Adidas CEO urged to overturn predecessor's plan to reduce stores in Korea

The Korea Times

The Korea Times

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Sun, October 1, 2023 | 18:00

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Adidas CEO urged to overturn predecessor's plan to reduce stores in Korea

Posted : 2023-03-14 16:42

Updated : 2023-03-15 16:34

Adidas CEO Bjorn Gulden

Lawmakers set to side with franchisees against German sportswear brand

By Park Jae-hyuk

Adidas CEO Bjorn Gulden, who took office in January, is facing growing calls from Korean franchisees of the German sportswear brand to revoke the restructuring plan pursued by Kasper Rorsted, his predecessor, according to industry officials, Tuesday.

Kim Jung-joong, the leader of a group of Adidas franchisees in Korea, told The Korea Times that the franchisees hope the new chief executive, who moved from Puma, rescinds his company's plan to terminate its contracts with approximately 80 Korean franchisees out of around 100 by 2025.

Earlier this month, the group of franchisees held a press conference to announce their decision to file a complaint with the Fair Trade Commission (FTC) for Adidas Korea's alleged violation of the Fair Transactions in Franchise Business Act. The decision was made after Gyeonggi Province's mediation failed to lead both sides to reach an agreement.

Their conflict erupted in January last year, when the Korean operation of Adidas abruptly announced its plan to terminate its contracts with most franchisees here, in line with the global headquarters' move to reduce the number of stores worldwide.

"The company has reiterated that it has no choice but to follow the global headquarters' policies," Kim said. "We are waiting for a response from Adidas, as the company is carrying out a personnel reshuffle in the wake of the new CEO's appointment."

The Korean franchisees are considering hosting a meeting with lawmakers at the National Assembly next month, if Adidas continues to stay silent about their request.

"Both ruling and opposition lawmakers we have met were positive about supporting us," Kim said. "Some of them pointed out illegalities in Adidas' plan, while others claimed that the company's plan is problematic enough, even if it does not violate the law."

Korean franchisees of Adidas hold a press conference at the German sportswear brand's store in Seoul, March 8, to protest the company's refusal to renew contracts with them. Courtesy of Korea Franchisee Union

In Korea, each Adidas franchisee operates between three and six stores.

The franchisees claim that Adidas had encouraged them to run multiple stores in Korea and even asked them to manage Reebok stores, after the German company acquired the U.K.-born sportswear brand in 2009.

"We were also asked to increase the size of our stores, so we had to spend money to relocate our stores to bigger spaces," Kim said. "After we endured losses during the COVID-19 pandemic, Adidas told us that it would refuse to renew its contracts with us."

When the conflict first broke out between Adidas and its Korean franchisees, the company explained that it offered enough of a grace period before terminating its contracts with them.

"We understand that this transition is not an easy process. We believe that we have made fair and generous conditions for a smooth transition," an Adidas Korea official said.

The officials also argued that the company has never signed a franchise contract with its partners or operated a franchise business, adding that it and its partners are not subject to the Franchise Business Act.

However, franchisees say they signed a franchise contract with Adidas Korea.

Considering the worsening profitability of Adidas' global business, there remains skepticism as to whether the German company will accept the request from Korean franchisees.

Due to the costly termination of its partnership with Kanye West's Yeezy brand over the rapper's antisemitic remarks, Adidas is projected to suffer its first annual operating loss in three decades. The company expects a full-year operating loss of 700 million euros ($750 million) for 2023.

pjh@koreatimes.co.kr