Could robots replace human workers at Nike and Adidas?

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The world’s biggest sportswear brands are hitting the ground running when it comes to automation, with Nike, Adidas and Under Armour all investing in technology that could replace human labor on footwear production lines.

But where does this leave hundreds of thousands of workers across the developing world, as companies look to robots to help push their profit margins?

Robots, running shoes and reduced labor costs

German giant Adidas unveiled its latest running shoe in London over the weekend, with the AM4LDN model set to go on sale next week. What makes this 220 US dollar shoe different is that it was made in the Adidas Speedfactory in Ansbach, south Germany – a huge complex where an army of robots, 3D printers and knitting machines started production earlier this year.

A staff member displays a shoe, at the launch of Adidas' new shoe line, made in a factory largely operated by robots, in London, Britain October 19, 2017. /VCG Photo

The Economist says that the factory will initially produce 500,000 pairs of shoes per year – a very small portion of the 300 million pairs annually made worldwide by Adidas. However, it represents a seismic shift not only in automation replacing human workers but also in the return of a factory to Germany after years of expansion in Asian developing countries.

Adidas plans to open another Speedfactory in Atlanta for the US market by 2020, and it is not alone in the sports world when it comes to embracing automation.

Nike has been working closely with high-tech manufacturing company Flex since 2015 in a bid to boost its robotic workforce, as it looks to hit an ambitious 50 billion US dollar revenue target by 2020.

Under Armour has also looked to 3D printing for some of its recent flagship footwear, amid two straight quarters of losses and an ongoing restructuring policy that will cut 2017 profits even further.

Why the move to automation?

First and foremost, the obvious answer is that in the long term automation will prove much cheaper than hiring thousands of human workers, especially as wages rise in the developing world.

The Financial Times, citing analysts at CitiBank, says that Nike’s adoption of Flex technology could reduce labor costs by 50 percent and materials by 20 percent, potentially boosting profits by almost 30 percent per pair of shoes.

VCG Photo

Secondly, automation will mean that shoes which previously took weeks to manufacture could be made within days, or eventually even hours. Morgan Stanley reports that the Adidas Speedfactory can make a pair of shoes in just five hours – the same model would take human workers several weeks to assemble.

Herbert Hainer, formerly the chief executive of Adidas, told the Financial Times last year that a future in which a shop robot will be able to make a pair of customized shoes on demand is getting closer.

The fact that Adidas’ AM4LDN is a model specific to London also carries great significance – it’s designed based on big data, with UK consumers preferring a shoe they can wear in wet weather. Adidas plans to release more exclusive shoes for Los Angeles, New York, Tokyo, and Shanghai next year, based on consumer patterns in each city.

Automation means that based on demand, Adidas can quickly roll off small batches of shoes specially designed for these cities. This avoids the risk of setting up a manned production line intensively focusing on one design for a global market, which could lead to oversupply and lost profit margins.

What does it mean for workers?

Adidas has insisted that automation does not mean factory closures or layoffs in Asia, where it employs more than one million people in countries like China and Vietnam.

Labourers work at a garment factory in Bac Giang province, near Hanoi, Vietnam, ‍October 21, 2015. /VCG Photo

However, the Speedfactory’s long-term advantages are clear – the Ansbach factory currently only employs 160 workers, compared to its Asian production lines which hire thousands of people.

75 percent of Nike’s front-line labor force is based in Vietnam, China and Indonesia, representing around 400,000 workers.

Speaking to the Financial Times, Eric Sprunk, Nike executive vice-president and chief operating officer, was adamant that “we don’t expect there to be any displaced workers. We are going to need just as many manufacturing jobs in our source base.”

Sprunk did however, add that “certain countries will see a change in the labor base,” as the company, like Adidas, focuses on boosting regional market-specific manufacturing. This could mean more factories returning to the US and Europe for the first time in decades.

“When I started at Adidas in 1987, the process of closing factories in Germany and moving them to China was just beginning,” Herbert Hainer told the Financial Times. “Now, it’s coming back [to Germany]. I find it almost uncanny how things have come full circle.”

This photo taken on September 14, 2016, shows workers on a production line at the Huajian shoe factory in Dongguan, in south China's Guangdong province. /VCG Photo

It remains unclear what automation means for China, a country which finds itself in the unique position of being both a source of cheap labor and a wealthy middle class of consumers.

Nike has identified Shanghai and Beijing as key markets that it wants to focus on, as part of a list of 12 targeted cities where it expects to see 80 percent growth by 2020.

Adidas saw China sales growth of 30 percent and 28 percent respectively in the last two quarters – showing that while its position as world factory is under threat because of rising wages, its role as a vital consumer base is not going to change anytime soon.