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After Kanye West (aka Ye) made some controversial and antisemitic comments last year, the public pressure was on for Adidas to cut ties with him. Before that, the sportswear brand had worked with Ye to build out the Yeezy apparel line. The collaboration between the two was said to be worth billions, but Adidas was criticized for not cutting the deal.
In October, their partnership formally ended, making Adidas one of the last businesses to put distance between itself and Ye. But what about all of the Yeezy stuff that Adidas still has in its warehouses?
Well, last week, Adidas also released some early info about its financial guidance for this year. Revenue is expected to drop after ending the Yeezy partnership. And sales are estimated to drop by about US$1.28 billion. If Adidas doesn't sell off its remaining Yeezy stock, its operating profit will drop by about US$537 million.
"There's no way to get out of this gracefully or profitably," said Matt Powell, a footwear retail expert who's worked with Adidas. "The question is, how can they lighten the bad things that are going to happen?" It looks like Adidas is going to have to try to repurpose the Yeezy inventory that it has. But how?
Adidas has a few choices for dealing with the Yeezy debacle. It could heavily discount, resell, destroy or donate pieces. For one, Adidas could remove the Yeezy label and sell the inventory at its own stores or partner retailers, likely at a discount. This could be risky, though, because the unique designs will make it hard to distance the shoes from association with Ye.
Or, it could sell the remaining inventory to developing markets to make a profit without hurting its reputation in places like the US and Europe. The company would still need to strip the branding of the shoes, and there's still a chance it will sell poorly because of the drama with Ye. Or, Adidas could donate the stock, which is good for its image but bad for its books.
In any case, it's a bad idea to totally destroy the merchandise. It would be a major financial loss and could also lead to public backlash for being wasteful.
Yeezy problems aside, Adidas is looking at some big challenges. "The sales decline is about more than just Yeezy," Bernstein analyst Aneesha Sherman wrote in a note last week. "We are concerned about the underlying health of the business that would drive such a drastic guide-down, even after stripping out the Yeezy impact."
Adidas has relied heavily on collaborations for the past few years, including with stars like Bad Bunny, Pharrell Williams and Beyoncé. But Wall Street is worried that it'll have trouble finding the next big thing, especially after this Yeezy hit.
Collabs may not be the way forward, as even its joint venture with Beyoncé, Ivy Park, has plunged more than 50% in the last year.