What Adidas fears is a currency war. The German sportswear maker does as much as 45 per cent of its business in the US and China, and if the two countries weaken their currencies in a competitive tussle, it will ultimately hurt Adidas’s earnings when translated back into euros. There’s also the risk that such a conflict would slow down the world’s two biggest economies—and everyone else.
US footwear companies fear new levies on shoes made in China would be catastrophic for consumers, companies and the American economy as a whole. While the US imports the vast majority of shoes from China, Adidas ships only a small number of products along that route. Adidas has about 20 per cent of its manufacturing capacity in China but many of the products made there go to local buyers, who represent about 25 per cent of Adidas’s overall business. One drag on earnings has been Adidas’s need to fly clothing from Asia to North America to fill a supply gap. The company has spent more on air freight to compensate for supply-chain bottlenecks affecting mid-priced apparel in North America. The company’s second quarter operating profit has been slightly below the forecast.
