Yahoo Finance Adidas Opens Fraud Probe in China After Whistleblower Letter
(Bloomberg) -- Adidas AG is investigating allegations of corruption in China after receiving an anonymous letter exposing potential compliance violations by some employees.
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The German sportswear company is working with external legal counsel after receiving the letter on June 7, it said in an emailed statement.
It’s the latest blow for Adidas, which has had to deal with multiple crises in the last few years, including consumer boycotts in China and a significant hit to sales after severing ties with the rapper Ye. Chief Executive Officer Bjorn Gulden, who joined last year and visited China in September, is in the midst of working to restore Adidas’s fortunes.
The anonymous letter briefly appeared on the Chinese social media platform Xiaohongshu earlier this month, the Financial Times reported over the weekend. The letter, which claims to have been written by “employees from Adidas China,” named several Chinese employees, including a senior manager involved with Adidas’s marketing budget in the country.
The letter, based on screenshots that circulated on social media and news websites in China, claimed that Adidas employees received kickbacks from external service providers, with another senior manager having potentially received “millions of cash” from suppliers and physical items such as real estate.
Adidas said it could not provide further information. The company takes the allegations very seriously, it said. The shares fell 1.4% in early Frankfurt trading. They have gained about 21% so far this year.
China was a growth engine for Adidas before the pandemic, but demand dried up as shoppers there began boycotting Western brands.
The boycotts took place in 2021 after a number of foreign brands, including Adidas and rival Nike Inc., denounced the use of cotton from Xinjiang, the province where China is accused of human-rights violations against the Uyghur minority. The boycotts pared sales and allowed domestic rivals like Anta Sports Products Ltd. to gain market share.
Since last year, Adidas has returned to growth in the country, albeit from a smaller base, after giving its Chinese staff more autonomy to create products for their home market and as the marketing restrictions eased.
Adidas reported increased profitability in the first quarter, boosted by demand for classic sneakers like the Samba and inventories that are coming down to healthier levels. Sales rose 8% in Greater China, Adidas said in April.
(Updates with CEO challenges in third paragraph, boycotts in seventh paragraph)
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