After a boycott of foreign companies that have taken a stance against the treatment of Muslim Uyghurs in the Xinjiang region, online sales of Adidas AG and Nike Inc. plummeted in China, showing the blow to businesses that cross Beijing's political lines.
According to Morningstar Inc.'s report, sales in the Adidas store on Alibaba Group Holding Ltd.'s Tmall China's largest business-to-consumer e-commerce site fell by 78 percent in April from a year earlier, while Nike's dropped by 59 percent. Uniqlo, an apparel company owned by Fast Retailing Co., saw its sales drop by more than 20 percent as a result of the boycott.
Instead, mainland customers turned to Chinese sportswear rivals such as Anta Sports Products Ltd. and Li Ning Co. Ltd., which have backed the use of controversial far west materials. According to Morningstar, China Lining Li Ning's luxury fashion arm was by far the biggest beneficiary of the nationalist turn, with sales on Tmall jumping more than 800 percent in April.
“Tmall is now the single largest distribution platform for many labels in mainland China, and it serves as a leading indicator of what's hot. Based on our checks with sportswear companies and their distributors, the platform accounts for more than 10 percent of revenue in the country.” said Catherine Lim and Eric Zhu, market analysts at Bloomberg Intelligence,
The boycott's widespread effect highlights the conundrum faced by international brands seeking to expand their business in China, while still being kept accountable on human rights issues by consumers in their home countries.
Following the abolition of Covid-19, Chinese customers have become a development engine for global brands. However, amid China's tense relationship with western nations over anything from trade to the pandemic, patriotism among mainland shoppers is at an all-time high, benefiting domestic labels.
In the 2020 fiscal year ended May 31, revenue from Greater China accounted for approximately a fifth of Nike's revenues and nearly a quarter of Adidas' net sales in Beaverton, Oregon. Adidas, headquartered in Herzogenaurach, Germany, is set to release its first-quarter earnings on Friday. Tmall is a big presence in China retail, but there are no details on what percentage of overall revenue is transacted via the site.
Nonetheless, there are indications that local brands are not yet seen as viable alternatives to multinational behemoths. According to Morningstar, overall Tmall sales of sports apparel and footwear fell 11 percent in April compared to a year earlier, a sharp drop from more than 30% growth in the fourth quarter of 2020. This means that some customers are waiting for the boycott to end before abandoning the brands.
"The new shopping habits of Chinese customers are most likely only temporary," said Morningstar equity analyst Ivan Su. Also mentioned " Business boycotts against Nike and Adidas could disappear in the coming months, as long as there are no new threats from state media".
In March, the Communist Youth League and the People's Liberation Army slammed Hennes & Mauritz AB over an undated company statement about allegations of forced labour in the area, deepening the dilemma for foreign companies operating in China. Other international brands that have voiced concerns about labour in Xinjiang, such as Nike, would not import goods from the area.
Brand ambassadors in China have severed relations with Nike, Adidas, and Uniqlo, and landlords have forced H&M to shut some of its stores.