Fashion

Adidas under fire

by
7 Sep 2012

It will not have gone unnoticed that German sportswear giant Adidas has had a very successful first half in 2012. The European Championships Football this year were partially responsible for a highly profitable six months. Net profits surged

over 30 percent on revenues of 7.3 million euros (5.8 million pounds/US$9.2 million/Rs 51 crores).

All
this wealth has, however, cost Adidas its reputation and the ire of the general public. SumOfUs.org - an international organisation that fights for a healthy global economy - has started a petition against Adidas in an effort to force the company to pay an overdue severance amount of 1.8 million dollars (1.1 million pounds/Rs 9 crore) to formers workers in Indonesia. These workers suddenly lost their jobs when their employer, the owner of Adidas' supplier PT Kizone, suddenly closed down the factory where they worked and fled the country. According to SumOfUs.org, the former employees have been waiting to be paid for a year and a half, with Adidas refusing to part with the money.

And the criticism does not end there. For years, Adidas has been accused of violating human rights. A new report by ngo Playfair 2012, entitled "Fair Games? Human rights of workers in Olympic 2012 supplier factories", claims that major brands such as Adidas have been systematically violating human rights in the run up to the 2012 Olympics.

The organisation investigated ten sportswear factories in Sri Lanka, China and the Philippines that catered to the Olympics and came up with some shocking findings. Workers are said to labour under atrocious conditions for poverty wages. They receive no legal benefits, are forced to work overtime under threat of termination and have no unions to protect their interests.

Furthermore, the German company has only just recovered from a scandal that took place a few months ago at Adidas India. "Commercial irregularities" had caused its Reebok India unit to lose 125 million euros (99.1 million pounds/US$157 million/Rs 871 crores), Adidas CEO HerbertHainer admitted. A month before the irregularities were made public, Reebok India's managing director Subhinder Sing Prem en its COO Vishnu Baghat were fired and replaced by new management. According to an anonymous source of Indian paper The Economic Times, Prem - a former Reebok executive - drove the company into the ground as a result of his burning ambition. Since Adidas took over Reebok in 2005, Prem was said to have been gunning for the top spot at the integrated company. After finally being appointed managing director in May 2011, Prem initiated a major expansion into India and did so successfully. The number of Reebok stores in the country shot up from 100 in 2003 to 900 in 2012. Unfortunately, an internal audit instigated by Adidas top brass in January of this year revealed that Prem had sacrificed profit and margins to achieve his lofty goals.

According to The Economic Times' source, Prem and Bhagat had billed their franchises for products beyond their selling capabilities. They had also promised them that Reebok would deal with excess stock. This was not the case, but top management in Germany was only presented with rising numbers and was happy. However, the franchises started to protest and refused to pay for more goods until the problem of unsold stock was dealt with, which never happened. This proved to be the beginning of the end for Prem. There were instances when Reebok was even forced to raise product prices to cover the shortfall, but eventually the company was no longer able to pay suppliers and Adidas' management ordered an internal investigation into the Indian unit. According to The Economic Times, the reason that management did not act sooner is due to the fact that India represents only a tiny portion of the sports giant's total business and, at the time, its focus lay elsewhere.

Meanwhile, Adidas has sued Prem and Bhagat for company fraud. Both men deny the accusations and Prem has launched his own suit against Adidas for 'defamation and termination of services'.

Photo: Adidas Originals