greater China is improving.

But this is not the full effect of the Xinjiang cotton incident. Some European and American sports brands were almost unaffected, such as under armour, a North American sports brand with improved performance, and Weaver group, the parent company of vans.

However, in addition to the Xinjiang cotton incident, the bigger problem in front of European and American sports brands is production and logistics. The deteriorating epidemic situation in Vietnam has directly affected the supply of Nike ADI products. According to the data of Adidas in 2020, the company's procurement in Vietnam accounts for 28% of the total purchase volume, and 50% of the purchase of Nike footwear products comes from Vietnam.

Adidas CEO kaspa rother said that the impact of the Vietnam blockade is mainly on footwear products, and the main impact is on production capacity, not on the launch of new products. Adidas said problems caused by the new outbreak are expected to cost the company 500 million euros in 2021.

　　 The purchase of Nike shoes in Vietnam accounts for 50%; Image source: Quartz

Some orders have returned to the Chinese market. In June, Chen Zhanguang, Secretary General of China Leather Association, told the global times that there was a short-term return of orders, especially the surge in online transactions caused by the epidemic. "This is an emerging trend since last year, which has been further accelerated after the outbreak of a new wave of epidemic in India," said the Guangdong footwear chamber of Commerce. Since April, orders for new footwear products have increased by 10% - 20% year on year. "

But the production gradually transferred to Vietnam is difficult to make up in other ways in the short term.

At the same time, the current more uncertain problem is logistics, more accurately speaking, is the regulation and control of containers. Logistics transportation problems repeatedly appear in the financial meetings of Nike, Adidas, Puma and other companies.

In the Wall Street Journal bestseller author Mark Levinson's containers change the world, he describes containers as follows: a standard container is very much like a tin can. The value of this practical thing lies not in what it is, but in how it is used. For a highly automated, low cost and low complexity cargo transportation system, container is the core.

However, after the new outbreak, problems appeared in the logistics system built around containers.

In its July analysis, the business news website quartz quoted Harvard Business School professor Willy Shih as saying that the current logistics problem for Nike ADIS is not a shortage of containers“ The story of the last 16 months is actually a growing problem of container imbalances, "says Professor Willie." what you see is that these containers are piling up where they shouldn't be. "

The immediate problem with this is that transportation takes longer. Yiwu dry port group recently said that the import demand of Chinese goods by American importers and consumers is soaring, but the problems of port congestion, delivery delay and shipping space shortage have become serious.

Even worse was the "Suez Canal jam" in March. In March this year, the 400 meter long container ship "Changci" ran aground and got stuck in the rocks during its passage through the Suez Canal. It took six days for the freighter to get out of trouble, when it was loaded with 18000 containers.

This, coupled with increased orders from retailers ahead of the US shopping season, has squeezed the global supply chain. At present, container freight from China to the United States has reached a new high, and each 40 foot container costs more than 20000 US dollars.

However, increasing container capacity in the short term is not the solution. Excess production will only overdraft future sales and leasing ahead of time. At present, CMIC of CIMC, DFIC of Orient International and CXIC of Xinhua Chang Group produce about 80% of the containers in the world.

According to the current situation, Triton, a container leasing service company, and Willie Shi, a professor at Harvard Business School, predict that the situation of container freight may improve in 2022.