Adidas is successful with 1st batch of Yeezy sneakers after breaking up with Kanye West – 07/24/2023 – Market

Sneaker aficionados quickly snapped up the first batch of Yeezy sneakers sold by sporting goods giant Adidas since the end of its unsuccessful partnership with Kanye West, reducing the risk of the group having to take a big write-off on its remaining inventory.

Adidas stopped selling Yeezy sneakers in October after ending its highly lucrative deal with fashion designer and rapper Kanye West — now known as Ye — after he made anti-Semitic remarks.

In May, the company announced that it had decided to sell part of its outstanding Yeezy inventory, as destroying it would force the company to record a write-off of more than 500 million euros (more than R$ 2.6 billion). Adidas said it will donate a significant portion of profits to charities that fight racism and anti-Semitism.

According to sources familiar with the matter, demand at the first online sale of Yeezy sneakers, which took place throughout late May and early June, exceeded the company’s most optimistic forecast.

By June 2, at the end of the sale, Adidas had received orders worth more than 508 million euros (R$2.7 billion) for 4 million pairs of sneakers, the sources said. The strength of demand meant that Adidas was unable to fulfill all orders, especially for certain sizes and models, they added.

Customers were required to register online in advance and submit their orders for specific models. While the value of orders received was over 508 million euros, net sales were lower, sources say.

The strong demand dispelled fears at Adidas’ headquarters in Herzogenaurach that Ye’s anti-Semitic outbursts and lack of marketing for the shoes over the past six months would make the Yeezy brand too toxic.

After teaming up in 2015, Yeezy has become an important partner for Adidas. By 2022, Yeezy generated €1.7 billion in sales and nearly €700 million in operating profit.

The world’s second-largest sports brand warned earlier this year that it could suffer its first operating loss in 31 years. It will release quarterly results on Aug. 3.

“Adidas will likely have to update its revenue and profit projections to reflect the initial sale of Yeezy inventory,” said Thomas Chauvet, head of luxury and sporting goods research at Citibank, adding that signs of strong demand for unsold Yeezy sneakers would be well received.

In its first sale, the company offered 15 different Yeezy models, including a large number of cheaper slippers as well as some more expensive models, according to people familiar with the matter. The popular 500 Utility Black, which retails for an average of 268 euros ($400) a pair on online retailer StockX.com, sold out in Europe in a matter of hours, they added.

Within the company, discussions about how much will be donated to individual charities are ongoing, the sources add. In a first step, five charities in the United States and China, including the Anti-Defamation League and the Philonise and Keeta Floyd Institute for Social Change, were chosen. It was discussed making donations of more than 8.5 million euros to the five charities, but no decision has been taken, the sources said.

However, the final amount donated from inventory sales will be much higher, as Adidas is willing to pay a “significant portion” of profit from Yeezy inventory, according to the sources.

Adidas declined to comment, citing the quiet period ahead of the half-year results.

Adidas also plans to use proceeds from the sale of the inventory to pay royalties to Ye and cover costs arising from the termination of the partnership, including employee layoffs, closure of production capacity and legal costs. CEO Björn Gulden said in March that Adidas is unlikely to make a profit on remaining Yeezy inventory.