Adidas sees losses mount after ditching Yeezy partnership with rapper Ye

Adidas warned Wednesday that it could incur its first annual loss in decades amid the ongoing fallout over its now-defunct collaboration with the rapper Ye, a rupture that largely drove its $763 million fourth-quarter loss.

Chief executive Bjorn Gulden said 2023 will be a “transition year” as the German sportswear giant seeks to offload its inventory of Yeezy — the highly profitable fashion brand created with the rapper, formerly known as Kanye West — and to reorient back to its core business. The company can start to build a profitable business again in 2024, Gulden said.

“Adidas has all the ingredients to be successful. But we need to put our focus back on our core: product, consumers, retail partners, and athletes,” Gulden said in a statement.

During a call with analysts, Gulden spoke about the dilemma of what to do with the remaining Yeezy sneakers, estimated to be worth about $500 million, saying the goal is to do “something good” while ensuring that it “damages us the least.”

He appeared to rule out selling the fully branded products at full price, or burning them. He also ruled out donating the shoes to disaster relief because of the possibility they would end up in a resale market. But Gulden floated the option of selling them at a discount and donating the profits to charity.

“I probably got 500 different business proposals [from] people who would like to buy the inventory,” he said. “But again, that will not necessarily be the right thing to do.”

There appears to be demand for the product. The CEO of Impossible Kicks, a large online reseller, told CNN last week that his company has seen a 30 percent spike in Yeezy sales since Adidas and Ye parted ways last fall.

Adidas ended its relationship with the entertainer in late October after a string of controversies beginning with his appearing in a “White Lives Matter” T-shirt at his Paris Fashion Week show. Days later, he made antisemitic comments on Instagram and Twitter, and then doubled down on that rhetoric in a podcast and an unaired portion of an interview with Fox News host Tucker Carlson.

Celebrities, political leaders and Jewish organizations condemned the artist and called out Adidas, which was slower in its response than Ye’s other business partners. Balenciaga and JPMORgan Chase, among others, had severed ties with him weeks earlier.

At that point, Adidas faced a dilemma: what to do with roughly $500 million worth of Yeezy shoes. Adidas said in February that it could lose 1.2 billion euros ($1.3 billion) in revenue this year if it couldn’t repurpose the merchandise. Industry experts said that Adidas could sell rebranded shoes, liquidate them, donate or destroy them — but that each option came with its drawbacks.

The company is facing a projected 2023 loss of 700 million euros if it “irrevocably” decides not to sell any of its Yeezy inventory. But it faces other problems, analysts say, including waning demand in China, fallout from its exit from Russia, and filling the revenue hole left by the Yeezy brand. Adidas last reported an annual loss in the 1990s.

Beyoncé’s Ivy Park clothing brand partnership with Adidas has underperformed, the Wall Street Journal reported. And, so far, Adidas has failed to find “the next big thing,” Tom Nikic, a Wedbush analyst, told The Washington Post in February after the company’s announcement about its potential Yeezy losses.

Adidas is “in a competitive industry and they haven’t exactly had their A-game for several years now,” he said. “So it does make it tough.”

The company’s bind underscores the risks of celebrity deals. Mark Cohen, Columbia University’s director of retail studies, told The Post in February that such deals become “endlessly tricky” when a celebrity’s behavior falls out of line with the company’s values.

Nike, for example, has found itself in such a position several times, such as in 2007 when NFL star Michael Vick was indicted for running a dog-fighting operation, charges to which he ultimately pleaded guilty and publicly tried to atone for. More recently, Nike faced a decision after NBA star Kyrie Irving tweeted a link to, and then refused to disavow, an antisemitic film. The company cut ties with Irving, and while it ended its relationship with Vick for a time, it ended up re-signing him.

But the demise of the Yeezy deal was so profound because of the boost it had given Adidas — making up nearly 10 percent of the company’s annual revenue, Morningstar analyst David Swartz said.

“The reason it’s become such a big nightmare is because it was such a big success before,” he said.