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Adidas could be forced to burn around $500 million worth of Yeezy sneakers after anti-Semitic outbursts by rapper and fashion designer Kanye West.
The sportswear brand is struggling to figure out what to do with its massive stash of shoes, which retail for between $200 and $600, after it sharply cut ties with the disgraced rapper last year.
Analysts now say Adidas, which has already said the debacle hit $1.3 billion in revenue, may be forced to burn the shares, because it risks a PR nightmare if they are still sold at a discount.
The company’s decision to drop West capped the rapper’s fall from grace after a pattern of increasingly erratic behavior and anti-Semitic outbursts.
In October, he said in a social media post that he would do “death scams against the Jewish people,” and later doubled down on media interviews with comments that included vile remarks about the Jewish people.
Kanye West, pictured in October of last year, was dropped by Adidas and several other brands after a series of anti-Semitic outbursts.
Adidas now has Yeezy shares worth around $500 million, and might even decide to burn the shares rather than see itself profiting from a collaboration with an anti-Semite.
Wedbush analyst Tom Nikic told the Washington Post that the Yeezy line was worth about $2 billion per year in revenue to Adidas, adding, “What makes this so dramatic is how big it is.” He said the trade dilemma was confused with the “abruptness” of West’s downfall.
Nikic said stripping the sneakers of the Yeezy tag and selling them at a discount as “zombie Yeezys” was a risk because the brand could still be seen as “taking advantage of a collaboration with someone who made blatant anti-Semitic statements.”
Burning or destroying the shoes would be the most extreme option, but it’s something other fashion brands have done before, albeit under different circumstances. Luxury brands such as Louis Vuitton and Burberry have previously faced criticism for burning unsold products to preserve brand value.
Elizabeth Napier, an assistant professor at the University of Toledo, told the Post that Adidas should offer the shares to charities to help with disaster relief, including those providing relief after the recent earthquakes in Syria and Turkey.
Adidas CEO Bjorn Gulden, who joined Adidas on January 1 after switching from rival Puma, warned earlier this month that the brand was “not working as it should”.
Adidas’s decision to end its lucrative deal with West prompted a rapid end to sales of his line of footwear and clothing.
Before the brand cut ties with West, the deal accounted for around three-quarters of his roughly $2 billion net worth. That collapsed overnight to around $400 million, according to Forbes, with much of his remaining wealth stemming from his music catalog and real estate.
Adidas, which owns the rights to most of the Yeezy line, said after the partnership ended in October 2022 that it was ending production of “Yeezy-branded products and [stopping] all payments to [West] and their companies’.
West reportedly earned around $500 million in royalty payments during the first four years of the deal through 2020 with Adidas. In November, the company suggested that it would continue with the designs, but without the Yeezy name and branding. The announcement sparked speculation that the rapper might still be online for some payments.
Following the decision to cut ties with West in October, owners of his Yeezy shoes scrambled to ditch their shoes, with searches for the term “selling Yeezy” skyrocketing nearly 600 percent overnight.
And the fallout has continued to plague the German sports brand, prompting the firm to issue its fourth profit warning in the last six months in February.
The new boss of the embattled company has promised a “transition year” within Adidas to bring the sportswear giant back to profitability.
Adidas CEO Bjorn Gulden, who took over the helm of the sportswear brand in January, said the company “is not performing as it should.”
West’s deal with Adidas brought the company billions of dollars in revenue.
The break with West came just before the crucial sales period before Christmas, forcing Adidas to halve its 2022 earnings outlook in early November to €250m, and highlighting the risks some brands face. have taken on by linking their fortunes to celebrities.
Adidas had previously lowered its 2022 forecasts in October to mid-single-digit percentage revenue growth in light of weaker demand in China and Western markets.
The company also suffered losses due to exceptional expenses related to its departure from Russia following the invasion of Ukraine, but recent results showed that the company had fared even worse than expected.
Gulden said: “We need to put the pieces back together, but I am convinced that over time we will make Adidas shine again.” But we need some time.
West lost his billionaire status last year after facing severe backlash for a series of anti-Semitic rants.
In addition to being dumped by Adidas, West also saw his $220 million annual contract with GAP terminated and his Yeezy line ripped from its stores.
The 45-year-old shocked the world last year after a series of bizarre behaviours, including introducing a series of shirts to his ‘White Lives Matter’ fashion line at Paris Fashion Week.
He offended his former fans again during an appearance on the popular Drink Champs podcast, when he claimed that George Floyd died of a fentanyl overdose and that Derek Chauvin’s knee “wasn’t even in his neck like that.”
West has also said that he “can’t really be anti-Semitic because blacks are Jews too.”