Adidas is attempting to move on to new projects but is struggling as the company is still determining what to do with its $1.3-billion Yeezy inventory after cutting ties with rapper Kanye West.
- Adidas has nearly $1.3 billion of Yeezy sneakers and sportswear stock.
- The leftover stock is leaving the company with potential losses of $1.2 billion in sales and around $500 million in profit this year.
- The company continued producing the brand after severing ties with West to ensure workers would retain their job, but now the company is left with the issue of deciding to sell or donate the inventory.
- Not selling the remaining Yeezy products will cut Adidas’s full-year revenue by about $1.28 billion and its operating profit by about $533 million.
- Adidas is planning to cut its dividend to save costs, pending approval from shareholders at its upcoming annual meeting in May.
Why it’s news
After cutting ties with rapper Kanye West, now known as Ye, Adidas moved to other celebrity endorsements, but has recently found itself struggling as it is stuck with leftover inventory and a big gap to fill the Yeezy shoe line.
Adidas officially canceled its business relationship with rapper Kanye West in October because of his anti-semitic remarks on social media, but the decision has cost the company a large amount of money.
The company has not decided what to do with the remaining $1.3 billion worth of Yeezy inventory, attempting to decide whether to sell the stock, donate the money, or ultimately donate the shoes.
Either way, the company will lose a large amount of money, but if Adidas decides to sell the shoes Ye would still be entitled to a portion of the proceeds as stipulated under his royalty agreement, and Adidas would not make a profit, according to CEO Bjorn Gulden.
“We need to reduce inventories and lower discounts,” says Gulden. “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.”
Adidas hoped to recoup some of the lost money with other celebrity endorsements, including a brand collaboration with singer Beyoncé on her Ivy Park line, but it did not do as well as expected, leaving Adidas with another issue.
“Losing the Yeezy business is so hard,” says Gulde.“There is no other Yeezy business in the market,” he continued. “The people who think you can just replace this with something else—you can’t.”
The company is attempting to move on and focus on other products and ventures, but is trying to decide what to do with the large amount of stock before putting focus elsewhere.