Adidas is struggling with $1.3 billion worth of unsold Yeezy stock after terminating its partnership with Kanye West over his series of antisemitic rants.
The company is facing a dilemma regarding the unsold stock as selling the shoes would mean paying royalties to West, while removing the Yeezy branding and selling the shoes would be dishonest.
The Yeezy split has been financially devastating for both Adidas and West, with Adidas reporting hundreds of millions in lost sales and West potentially losing his billionaire status.
Adidas is also dealing with a class-action lawsuit filed by shareholders accusing the company of failing to minimize the fallout from the terminated partnership.
Adidas' new CEO expects 2023 to be "a year of transition" for the company, which is seeking to move beyond the breakup with West and restart growth.
It’s been nearly seven months since Adidas terminated its partnership with Kanye West over his series of antisemitic rants, leaving the company with $1.3 billion worth of unsold Yeezy stock.
Bjorn Gulden, the new Adidas CEO, recently announced that they are getting closer to making a decision on the unsold stock and that their options are narrowing.
Imperfect Solutions
Adidas is facing a dilemma regarding the unsold Yeezy stock. Selling the shoes would mean paying royalties to West, while removing the Yeezy branding and selling the shoes would be dishonest.
Giving the shoes away could lead to resales on secondary markets due to their high market value.
Although Gulden did not rule out destroying the stock, he emphasized that Adidas is trying to avoid that outcome.
The exact number of unsold Yeezy shoes remains undisclosed, as revealing the number could impact consumer demand.
Financial Impact on Adidas and Kanye West
The Yeezy split has been financially devastating for both Adidas and West.
Adidas reported hundreds of millions in lost sales since ending the partnership, which could dent earnings by about $549 million in 2023 if the company doesn’t sell the shoes.
For West, the termination of the partnership could cost him about $1.5 billion in net worth, potentially ending his billionaire status.
Adidas reported hundreds of millions in lost sales since ending the partnership, which could dent earnings by about $549 million in 2023 if the company doesn’t sell the shoes.
Adidas Facing Shareholder Lawsuit
Adidas is also dealing with a class-action lawsuit filed by shareholders accusing the company of failing to minimize the fallout from the terminated partnership.
The lawsuit alleges that Adidas knew as far back as 2018 that West’s controversial comments could impact the company’s stock price but continued working with him until the relationship became untenable.
The shareholders claim Adidas ignored the risks of oversupply of Yeezy branded shoes in case the partnership suddenly ended, particularly if demand fell due to controversy surrounding West.
In response, Adidas stated, “We outright reject these unfounded claims.”
Recovery Plans and Financial Performance
Adidas’ new CEO, Bjorn Gulden, acknowledged that losing the Yeezy brand is hurting the company. If Adidas decides not to sell the remaining Yeezy stock, the breakup will reduce earnings by $549 million this year.
Net sales in the first quarter declined by 1% to $5.27 billion, and the company reported a net loss of $24 million.
Gulden expects 2023 to be “a year of transition” for Adidas on the way to “a better ’24 and a good ’25.”
As the company seeks to restart growth and move beyond the breakup with West, it is also facing a lawsuit from investors alleging that Adidas knew about West’s offensive remarks and harmful behavior years before the split but failed to take precautionary measures to limit financial losses. Adidas has rejected these claims and promised to vigorously defend itself.
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