Kanye West: Adidas seeks what to do with Yeezy sneakers – 03/09/2023 – Market

The new CEO of Adidas has $1.3 billion worth of Yeezy sneakers he doesn’t know what to do with.

Stocked in warehouses across the planet, the sneakers are a reminder of the until recently fruitful partnership between Adidas and Kanye West, the rapper now known as Ye. Since the first Yeezy Boost 750 shoe hit the market in February 2015, the Yeezy brand has become a driving force in the athletic apparel industry and has become one of the most profitable pillars of Adidas’ business.

That ended when strong backlash to a succession of anti-Semitic statements by the musician forced Adidas to terminate his contract in October.

Now Bjorn Gulden, who took over at Adidas in January, is trying to stabilize the German company, and the sudden loss of a profitable line is just one of his problems. Last year, sales in China, the company’s biggest market, fell by more than 35%, as the country expanded its lockdown measures to contain Covid, and the decision to leave Russia after the invasion of Ukraine cost 59 million of euros (about US$ 62 million) to the German group, which is also losing market to Nike and other rivals.

On Wednesday, Gulden declared 2023 to be a “year of transition”, as he unveiled plans to shift priorities towards more traditional product lines and cut costs, starting with a dividend cut from the current 3.30 euros. per share to 0.70 euro cents.

At the same time, he said, the company was still trying to decide what to do with its remaining inventory of sneakers and other sporting goods that carry the Yeezy brand.

Gulden said he and his team were still exploring their options, including the idea of ​​potentially selling the stock and donating the proceeds “to do some good”. He said the shoes most likely would not be destroyed.

“We need to reduce inventories and lower discounts,” said Gulden. “Adidas has all the ingredients to be successful. But we need to get back to focusing on our core: product, consumers, retail partners and athletes.”

The company will continue to look to expand its football, running, outdoor and golf lines, Gulden said, but he remains hopeful that collaborations with social media influencers and pop culture stars including Beyoncé and Pharrell Williams, gain new momentum this year. They are part of the company’s lifestyle division, which in recent years has been instrumental in increasing Adidas’ popularity with a wider audience, particularly in the United States.

But the collapse of the most prominent of those collaborations weighed heavily during the company’s earnings call on Wednesday. In the fourth quarter of last year, Ye began making anti-Semitic remarks on Twitter that drew an immediate backlash, and companies immediately disassociated themselves from him.

Adidas, which was criticized for not acting quickly enough, described his comments and behavior as “unacceptable, hateful and dangerous, and a violation of the company’s values ​​of diversity and inclusion, mutual respect and fairness”.

The rupture of the deal with Ye left the company with a huge pile of sneakers and clothing, which could result in a potential loss of 1.2 billion euros in sales and 500 million euros in profits this year.

When the contract was terminated, Gulden said, Adidas decided to continue with ongoing Yeezy product manufacturing to prevent the thousands of people involved from losing their jobs. The future of that stock is now in question.

“If we sell the stock, I promise that the people who were hurt by this will also get something good out of the sale,” said Gulden.

He didn’t elaborate, but said donating the proceeds would make more sense than just donating the shoes, which have a higher value among collectors and other fans, on the resale market. Before last year’s turmoil, Yeezy sneakers often fetched retail prices in the hundreds of dollars a pair.

Jewish organizations were among the strongest voices urging Adidas and other companies to sever ties with the Yeezy brand, warning that refusing to do so could further stoke anti-Jewish hatred at a time when anti-Semitism is on the rise. in both Germany and the United States.

These organizations’ response to the idea of ​​selling Yeezy inventory for a good cause was divided. Holly Huffnagle, director of anti-Semitism at the American Jewish Committee, said a financial investment by Adidas to fight anti-Jewish hatred could be “a good start” but urged the company to make a broader effort.

But Charlotte Knobloch, president of the Jewish Community of Munich and Upper Bavaria, warned that whatever happened to the profits, returning Yeezy shoes to the market would send the wrong signal.

“By deciding to sell West’s merchandise now, Adidas would choose to go back in time and seriously compromise its own values, regardless of where the proceeds go. Yeezy products would end up on the streets as if nothing had happened,” Knobloch said.

The company had previously announced that it was “the sole owner of all design rights to existing products” under the terms of the partnership, but Gulden said on Wednesday that the possibility of changing the branding of Yeezy’s stock was not being contemplated. . If the products are sold rather than destroyed, Ye would still be entitled to a share of the profits, under the terms of his royalty agreement, even if Adidas does not make a profit, the executive said.

“Losing Yeezy’s business is very difficult,” Gulden told reporters on Wednesday, praising the creativity of the collaboration on multiple levels including design, marketing and use of social media and apps.

“There’s no other business like Yeezy on the market,” he said. “There are people who think you can just replace it with something else – but you can’t.”

Adidas’ earnings presentation on Wednesday was Gulden’s first at the company after he spent more than a dozen years as chairman of rival Puma, whose headquarters are across town. The two companies are headquartered in the same Bavarian town, Herzogenaurach, where they were founded by the Dassler brothers, Rudolf and Adi, after World War II.

Adidas reported a 6% rise in its net sales in 2022, to 22.5 billion euros, but operating profit fell by 66%, to 669 million euros, under the effect of the abandonment of Russia and the Chinese policy of Covid zero, which contributed to an increase in unsold inventories.

The losses forced the company to issue four loss warnings over the course of six months, and that prompted credit rating agencies Moody’s and S&P to downgrade its debt last month.

For 2023, Adidas predicts underlying operating profits close to zero, factoring in lost sales if it doesn’t find a way to sell off Yeezy product inventory.

Translated by Paulo Migliacci