Adidas, the renowned German sportswear giant, recently unveiled its plan to offload the remaining stock of Yeezy sneakers, a product of its now-defunct partnership with rapper and fashion designer Kanye West, popularly known as Ye. This decision comes in the wake of a tumultuous separation in 2022, triggered by West’s controversial comments on social media, particularly antisemitic remarks.
Despite the severed ties, Yeezy sneakers have maintained their allure in the resale market, prompting Adidas to reconsider its approach to the remaining inventory. The company aims to sell the remaining Yeezy stocks at a minimum of the production cost, signaling a strategic move to recoup losses and navigate the aftermath of a once-lucrative collaboration.
The Background: A Costly Separation and Currency Woes
The termination of the Yeezy business last year dealt a significant blow to Adidas’ financial standing, exacerbated by currency fluctuations that incurred a loss of €1 billion ($1.08 billion; £850 million). The discontinuation led Adidas to cut prices for wholesalers, aiming to reduce stockpiles of goods and manage the financial fallout.
Adidas’ financial performance in 2023 reflected the impact of these challenges. Despite facing headwinds, the company managed to post an operating profit of €268 million. The positive outcome was attributed to a €100 million improvement in operating business and the decision not to write off €268 million of Yeezy inventory, according to Adidas CEO Bjørn Gulden.
A Change in Leadership and the Path Forward
In a strategic move to navigate the challenges posed by the Yeezy fallout, Bjørn Gulden, formerly associated with rival sportswear firm Puma, assumed the role of Adidas CEO in 2023. His mission was to drive the turnaround of Adidas, which was left with an unsold sneaker inventory worth approximately €1.2 billion.
While the company managed to sell some Yeezy stock in the previous year, net sales from the partnership were €450 million lower than in 2022. This underscores the lingering impact of the separation on Adidas’ financial performance.
Current Plans and Potential Write-Off
Adidas’ current plan involves selling the remaining Yeezy stock at a minimum of the production cost, indicating a pragmatic approach to recover losses. However, the company’s outlook still includes the possibility of a write-off for the remaining Yeezy items, which could amount to approximately €300 million. This cautious stance reflects Adidas’ recognition of the uncertainties surrounding the resale market and the aftermath of the collaboration.
Currency Woes: Impact of Argentine Peso Devaluation
Adding to the financial complexities, Adidas highlighted the impact of the devaluation of the Argentine Peso at the end of 2023. Argentina’s President Javier Milei implemented a drastic devaluation of the currency by more than 50% in December as part of what he termed “economic shock therapy.” As a result, Adidas, a long-time maker of shirts for Argentina’s national football team, faced adverse effects on its financial results.
Looking Ahead: Continued Challenges and Resilience
Adidas anticipates that its profits will continue to be affected by the devaluation of the Argentine Peso in the ongoing year. The company’s resilience, despite the challenges, underscores its commitment to navigating complex financial landscapes and adapting to the evolving dynamics of the sportswear industry.
In conclusion, Adidas’ decision to sell the remaining Yeezy stock at cost reflects a strategic effort to mitigate losses and adapt to the changing circumstances post-separation from Kanye West. The challenges posed by currency fluctuations further emphasize the need for agility and foresight in the competitive world of sportswear. As the company charts its course forward, the industry watches closely to see how Adidas will navigate the evolving landscape and emerge stronger from these financial headwinds.
