Kanye Breakup Makes Adidas Problems Worse
Adidas #Adidas
Doing the right thing can be costly. Adidas expects a big hit from kicking Kanye to the curb.
CONSTELLATION BRANDS, INC.
Doing the right thing can be costly, and Adidas (ADDYY) could find out just how costly in the coming months after it cut ties with its most popular collaborator.
On Tuesday the German sports shoe and apparel maker said it was cutting ties with Ye, the rapper formerly known as Kanye West, following a series of media appearances in which he made antisemitic remarks.
“Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness,” the company said.
Adidas is immediately closing its partnership with Ye, ending production of Yeezy branded products and stopping all payments to Ye and his companies.
The company plans to take a €250 million ($246 million) charge in 2022 from the move, with the holiday season right around the corner.
The decision brings an ignominious end to a relationship between the two that started in 2013. The joint venture drove Adidas to new heights of popularity for nonathletic streetwear, driven by Ye’s Yeezy line of footwear and apparel.
Adidas Struggles With Inventory
Earlier this month, before Ye went on his ill-fated media tour, Adidas said it was reviewing its partnership with the rapper, singer and designer after he publicly blasted the company on multiple occasions.
Ye criticized outgoing Chief Executive Kasper Rorsted on social media, going so far as to post an edited picture of a New York Times front page claiming that Rorsted had died.
That led the company to announce that it was placing its partnership with Ye under review, with a plan to “co-manage the current product during this period.”
This period is especially difficult for the company.
Last week Adidas said that its inventory was piling up due to weaker demand in China and western markets. This was the company’s second profit warning during the quarter.
The company now expects full-year revenue to grow in the mid-single-digit range, down from its previous expectation for mid- to high-single-digit growth.
Prior to Tuesday’s announcement, Adidas lowered its profit expectation for the year by €500 million ($488 million) due to one-time costs not related to Ye.
(Inventory pileups aren’t a problem only at Adidas, with U.S. rival Nike (NKE) – Get Nike Inc. Report reporting a 65% increase in North American inventory.)
Ye’s Sponsorship Wrecking Ball
Ye has built a net worth of about $2 billion, according to Forbes, based on corporate sponsorships with brands like Adidas and Gap (GPS) – Get Gap Inc. (The) Report, and over the past few weeks he seems to have done all he can to end those relationships.
While Gap and Adidas originally fought to keep their previous contracts with Ye in place, his public comments seem to have forced the hands of Adidas, Gap, JPMorgan, and Balenciaga.
Gap announced that it is pulling his merchandise from its stores, though the company had been selling through its Yeezy inventory since it ended its relationship with him in September.
“You have to really give me the position to be Ye and let me do what I’m thinking, or I have to do the thinking somewhere else,” Ye says in a video of him talking to Gap executives that he posted to his 17 million Instagram followers last month. That video was later removed from Instagram.
Megabank JPMorgan Chase also said that it was ending its business relationship with Ye after the entertainer said he was going to cut ties with the bank.
Ye seems to have been planning these moves for a while, telling Bloomberg News in early September that he was planning to cut many of his corporate ties. He said then that “it’s time for me to go it alone,” the AP reported.
“The day when I was taken off the Balenciaga site, that was one of the most freeing days,” Ye said in a video posted on Youtube. “That’s why I had to get up out of those big corporations, so I could give directly to the people.”
Ye’s social media accounts have also been suspended from Instagram and Twitter.