Adidas terminates Yeezy deal, dropping €250m of profit to protect reputation

Adidas, the German sportswear giant, has terminated its partnership with Ye, the rapper and designer formerly known as Kanye West, following repeated antisemitic comments – the end of the Yeezy line at adidas, which is worth an estimated €1.5 billion a year, comes at a difficult time for a company that will lose a major, profit-making brand as its margins are squeezed.

A €250m hit to profit

In a release the company acknowledges that the move will constitute a hit to net income of up to €250 million as it heads into the highly valuable fourth – i.e. holiday – quarter. But it is undeniable that the brand needed to protect its name and reputation.

It follows adidas cutting its guidance for the fiscal year on the back of a buildup of unsold inventory as demand has left the market, especially in the vital Chinese market. This has put additional pressure on margins – unsold products need to be stored somewhere. As such, the Yeezy brand was a vital source of profit.

In terms of sheer cashflow some estimates peg the total revenue the Yeezy brand brings in as around €1.5 billion, or up to 8% of the company’s total business.

The situation, and West’s apparent flippancy about the remarks and posts, had become too serious:

“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 partnership, which began in 2013 but took its highly successful commercial shape in 2016 was based on a highly successful series of drops and a brand highly tied to West’s public persona.

Values or pressure?

Though adidas has now terminated a relationship that West had previously claimed couldn’t be dropped, the decision comes across as a response to pressure rather than a proactive decision, especially considering extremely controversial statements about slavery back in 2018, which resulted in no action. While adidas might have moved slowly in response to West's racist statements, a hit to such a large part of the business will mean that many employees of adidas are likely to lose their livelihoods as a result, even if many employees were outraged at the lack of action. 

The decision reflects the increased expectations on brands to reflect the values of consumers, and consider the social impact of business decisions.

Adidas joins a raft of other former partners of the musician and social networks that have parted company with the artist or blocked his accounts, as both Instagram and Twitter have done.

Sourced from adidas, Retail Dive, WARC, Vanity Fair