For Adidas, a Yeezy dilemma
Shoemaker stuck with $1.3B in unsellable footwear after it dumped controversial rapper
FRANKFURT, Germany — Adidas is still wrestling with how to dispose of $1.3 billion worth of Yeezy shoes after its breakup with the rapper formerly known as Kanye West, forcing the German sportswear maker into a big loss at the end of last year and expectations of more pain ahead.
CEO Bjorn Gulden said selling the popular line of shoes would mean paying royalties to Ye, who was dropped by Adidas five months ago after making antisemitic remarks on social media and in interviews. During an earnings call last week, he pointed to “many variables” about what to do with the shoes now stacked in warehouses.
Destroying them could “raise sustainability issues,” though some companies have offered recycling solutions, said Gulden, who was named CEO after the blowup over Ye’s remarks. Restitching them to hide the Yeezy brand so they could be sold “is not very honest, so it’s not an option,” he added.
Suggestions to give them away to those in need would mean the product would “come back again very quickly” due to its high market value, Gulden said.
Before last year’s uproar, Yeezy sneakers often sold for hundreds of dollars a pair.
Gulden said that Adidas had decided to continue production of Yeezy products in the pipeline when the contract was severed, to prevent thousands of people involved from losing their jobs, leaving inventory stacked in warehouses around the world.
“If we sell it, I promise that the people who have been hurt by this will also get something good out of this,” Gulden said.
He did not elaborate but added that donating the proceeds would make more sense than just giving away the shoes.
Adidas split with Ye in October, following pressure to end ties with the rapper over his antisemitic and other offensive remarks. The company is now struggling to find ways to become profitable again and replace its Yeezy line, which analysts have said amounted to as much as 15% of its net income.
The Ye breakup cost $640 million in lost sales in the last three months of 2022, helping drive the company to a net loss of $547 million. The decline, also attributed to higher supply costs and slumping revenue in China, contrasts with profit of $227 million in the fourth quarter of 2021.
More losses could be ahead, with the company forecasting a $533 million hit to profit earnings this year if it decides not to repurpose the remaining Yeezy products in stock. The company is predicting a 2023 operating loss of $746 million.
Gulden said “so many companies” were willing to buy the shoes, but rumors that the company was in talks to sell them “are not true.”
He had heard from “gazillions of people that have opinions about this, and of course, when you’re sitting on the inside, it looks a little bit different than it looks on the outside.”
Gulden also said Adidas is still investigating former employees’ allegations that Ye created a toxic work environment and that the sportswear company knew about his problematic behavior and failed to protect workers.
The CEO called 2023 “a transition year,” saying “we can then start to build a profitable business again in 2024.”