Adidas Execs on Why Public Apology About Rent Freeze Worked In Brand’s Favor + How It’s Monitoring Labor Violations

In a wide-ranging discussion during Adidas’ shareholder meeting today, CEO Kasper Rorsted and other top executives addressed issues ranging from the company’s diversity wake-up call to the uproar over the company’s decision to stop paying rent temporarily to labor compliance issues. Here are excerpts from the company’s conference call, based on an initial transcript.

On the rent controversy in its home market of Germany:

Kasper Rorsted, CEO: “The decision to hold back rent payments was not a good one. We faced a great deal of criticism as a result — from politicians and society as a whole. We quickly reversed the decision and issued a formal public apology. The feedback we received [on the] apology was positive, and the image quickly recovered as a result. In fact, a survey conducted by a market research institute in June ranked Adidas as Germany’s favorite sneaker brand.”

Monitoring its supply chain in wake of renewed controversy over forced labor across the industry:

Harm Ohlmeyer, CFO and Labor Director: “Compliance is verified by our own team of experts. They are supported by selected external auditors. In addition to that, we rely on independent and unannounced checks by third parties. As a member of a fair labor association, Adidas is subject to audits by independent auditors. Apart from site visits and document audits, the measures specifically include talks with management, confidential interviews with employees, employee representatives and unions. We also set up complaint channels through which employees and supplier factories can report complains and requests confidentially.”

The “warning letters” it sent to factory partners in 2019:

Ohlmeyer: “Warning letters are an important element of our instruments to ensure compliance with the standards. In 2019, the reported total number of active warning letters was 41, in 14 countries. In 2019, we terminated contracts with two suppliers for compliance reasons. In one case, there was insufficient progress with solving severe problems in connection with migrant workers. In another case, a supplier company refused the social and environmental affairs team admittance to the factory so that no audit could be concluded or conducted.”

Accelerating e-commerce efforts and capitalizing on fashion shifts:

Rorsted: “Our online revenue has developed dynamically during the second quarter, rising by 93% on a currency-neutral basis. E-commerce is a profitable distribution channel. Its margin lies above the margin of the group. We are convinced that the current situation will give many structural drivers more momentum and accelerate change in the sporting goods industry, not just in e-commerce. This includes the so-called athleisure trend, [with people wearing more sports clothing in a private or professional context.] The sales figures during the first six months of the year show that these products are increasingly in demand.”

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