Inside Adidas’ Yeezy Dilemma

This month, as a growing number of businesses sought to distance themselves from Ye, the company that had the most to lose was also the slowest to act.

Adidas’ decision to end its partnership with the artist formerly known as Kanye West and his Yeezy brand will bear a heavy financial cost for the company. The brand’s line of Yeezy sneakers accounted for nearly 7 percent of its annual revenue in 2021, according to Bloomberg. Adidas expects its move to terminate the deal will slash up to €250 million ($246 million) from its net income this year, it said in a statement.

While Ye had business ties to Gap and Balenciaga through the short-lived Yeezy Gap partnership, neither of those companies had invested nearly so much money or time when they distanced themselves from the artist in recent weeks. (On the heels of Adidas’ announcement, Gap said yesterday it would pull its remaining Yeezy items from sale in stores and online.)

The pressure on Adidas to cut ties with Ye had grown too great as the company remained silent while others moved to act. Adidas hadn’t made any public comments since its Oct. 6 statement that the Yeezy deal was under review after Ye targeted company executives by name on Instagram, even posting a fake news image saying chief executive Kasper Rorsted had died, and debuted a “White Lives Matter” T-shirt at Paris Fashion Week. Ye’s comments grew more controversial and veered into antisemitism while he goaded the German sneaker giant, which has a sensitive history with antisemitism as its founder, Adi Dassler, and his brother Rudolf were both members of Germany’s Nazi party.

“I can say antisemitic things and Adidas can’t drop me. Now what? Now what?” Ye said during the Oct. 16 episode of Drink Champs, a podcast that is popular in the hip-hop community, in a clip that circulated on Twitter earlier this week.

Yesterday, saying it would not tolerate hate speech, Adidas announced it would “terminate the partnership with Ye immediately, end production of Yeezy branded products and stop all payments to Ye and his companies.”

Now the company has to chart a course forward without Ye, though not necessarily without past Yeezy designs. In its announcement that it would terminate the deal, it noted that it is “the sole owner of all design rights to existing products as well as previous and new colorways under the partnership,” suggesting it could continue to release Yeezy styles without Ye’s involvement or Yeezy branding.

A Major Sales Driver

The company’s financial challenges make giving up entirely on such a substantial part of its business difficult to bear. Recently it lowered its sales forecast for the year and warned of a hit to its profit as demand for its sneakers and activewear weakens in its western markets and China. It is currently in the process of searching for a replacement for its outgoing CEO. Its share price has fallen to its lowest since 2016.

The tie-up, meanwhile, was a major sales driver. In recent years, the line has “disproportionately contributed” to Adidas’ growth, UBS analysts said in a recent research note cited by Bloomberg.

Ye owns the majority of the Yeezy brand. (His ex-wife, Kim Kardashian, holds 5 percent, he said on Drink Champs.) The deal between Yeezy and Adidas was set up as a profit-sharing arrangement rather than a licensing agreement, Bloomberg previously reported, though it was jointly run with Ye as the creative head and Adidas handling manufacturing and distribution. But Adidas and Ye kept the exact structure of the deal and any other obligations each entity bears closely guarded.

Online, Ye claimed Adidas offered $1 billion to buy him out of the agreement, adding it would cost the company “billions” to keep him or let him go. Ye had also previously accused Adidas of reproducing his ideas in non-Yeezy products without his consent.

The success of the Yeezy line is not something Adidas has been able to easily replicate, however.

“There was a lot of discussion about how other business units could look like Yeezy and produce like Yeezy did,” said a former designer at the company who left in 2021 and asked not to be named.

In 2013, when Adidas first partnered with Ye, then still known as Kanye West, the company’s sales growth had slumped and it was looking for a way to reignite its business. Ye had just parted ways with Nike, and Adidas promised him more creative freedom.

In the years that followed, Adidas’ growth took off as it rode a wave of demand for retro styles like its Stan Smiths and Superstars, as well as novel styles it introduced with its cushy new Boost midsole. The Yeezy business started small, releasing in limited quantities as the brand scaled it slowly to keep demand high, but it quickly became a hit with sneaker fans, providing Adidas with a product whose hype could rival Jordans. In 2016, Adidas cemented the partnership, which was scheduled to last until 2026.

Adidas’ sales growth peaked in 2018, however, and while the Yeezy business has remained strong, many of the company’s other styles have cooled.

Whether shoppers will still snap the products up with the same fervour remains to be seen. The resale market for Yeezy sneakers had remained strong in recent weeks, despite the controversy around the artist.

An analysis by Altan Insights, a data and research provider focused on alternative assets, found only a slight dip in Yeezy resale values on the marketplace GOAT, in line with a broader downturn in the secondhand sneaker market. On StockX, several Yeezy styles appear to be selling quickly and their prices beginning to tick up, presumably as buyers look to grab up what Yeezy stock remains, either to wear or flip later.

For Adidas, whether it can sell Yeezy designs without the Yeezy name may depend on whether shoppers wanted the designs themselves or the association with the artist.

Internal and External Pressure

In the wake of Ye’s comments, Adidas staff had begun to express their concerns about the partnership, according to an Adidas employee who asked not to be named because of the sensitive nature of the subject.

“I have to say I am hurt and disappointed by the complete silence of this company after the horrendous anti-semitic comments from someone that acts as a brand ambassador, Kanye West,” another employee who identified themselves as Jewish wrote in a post on Adidas’ internal communications platform on Oct. 10, according to a screenshot of the message shared with BoF. “There has been no distancing ourselves as a company, no condemnation, and perhaps most importantly, no reaching out to those like myself.”

After the message was posted, executives jumped in to reassure the employee they were seriously evaluating the relationship, according to the Adidas employee who spoke with BoF.

On Monday, the day before Adidas announced the end of the Yeezy partnership, at least two Adidas employees, Phillip Matos and Sarah Camhi, posted public messages on LinkedIn addressing Adidas’ silence.

“As a member of the Jewish community, I can no longer stay silent on behalf of the brand that employs me,” wrote Camhi, a director at the company according to her LinkedIn profile. “We have dropped adidas [sic] athletes for using steroids and being difficult to work with but are unwilling to denounce hate speech, the perpetuation of dangerous stereotypes and blatant racism by one of our top brand partners.”

Adidas declined to offer any additional comment.

The comments may not have rivalled the outpouring of anger Adidas faced from employees in 2020 in protests against a company culture they said sidelined Black and minority staff, even as it publicly claimed solidarity with the Black Lives Matter movement. But they added weight to the public scrutiny Adidas faced over its inaction on its ties to Ye. Adidas may have faced little choice but to end the Yeezy collaboration, valuable as it was to the brand.

Now the company has another challenge ahead. It needs to reimagine its business without the Yeezy sales it had come to rely on.

Investors are undoubtedly waiting to hear its plans too. The company’s stock at one point fell more than 6 percent after news broke that it would cease its Yeezy collaboration.