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What Does Adidas’ Post-Yeezy Strategy Look Like?
Adidas CEO Bjørn Gulden has confirmed that the company has no plans to sell Yeezy products without the Yeezy name as it looks to a post-Kanye West future. The retailer has been grappling with flat sales and excess inventory since it parted ways with the musician over antisemitic remarks in October 2022, and it seems that executives have decided that a truly clean break is the best way forward.
“[There are] no plans for taking Yeezy designs and transferring them to Adidas,” said Gulden, who took the reins at Adidas at the beginning of 2023, during a call with investors. “Yes, legally we could, but I think that would be the wrong timing. Remember, we inherited quite some inventory and we were choosing between destroying and writing off the inventory against selling and doing something good with the inventory.”
Adidas’ strategy for doing good with its extra inventory involves selling excess Yeezy items and donating to groups combating discrimination and hate, including the Anti-Defamation League and the Philonise & Keeta Floyd Institute for Social Change.
The inventory slated for this move was already in production when Adidas cut off its relationship with West. The retailer aimed to protect its supply chain partners from a potentially large number of product cancellations by selling its final Yeezy orders rather than calling them off.
The first drop in May generated about €400 million ($441 million), which Gulden noted was about on par for Yeezy sales in Q2 2022. The retailer has already started its second product drop, though it might still carry some inventory from the partnership into 2024.
Adidas is aiming to get the inventory off its books in a manner that Gulden noted isn’t “as quickly as possible, but as healthy as possible.” Using the designs for non-Yeezy products could be counterproductive toward this goal.
Adidas’ year-over-year revenue has been flat every quarter from Q4 2022 through Q2 2023, as a 16% sales decline in the North American market, which executives said would have been 20% without the Yeezy drop, offset rapid growth in Latin America and China.
The impact of Yeezy was also felt in e-commerce, which rose 14% year-over-year during the quarter — growth partially attributed to Yeezy becoming a digital-only brand.
Still, Adidas is confident that the post-Yeezy slump is starting to come to an end. The retailer now expects its fiscal 2023 revenue to decline at a mid-single-digit rate, improved from a high-single-digit rate. Adidas has also become better at avoiding promotions, which has improved its margins despite the loss of Yeezy.
“The Yeezy thing was something we were nervous about that worked, and we’ve seen our inventories go in the right direction,” said Gulden. “We feel that the business is slowly moving in the right direction in a very difficult and of course very volatile and uncertain environment.”
Flat-to-declining revenues aren’t ideal for a company as large and storied as Adidas, but the recovery is a sign that it made the right move in cutting ties with West immediately rather than putting sales ahead of morality. What remains to be seen is if the rest of Adidas’ brands have what it takes to return the company to long-term profitability.
Discussion Questions
DISCUSSION QUESTIONS: What should Adidas be doing to boost its other brands in a post-Yeezy world? Is the company’s plan to get rid of excess Yeezy merchandise the right course of action?
Poll
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Neil Saunders
Managing Director, GlobalData
Jeff Sward
Founding Partner, Merchandising Metrics
The latest results from Adidas show a company struggling to generate growth. Total Q2 revenue was down 4.5% and the outlook is for further declines over the second half of the year. Most of the dip has come from North America where the discontinuation of Yeezy – which put a $440 million hole in the sales line – has hit hard. The problem is that there is, as of yet, nothing particularly compelling to fill the Yeezy hole at a time when the core Adidas business is flatlining. There are a few winning lines such in sneakers as Samba, Terrance, and Gazelle – all of which are doing well because of their retro vibes. But they are not enough. Adidas needs another big hitter to propel sales, especially in a market that is becoming way more crowded with new entrants on both the footwear and apparel side.
Adidas made a big bet on Yeezy and it went terribly wrong, and now it’s working it’s way past it. The Yeezy debacle will continue to be a drag on adidas for quarters to come, but they will get past this sad and costly situation. Whether adidas made the right decisions regarding the excess Yeezy merchandise is debatable, but their decisions seem reasonable. The big takeaway from this experience for adidas and anyone watching is the peril of tying their brand too closely to a iconoclast with questionable behavior and beliefs.
This had to be a clean break. Any hint of Yeezy undertones in ongoing product would not have served Adidas well. Quite the opposite. So the approach that the process “isn’t as quickly as possible, but as healthy as possible” sounds best for the long term. And it’s unfortunate that the pain will be felt as broadly as it will. Suppliers have a giant production stream with no orders to fill it. Adidas has a market demand it can’t readily convert. Retailers with a broader offering might be able to convert some of that demand to other brands. Oh, the perils of a collaboration gone wrong.
While Adidas was enjoying the silver bullet provided by Yeezy, other manufacturers were taking advantage of the trend in sneakers, a very healthy 5+%.
More colors, more styles, more casual, more acceptable. At a very fancy NYC, where jackets are required, I was the only guy who had traditional shoes on. Every other male was wearing sneakers. No Yeezys, of course.
For Adidas, signing Lionel Messi was a must. Maybe he will be to Adidas what Michael Jordan was to Nike.
I think adidas will be just fine without Kanye. They have a nice stable of popular athlete influencers and their samba is a must-have in the fashion world, as is the multicolor gazelle. They’re smart in doing limited partnerships with Wales Bonner and others. I think they have the magic to move on from Yeezy.
Short term pain, long term gain. While Adidas struggling a bit right now, I expect they’ll find a new license and new trends to make up for the losses relatively quickly. This is an issue inherent with hooking your wagon up to unstable celebs. They absolutely did the right thing here, and I hope they get past this quickly.
After the ugly Yeezy break up with Nike, it was clear to me that the Adidas/Yeezy would end badly as well (as I said in 2016)
There is no way for Adidas to replace Yeezy simply. It will take many products and ideas to begin to offset the loss.
Adidas must begin to make products that are appropriate for the US market.
One last thing: None of the stock market geniuses are talking about how it will be impossible to offset the 2023 Yeezy sales in 2024. @024 will be another year of contraction
I think the move to “dump” the inventory of this ill-fated partnership should happen with all deliberate speed, and provide Adidas the opportunity to “heal” and redeploy assets to the future as quickly as possible.
At the same time, it does not feel as though they have a “what’s next” strategy ready to go that would move their attention, and that of the consumer, off this topic and on to something else. It will be interesting to see if they utilize partnerships with celebrities the same way in the future, or if they stay within themselves on new product introductions moving forward.
Key is…move the conversation off this topic and on to something new…fast. The wound cannot heal while this failed partnership with the most often topic of discussion related to their brand.
This is a wake-up call for brands that invest heavily in influencer relationships. Adidas is right on to make a clean and permanent break, state (and stick to) their position, and mitigate any inventory in the most productive manner.
First, I applaud Adidas for their tough decision to not only break off the relationship with Ye, but also to not sell the excess inventory. When a brand has a belief and one of its influencers, partners, etc., goes against that belief, it puts the brand in the tough position of making a decision that could negatively impact its numbers. I’m wondering if leveraging the publicity surrounding this story can help boost some of their sales. The younger generations feel good about brands with a cause or community involvement.
American shoppers have short-term memories and fickleness when it comes to apparel. Even when strong personalities are involved or design mistakes are made. At the end of the day, it’s about “me”, how I look, who’s got the latest on-trend look.
Adidas will recover from the Yeezy/Kanye fiasco sooner. Too many other lines and opportunities to help recover sales. This is where they need to boost emphasis. If they are not already full steam in design, they should have been. Nike isn’t resting.