Hwaseung Enterprise, Annual Operating Profit Expected to Surge 400%
Popularity of Shoes and Shochi in US and Asian Markets... Y2K Trend
Nike Stock Plummets 31%, Adidas Stock Rises 26%
As Nike, the world's largest sports brand, falls into a slump, Adidas is emerging as a new powerhouse. The spread of running trends has increased demand for sneakers, and the 'Y2K (early 2000s fashion)' craze has revived the iconic 'three stripes' of the Adidas brand. Hwasung Enterprises, which handles the contract manufacturing of Adidas products, is expected to see a sharp increase in performance this year.
According to financial information firm FnGuide on the 24th, Hwasung Enterprises is projected to record sales and operating profit of 374.6 billion KRW and 15.5 billion KRW respectively in the second quarter. These figures represent a 16% and 104% increase compared to the second quarter of last year. Following sales growth and a return to profitability in the first quarter, Hwasung Enterprises is expected to continue strong performance in the second quarter. Operating profit on an annual basis is forecasted to surge by 400%. The expected sales for this year are 1.457 trillion KRW, and operating profit is 67.1 billion KRW, with anticipated growth rates of 20% and 416% compared to the previous year, respectively.
Hwasung Enterprises owns a subsidiary, Hwasung Vina (Vietnam), an Original Design Manufacturer (ODM) company producing Adidas footwear. As a top vendor producing over 20% of Adidas's shoe products, most of the company's sales come from Hwasung Vina. When Adidas sales increase, Hwasung Enterprises' performance also expands accordingly. Kiwoom Securities Research Center explained, "The trend of three-stripe products is returning, and the trend is gradually expanding from shoes to clothing," adding, "Orders for Adidas from manufacturers are gradually increasing."
Adidas products are popular in the U.S. and Asian markets. Although Adidas posted a loss of 58 million euros (87 billion KRW) last year, its first deficit in 31 years, the atmosphere changed dramatically within six months. According to Bloomberg, Adidas's operating profit forecast for this year is 1 billion euros (1.5 trillion KRW). Initially, 700 million euros were expected in the first quarter, but as products sold like hotcakes worldwide, the forecast was raised by 300 million euros in just over three months. For Hwasung Enterprises, the production company, it is also positive that Adidas's inventory adjustment, which started last year, is nearing completion, allowing for increased production capacity.
The product driving Adidas's revival is footwear. Recent shoe trends show that running shoes with excellent comfort, boosted by the marathon running trend, and classic sneakers evoking the late 1990s to early 2000s 'Y2K' vibe are selling well. New brands such as France's Hoka, Switzerland's On Running, Japan's Asics, and the U.S.'s Brooks are gaining popularity through word of mouth, while demand for casual sneakers is absorbing Adidas's steady sellers like Gazelle, Samba, Superstar, and Spezial, which pair well with casual, formal, and sportswear.
Adidas Originals reinterprets Korea's traditional leather shoes 'Gatshin' with the 'Gazelle Gatshin'. [Photo by Adidas Originals]
Adidas's aggressive marketing has also played a role. Adidas increased product sales by re-releasing Gazelle and Samba models in various colors. Overseas celebrities and domestic stars such as Adidas's global ambassadors Jennie, Jung Ho-yeon, Suzy, Kim Na-young, and Taeyeon frequently wear Adidas products, attracting consumer purchases. A fashion industry insider said, "Nowadays, trends popular in Korea are also popular in the U.S. without much delay," explaining, "As famous overseas celebrities frequently wear Adidas shoes and appear on social media (SNS), interest in the brand is rising."
According to the fashion platform Musinsa, searches for the brand 'Adidas' increased by 237% compared to the same period last year as of the 30th of last month. During the same period, searches for Adidas's key product, 'Adidas Gazelle,' rose by 52%. Recently, the 'Firebird' shorts, featuring three stripes on the sides, have gained great popularity.
Nike's slump is also creating an opportunity for Adidas. Currently, the global sneaker production market share is led by Nike at 46%, followed by Adidas at 17%. Nike thrived during the COVID-19 period with high-priced products like Jordan leading the resale craze, but this year it is struggling due to weak new product launches and increased reliance on existing products. The stock prices also show a significant difference. Adidas's stock price has risen about 26% since the beginning of the year, while Nike's stock price has plunged about 31% during the same period.
In the second half of the year, Adidas plans to further increase brand awareness by launching various products. Additionally, with growing global interest in Korean culture such as K-fashion and K-beauty, Adidas intends to strengthen marketing in the Korean market. Until last year, the Korean market was part of the Asia-Pacific region, but from January this year, it has been separated as an independent market. Although Adidas Korea does not disclose separate performance figures, it is reported that sales have significantly improved thanks to the popularity of Adidas footwear products.
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