Adidas’ move toover his antisemitic comments raises questions about the future of one of the world’s most coveted, and commercially valuable, sneakers.
In the short term, the sudden split effectively ends production of all Yeezy products by the German sportswear giant, dealing a significant financial blow to Adidas. Yeezy accounted for about 10% of the company’s annual revenue, while Adidas said that terminating its deal with Ye will put a $246 million hit in its bottom line this year alone.
Moving forward, Adidas could continue to release new shoe designs that evoke Yeezy’s brand — minus the label. The company said Tuesday in announcing the demise of the partnership with Ye, formerly known as Kanye West, that it retains the design rights for any new colorways.
“The press release implies Adidas plans to release some current Yeezy designs without the Yeezy name on them,” Morningstar equity analyst David Swartz told CBS MoneyWatch. “I don’t think that means all the Yeezy shoes in design process, but it could mean the ones released so far in new colorways.”
Yet while Adidas could rebrand some Yeezy products in the pipeline, the hit to its business will be significant.
“They have shoes in various stages of planning and production already that have not been released. To have to destroy that inventory would be extremely costly and wasteful,” Swartz said. “That’s an unlikely scenario, but I’m not sure what will be done with the product that’s not released. But it does seem like Adidas has some plan to release some Yeezy product under its own name.”
For his part, Ye had previously indicated that he wanted out of the partnership, saying he wants to control his own brand and sell product directly to consumers. But he would likely face a legal challenge if he tried to resell preexisting designs from the Yeezy line for Adidas.
“He cannot resell designs that he’s already been paid royalties for by Adidas,” Swartz said. “They paid him big money, and they’re not going to let him take their property and sell it. If it does end up in court, Adidas would have a stronger case.”
To be sure, Adidas will survive. The analyst notes Yeezy products represent only a small fraction of the roughly 300 million pairs of shoes the company sells each year. But the dissolution of its deal with Ye does add one more obstacle for a company already facing a slew of challenges.
Among those issues, Adidas CEO Kasper Rorsted is set to exit the company, and it’s unclear who will takeover in 2023. Adidas’ China sales also are down because lockdowns to control COVID-19 have led to the closure of stores in what is a critical market. And shipping challenges have led to seasonal product arriving too late, forcing the company to slash prices in order to clear shelves.
“They couldn’t sell stuff because stores kept closing, so they’ve been shipping stuff back to Adidas and the company is flooded with stuff they can’t sell,” Swartz said.