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China boycotts are a warning to Western brands www.cnn.com
London (CNN Business)Companies including H&M, Nike (NKE), Adidas (ADDDF) and Burberry (BBRYF) have been caught in the middle of a political firestorm in China — spooking investors that keep close tabs on a key market.
What's happening: The retailers face boycotts because of stands they've taken in the past against the alleged use of forced labor to produce cotton in China's western region of Xinjiang.
Dozens of Chinese celebrities have terminated contracts or said they'll cut ties with the brands, while H&M, the world's second largest clothing retailer, has been pulled from major e-commerce sites.
H&M and Nike are facing a boycott in China over Xinjiang cotton statements
H&M and Nike are facing a boycott in China over Xinjiang cotton statements
Investor insight: Nike shares tumbled more than 3% Thursday on Wall Street, while Adidas sank more than 6% in Frankfurt. In London, Burberry lost more than 4%. H&M's stock also slid nearly 2% in Sweden.
The outrage was triggered by a social media post from a group linked to the ruling Communist Party, which resurfaced a statement H&M made in September about reports of forced labor in Xinjiang. State media has since targeted other major brands that have previously spoken out.
Human rights groups have repeatedly accused Beijing of detaining Uyghurs and other Muslim minority groups in "re-education" camps where they're forced to make products that find their way into global tech and retail supply chains.
Recent sanctions from the United States and other Western countries over Xinjiang have sparked renewed pushback from the Chinese government, which calls the camps "vocational training centers" designed to combat poverty and religious extremism.
Blowback in China against companies that have spoken out on Xinjiang may pass, according to Bernstein analyst Aneesha Sherman. Shares of H&M rose 1% in early trading Friday, while Nike's stock is up roughly 1.5% in premarket trading.
But the episode is a reminder of the challenges Western brands face as they court the immense spending power of Chinese consumers.
"It's a tough position to manage, because they can't really back down on their [stances], but at the same time they want to make sure they don't abandon the Chinese customer," Sherman told me.
China accounted for roughly 5% of H&M's sales in 2019. Sherman estimates that figure grew to about 10% in 2020, as China's economy recovered faster from coronavirus than its home market of Europe.
"In a year like this, even taking a 5% haircut off the top line is a big hit when H&M is trying to recover," Sherman said.
Luxury brands like Burberry are even more exposed, she added. Burberry listed "any significant change to Chinese consumer spending habits" as a key risk to sales in its most recent annual report.
Big picture: The US-China tensions that gained prominence during the Trump era haven't gone away, with the Biden administration and allies taking a hard line with Beijing. That creates challenges for Western companies that operate in the Chinese market.
"It does affect these brands," Sherman said. Plus, weeks like this only strengthen the hand of local competitors, which are more tapped in to regional tastes and can avoid politically-generated controversy, she noted.
Published Date:2021-03-28
