The fact that celebrity endorsements can make or break a company is now a hot topic of discussion after Adidas cancelled its partnership with American rapper and fashion designer Ye - formerly known as Kanye Wes. He was the face of Yeezys signature brand and the partnership was cancelled after a series of antisemitic comments bringing public outrage. Now, the German sportswear company could lose around $1.3 billion in revenue in 2023 if it is unable to sell its existing Yeezy stocks after the partnership cancellation in October 2022.
Business challenges surmount
Adidas’s operating profit would drop by about €500 million if the company fails to shift the products in some other way. Sales figures may decline at a high single-digit rate this year. Unsold Yeezy’s add up to a whopping $1.3 billion and just letting go of its remaining Yeezy products, could further hike the loss figures.
With a pair of Kayne West’s signature chunky rubber Yeezy 350 V2s selling for around $220, which was further resold at a price that is much higher than the at retail price, this partnership had rescued Adidas while creating an all-new brand image and level-pegging field with competitors Nike’s Air Jordans. However, following Ye’s series of pro-Nazi tirades, the hope that Yeezy shoes would account for around 7 per cent of all Adidas sales in 2022, was gone with the wind.
After this fallout, many companies such as S&P Global Ratings that looks at a company’s ability to pay back borrowings, have cut off both their long and short-term credit ratings for Adidas and downgraded its debt ranking for Adidas from ‘A+ to A-’ with the warning that this score could fall again soon.
As per S&P “Adidas faces a multitude of business challenges, including the termination of its Yeezy partnership, ongoing competitive pressures in the Chinese market, and a contraction of consumer demand in Western countries. Adidas faces a multitude of business challenges, including the termination of its Yeezy partnership, ongoing competitive pressures in the Chinese market, and a contraction of consumer demand in Western countries.”
Sustainability issues to be addressed before discarding
Besides facing financial losses, Adidas is also in an ethical dilemma about how to discard this infamous brand of shoes without triggering another outrage over the social impact and sustainability issues. Footwear industry experts opine Adidas cannot just simply discard the shoes but could maybe use this as an opportunity to set a new standard of practice by being fully transparent and taking control of this unique predicament that may later affect other brands with celebrity endorsement.
Adidas is known for launching products that aim at repurposing waste and its Adidas Terex Futurecraft loop Anorak, made of recycled ocean plastic, is extremely popular in the rugged outdoors. Analysts feel, they could use Yeezys to test similar new innovative products as this material could be perfect for testing, especially since the material composition and how it can be recycled is crucial information known to Adidas.
Although Adidas can set up new collections that showcase the brand's long history or even rename and resell the collection in a socially approved way, the fact remains that Adidas will find it harder to repay its debts and its brand's name has been tarnished. Celebrity endorsements might be a great way to build up brand appeal, but sometimes the shoe pinches where it hurts the most, and this Adidas partnership fallout saga is a learning process for other premium brands in the apparel segment.