Adidas lives gray days. The German sports multinational is already experiencing the consequences of having worked with Kanye West. And also of having been one of the many brands that broke ties with the rapper after he launched several anti-Semitic comments on social networks, in addition to promoting conspiracy theories and praising racism. The problem is that his association with Adidas was very important commercially, too, and also the source of most of his net worth.
And, just as West fell off the Forbes Billionaires list when it was cancelled, Adidas is now taking its toll on its finances, too: It has posted its first annual loss in decades.
Drop in sales. Adidas’ twilight follows what chief financial officer Harm Ohlmeyer called a “disappointing year.” The sports giant faces a projected loss of 700 million euros by 2023, its first in 31 years, mainly because it will have to cancel the entire range of Yeezy-branded clothing and sneakers. That translates to a potential hit of another $500 million related to unsold Yeezy shares, and the cost of a strategic review.
In total, Adidas’ annual revenue could fall by 1.2 billion euros this year as a direct result of the split. In fact, its shares already fell 2.2% yesterday morning after it published its 2022 results and its 2023 outlook. Added to all this are other problems such as a steep 36% drop in sales in China due to the Zero Covid policy, the increase in the costs of the supply chain, a macroeconomic context that has weakened the consumer and the company’s departure from Russia.
What to do with Yeezy sneakers? One of the dilemmas facing the company is what to do with the remaining Yeezy sneakers, which are estimated to be worth around €500 million. According to Adidas, it is best to do “something good” without “harming them in the least”. At the moment they rule out selling them and also burning them. They have also rejected the idea of donating them to disaster relief due to the possibility that they might end up on a resale market.
Although there are those who have opted to sell them at a discount and donate the proceeds to charity. “I probably got 500 different business proposals from people who would like to buy the inventory. But that wouldn’t be the right thing to do,” CEO Bjørn Gulden said.
The relationship with Kanye West. Adidas canceled its lucrative partnership with rapper and fashion designer Ye, formerly known as Kanye West, in October after he made a series of anti-Semitic comments. The rapper has been involved in a series of controversies for months that began with his appearance in a “White Lives Matter” T-shirt at the Paris Fashion Week show. Days later, he continued the same rhetoric in an interview with Fox News host Tucker Carlson.
In fact, since launching a presidential bid, he has embarked on a media tour, threatening Jews on podcasts and traveling with known anti-Semites. In his last appearance on InfoWars hosted by Alex Jones, along with white supremacist Nick Fuentes, he said people should “stop insulting Nazis” and praised Adolf Hitler.
The problem of working with a celebrity. What happened underlines the risks that exist when a brand signs agreements with celebrities. Mark Cohen, director of retail studies at Columbia University, explained in this Washington Post article that such contracts become “infinitely complicated” when a celebrity’s behavior does not align with the company’s values. And Adidas isn’t the only one that has had to deal with that problem.
Nike has also experienced similar cases. In 2007, NFL star Michael Vick was charged with running a dogfighting ring, charges to which he ultimately pleaded guilty. And most recently, Nike cut ties with NBA star Kyrie Irving after he tweeted a link to an anti-Semitic movie. The big problem for Adidas, however, is that West accounted for nearly 10% of annual revenue. Now, the company has said that, going forward, it will take another tack and focus on its foundations: “product, consumers, retail partners and athletes.”