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Adidas Could Lose $1 Billion After Cutting Ties With Kanye West

Let’s face it: Adidas probably should’ve known better than to hitch its wagon to Kanye West’s star. He has proven himself unpredictable and prone to controversy for years, yet Adidas signed a partnership with him for the Yeezy fashion line, which began selling shoes and clothing in 2015.

But last year, the rapper made some anti-Semitic remarks, which led Adidas to sever its partnership with West. After all, an anti-Semitic fashion partnership is a bad look for any company, but for a German company like Adidas, it’s especially ugly.

CNN reports that West even said on a podcast last year, “I can say antisemitic s*** and Adidas cannot drop me.”

When Adidas cut ties with West, the company pointed out that it “does not tolerate antisemitism and any other sort of hate speech” and that West’s statements were “unacceptable, hateful and dangerous” and flew in the face of “values of diversity and inclusion, mutual respect and fairness.”

The problem is that Adidas has over a billion dollars in Yeezy items in its inventory, which means the company could lose that money if it can’t move the product. Yeezy was responsible for $2 billion of Adidas’ yearly sales, which chalks up to about 10% of the company’s revenue.

Adidas is struggling as it is. Its stock has plummeted by 45% over the past year, and this week, the company lost 11% of its value on the Frankfurt stock exchange. So the conundrum remains: what does Adidas do with all the Yeezy merch?

Last fall when West’s anti-Semitism went on full display, Adidas mulled over the idea of selling the items without the Yeezy name on the label, and that’s apparently still on the table.

“Adidas said selling the sneakers under its own branding would save the company about $300 million in royalty payments and marketing fees,” CNN reports.

However, one analyst told CNN that Adidas may have problems trying to sell the Yeezy inventory as its own.

“There really are no good options for this distressed brand that sat somewhere between prestige and luxury,” retail consultant Burt Flickinger told the network.

Adidas could also destroy the Yeezy shoes and clothing items or donate them to charity. No option is ideal for the retail giant, but Adidas’ problems extend beyond Yeezy.

MarketWatch reports that “Adidas said it expects a currency-neutral sales decline in the high single digits this year and “underlying” operating profit to break even, roughly. But it could go much worse, depending on Yeezy.”

Adidas is also experiencing problems with its brand partnership with Beyonce. The Adidas-Beyonce Ivy Park brand only sold about $40 million worth of revenue in 2022, falling well short of projected sales numbers.

Additionally, the company is conducting an “internal review” that will cost it about $213 million. All of this corporate soul-searching comes at a time when Adidas is at a sales crossroads.

“The numbers speak for themselves. We are currently not performing the way we should”, said CEO Bjørn Gulden, who took the helm in January, in a statement. “We need to put the pieces back together again, but I am convinced that over time we will make adidas shine again. But we need some time.”

It’s no exaggeration to say that Adidas is in trouble, and these high-profile brand partnerships with musicians are contributing to those issues. Hopefully, Adidas can turn itself around, but the company clearly has a long road ahead.

Story cited here.

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