Due to rising material and labor costs, Adidas is expecting a major increase in the cost of sourcing products over the next five years. According to Fortune, the athletic wear giant hopes to make up for this by raising prices and moving production from China.
The company said that higher input costs and currency effects could lower its gross margin by 50 to 100 basis points next year, but it could keep its operating margin stable by cutting expenses as a percentage of sales. According to Fortune, John McNamara, Adidas’ head of global sourcing, expected labor costs to rise 11 to 15 percent annually, while the price of materials, such as cotton and nylon, could increase 1 to 4 percent annually.
Adidas plans to cut the amount of merchandise, such as shoes and apparel, that it sources from China, and shift production to Indonesia, Vietnam, Cambodia and Myanmar. McNamara told Fortune that Adidas regards Myanmar as one of the last great sourcing markets for the sportswear industry.
In addition, the company is setting up a German factory to make its first 500 pairs of running shoes in early 2016. The facility largely will be operated by robots in order to cut labor costs and speed up delivery.
