Adidas’ Split with Ye and the Conclusion of the Yeezy Partnership
The collaboration between Adidas and Kanye West, now known as Ye, was once a pivotal element of the brand’s achievements, with the Yeezy line significantly boosting its financial performance. Initiated in 2013, the partnership rapidly evolved into a cultural sensation, culminating in the much-anticipated Yeezy shoe launch in 2015, which sold out in mere minutes. At its zenith, the Yeezy brand generated nearly half of Adidas’ overall profits, marking it as one of the most profitable partnerships in the organization’s history.
However, the relationship dramatically shifted in 2022 following a series of controversial public remarks made by Ye, which were broadly condemned as offensive, racist, and antisemitic. Consequently, Adidas opted to end its affiliation with Ye, ceasing all Yeezy manufacturing and any financial remuneration to his company. While this decision was essential from a reputation management perspective, it incurred significant financial repercussions. In 2022, Adidas reported an estimated loss of about €250 million directly linked to the dissolution of the Yeezy partnership.
Compounding the financial challenges, Adidas was left with roughly .3 billion of unsold Yeezy stock. The company faced the daunting task of managing this accumulated inventory while working to minimize additional losses. Despite the adverse circumstances, Adidas proceeded to sell off the remaining Yeezy items to recover some of its investments, even though this action was fraught with its own difficulties.
In May 2023, the scenario intensified when Adidas initiated a federal lawsuit against Ye, aiming to freeze million purportedly placed in the Yeezy brand’s account. However, the lawsuit was unexpectedly withdrawn just hours later, as both parties decided to resolve the issue privately. This event marked a pivotal change in the ongoing conflict, with both sides interested in moving past the widely publicized fallout.
The Financial Recovery and Agreement with Ye
By early 2024, Adidas started to witness early signs of financial recovery, despite the chaos resulting from its separation with Ye. The brand strategically chose to release its remaining Yeezy inventory, which included items from the 2022 collection. This decision sparked controversy, as Ye vocally criticized Adidas for profiting from the Yeezy brand without compensating him. He took to social media to encourage his followers to boycott what he labeled “fake Yeezys.” Although Ye later deleted these posts, the repercussions had already spread widely across various online platforms.
Despite facing public criticism, Adidas remained steadfast in its strategy to liquidate the leftover Yeezy stock. The company found itself in a sensitive situation, weighing the necessity for financial recovery against the reputational risks linked to selling products associated with a contentious figure. Nevertheless, this approach yielded results, with the company reporting a notable decrease in unsold Yeezy inventory, which plummeted from €500 million to merely €50 million by the third quarter of 2024. This inventory clearance was a vital component of Adidas’ financial resurgence, enabling the company to unlock capital and reorient its focus on its core offerings.
In an unexpected twist, Adidas and Ye reached a settlement out of court in mid-2024, putting an end to the legal conflicts that had burdened both parties since the fallout. The settlement was distinguished by the absence of financial compensation from either side, with both Adidas and Ye agreeing to part ways amicably. This resolution allowed Adidas to close a turbulent chapter in its history while avoiding lengthy legal battles that could have further harmed its brand.
Adidas’ Q3 earnings report for 2024 reflected the positive influence of these developments. The company recorded a 10% rise in total sales, with the Adidas brand experiencing a 14% growth compared to the previous year. Despite the surrounding controversy, Yeezy products continued to generate significant revenue, bringing in €550 million in the first nine months of 2024 alone, with €200 million of that from Q3, highlighting the persistent demand for the Yeezy line amid public scrutiny.
To enhance its public image, Adidas announced a donation of €250 million from Yeezy sales to charitable initiatives, including a substantial contribution to the Adidas Foundation. Furthermore, the company released €100 million in provisions, demonstrating its focus on corporate responsibility. These initiatives not only helped alleviate some of the reputational fallout from the situation with Ye but also positioned Adidas as a business committed to making a positive social impact.
Looking forward, the settlement with Ye and the successful clearance of Yeezy inventory have equipped Adidas with a vital financial uplift. The company has emerged from the crisis in a fortified position, with a renewed emphasis on its core brand and a clearer roadmap. While the Yeezy episode might have represented a particularly difficult period in Adidas’ narrative, the organization’s capability to navigate the fallout and achieve financial recovery showcases its resilience and strategic vision.
