Adidas’ decision to sever ties with Kanye West (Ye, Yeezy) has had a direct impact on the company’s stock and public image. The question now is whether or not they’ll be able to make a comeback in spite of the financial and reputational losses associated with this move.
We’ll take a closer look at the fallout from Adidas’ split from Kanye West, and explore how they might be able to bounce back.
Adidas faced a major setback when it cut ties with Kanye West in October 2021, following his anti-Semitic and other offensive comments made on social media and in interviews.
With their long-standing history in the sneaker world, we’d be surprised to see that one person could lead to their downfall. But then again, Rome was also once impenetrable.
Yeezy is a footwear and apparel partnership between Kanye West and Adidas that launched in 2015, and the YEEZY shoe line was one of the most lucrative partnerships that Adidas had. The loss of this business has dealt a severe blow to the company’s earnings.
The split led to a net loss of 513 million euros ($540 million) at the end of last year. The company admitted that terminating the partnership with Yeezy would have a short-term negative impact of up to €250 million ($249 million) on its net income in 2022, given the high seasonality of the fourth quarter. So terminating this deal resulted in a $246 million hit to the company’s bottom line.
The esteemed German athletic label finds itself grappling with a perplexing conundrum – there’s a colossal mountain of countless Yeezy sneakers left in limbo.
The fate of 1.2 billion euros ($1.3 billion) worth of unsold, warehoused Yeezy stock is weighing heavily on the sportswear company.
Adidas shareholders even launched a class-action lawsuit over the Ye fallout. According to the lawsuit, Adidas executives purposefully kept investors in the dark about their ongoing troubles with the enigmatic musician formerly referred to as Kanye West, leaving many to feel deceived and betrayed.
Considering the unhinged history of Ye, we’d have to say this one is on them if they didn’t see this coming. Investments and risk go hand in hand, throw in a Hollywood personality and anything can happen.
As someone who has bravely opened up about their struggles with bipolar disorder, Ye found himself causing quite a stir with his increasingly audacious remarks – leaving Adidas executives scrambling time and time again.
Good thing they’re allowed to wear running shoes at work. Maybe their next line of shoes can be called “The Scrambler.”
Some critics argue that Adidas should have done more to prevent West’s problematic behavior, such as limiting his interactions with staff or cutting ties with him earlier.
Others argue that Adidas should have given West the benefit of the doubt and worked with him to address his behavior. Yeah, good luck with any of that.
Can Adidas Rebound?
The question now is whether Adidas can rebound from the financial and ethical tripwires it faces. The answer is yes, but it will require a concerted effort on the part of the company.
Simply put, Adidas needs to address the concerns raised by investors and take steps to mitigate the financial impact of the loss of the partnership with Kanye West.
To Burn or Not to Burn?
Should Adidas fail to secure buyers for the sneakers, they may be faced with a dire decision – to incinerate the stock in order to avoid a public relations disaster in the event they’re offloaded at a discounted rate.
Hmm, do any environmentalists want to chime in on that one? Burning shoes is just not a good solution from an environmental or PR standpoint.
In fact, amidst the cut-throat world of fashion, where brand value is held in the highest regard, multiple fashion behemoths such as Louis Vuitton and Burberry have come under fire in the past for their questionable practice of incinerating unsold stock.
Destroying the shoes would have cost Adidas almost $550 million. They had already announced that the loss of Yeezy had cost them $441 million in sales after terminating its partnership with West. No point digging yourself deeper into that hole. So, let’s explore the next option.
Repurpose the Stock into Another Shoe
Adidas has said that if it decides not to “repurpose” the Yeezy stock, the company would fall to a $750 million loss from the write-off of the value of footwear plus other one-off costs.
Also, this cunning strategy isn’t without major problems as Adidas tries to recoup substantial losses, and it is not without its own unique set of obstacles when it comes to repackaging the goods.
“All of this work is extremely labor intensive and it can only be done one shoe at a time,” States Matt Powell, a footwear retail expert who has worked with Adidas. “So, it’s very costly to go through this process.” Guess that doesn’t sound viable either.
The retail industry is often plagued with the predicament of disposing of unsought remnants or repurposing them ingeniously.
Companies are inclined to contemplate several alternatives, including vending off the stock at a reduced price, endowing it charitably, or embarking on a creative upcycling endeavor.
Also, on the no-win front, media reports suggest that Ye can anticipate a commission of 15% of turnover, previously agreed upon, in the event that the merchandise is sold.
West reportedly earned about $500 million in royalty payments through the first four years of the deal with Adidas. The company suggested it would continue with the designs but stripped of the Yeezy name and branding, prompting speculation that West could still be in line for some payments.
Option 3- Donate to Charity
And we have a winner, folks! Indeed, Adidas has announced that they intend to vend off fragments of their residual Yeezy collection and allocate the gains towards charitable causes and organizations affected by the repercussions of Kanye West’s controversial remarks.
Celebrities and products go hand in hand, there’s just no way around it. A solid endorsement and you’re golden. But as we see the Bud Light debacle unfolding in real time, things can quickly go south.
One thing’s for sure, this double-edged sword will continue as the weapon of choice when it comes to corporate branding with celebs.