Adidas

Just want to say up top that I am sorry for missing my post on Friday. I got busy at the last minute and wasn’t able to get it done. Because we are in the summer, things are a little less regular. But I will do my best to make sure that there I maintain a regular schedule. Now back to Adidas.

Adidas makes 44% of its footwear (Adidas, Reebok, etc) in Vietnam. And 97% in Asia. How much in the US? 1%. And Europe? Even lower at 2%. So basically, where Adidas makes the majority of its money, it basically produces no shoes.

That is about to change. The company has invested in a new process called SPEEDFACTORY, where the production is mostly done by robots. It cuts the time from 60 days for production (plus another 60 days for shipping to stores in Western Europe or the US) to just a few days or weeks.

The facility opened in Europe and another opened in the US (Atlanta). Combined these two factories will make 500,000 pairs of sneakers each.

That seems like a lot of sneakers to me. Actually, it’s not. Adidas make 409 million pairs of shoes in 2018. So this is less than 1% of total sneaker production.

Vietnam is safe…for now.

FOOTWEAR PRODUCTION BY REGION. SOURCE: ADIDAS 2018 ANNUAL REPORT

The bigger concern is that these more automated factories will start to move production back from Asia to Western Europe and the US. Much of the work is being done by robots or 3D printers. The latter allow for very quick changes in styles of production. And that means companies can be much more nimble in responding to market demand. Also, shipping costs will be much lower. Overall, it could be much cheaper for companies. And potentially lead to greater sales.

For example, say a particular sneaker was a surprise hit. So the stores run out of them. The company could just use their on-shore production facility to quickly respond.

We might eventually see production actually match sales. Right now, 97% of Adidas sneakers are made in Asia (see chart up above), but Asia makes up just 33% of sales (this is overall sales, but let’s assume footwear follows the same trend as the overall sales).

Nike is doing a similar thing, moving more production on-shore by using cheaper Latin American markets plus automation.

Employees lose out

This will mean fewer employees at factories. The factory in Germany for Adidas has just 160 employees, compared to more than 500 at a factory in Asia (in Vietnam it is more like 1,000). As Adidas makes this work in Germany, it will probably move some of the automation to Asia as well. So that will mean fewer employees overall.

That’s probably going to be a bigger deal than the move to on-shoring. Even Adidas’s chief Kasper Rorsted thinks so:

“I don’t see full automation in the next five to 10 years,” adding that Asia’s semi-automated manufacturing is still significantly faster than any 3D printing technology. The automated plants will manufacture about 1m pairs of shoes annually — a tiny fraction of the 360m pairs the company sells globally each year.

This is why it is so important for Vietnam to start to move up to the more innovative parts of the market….