Adidas is investigating allegations of embezzlement and kickbacks in China

By Laura He, Wayne Chang, and Joyce Jiang, CNN 

Hong Kong(CNN) —

Adidas says it has started an investigation into allegations of “compliance violations” in China, a key market for its sportswear.

Chinese state media Jiemian reported last week that local executives had been accused of committing fraud, embezzling “millions of euros” in an unsigned letter written by whistleblowers calling themselves employees of Adidas China. The letter was widely publicized online.

Claudia Lange, head of media relations and spokesperson at the apparel giant, told CNN on Monday that it had received an anonymous letter on June 7 “indicating potential compliance violations in China.”

“Adidas is currently intensively investigating this matter together with external legal counsel,” she said in an emailed response. Lange declined further comment pending the outcome of the inquiry.

Shares of Adidas fell 3.7% on Monday.

Jiemian wrote that the letter from whistleblowers had been sent directly to the company’s German headquarters before being shared on social media.

The reported complaint alleged that a senior executive in Greater China who manages Adidas’ marketing budget had embezzled millions of euros and taken huge kickbacks from external advertising and celebrity agencies. Several members of the executive’s team and other employees were also implicated, according to a copy of the letter published by the Chinese state media outlet.

Adidas Greater China’s overall promotional budget amounted to 250 million euros ($268 million) a year, including expenses dedicated to marketing, branding and trade fairs, Jiemian reported, citing the letter.

The senior manager was also accused of “nepotism” and “workplace bullying,” including isolating some employees and forcing them to leave, the whistleblowers’ reportedly said. People who followed her instructions were promoted, they added.

The complaint also alleged that one of the manager’s subordinates had received “millions … from suppliers and physical items such as real estate.”

The whistleblowers vowed to disclose the matter to the media and law enforcement if the company did not address the allegations.

Adidas is the world’s second largest sportswear retailer. Greater China — a region that encompasses mainland China, Hong Kong and Taiwan — contributes 15% of the company’s sales.

In mainland China, Adidas is the second largest international sportswear brand behind Nike (NKE). The German company has enjoyed a rebound in sales growth in China after Beijing scrapped Covid restrictions at the end of 2022.

But its market share has declined significantly from pre-pandemic levels because of competition from local rivals and a controversy over its refusal to use Xinjiang cotton.

In 2021, Adidas — along with H&M, Nike and other big Western apparel brands — faced a boycott in China because of the stand they had taken against the alleged use of forced labor to produce cotton in the country’s western region of Xinjiang.

Adidas is well known for playing the “celebrity” card in its marketing in China. It has previously worked with popular actors and singers as brand ambassadors, including Yang Mi, Dilraba and Yi Yangqianxi.

Source : https://edition.cnn.com/2024/06/17/business/china-adidas-embezzlement-investigation-whistleblowers-intl-hnk/index.html