Adidas Struggles with $1.3 Billion Worth of Unsold Yeezy Shoes Following Kanye West Split and Faces Investor Lawsuit Over Offensive Comments.

 

Adidas, the German sportswear company, has reported a decline in operating earnings in the first quarter of this year, following its split with rapper Kanye West and his popular Yeezy shoe brand. The company has incurred a loss of 400 million euros ($441 million) in sales since breaking up with the artist, and is currently stuck with 1.2 billion euros ($1.3 billion) worth of unsold Yeezy shoes that are sitting in warehouses. 

The decision to sever ties with West was made in October 2022, after he made antisemitic and other offensive comments on social media and in interviews. Adidas is now faced with the dilemma of what to do with the unsold sneakers, and CEO Bjorn Gulden has said that the company's "options are narrowing". While "so many interested parties" are involved in discussions, no decision has yet been made.

Gulden has declined to say whether destroying the shoes has been ruled out, but he has stated that the company is "trying to avoid that". Other options that have been considered include paying royalties to West to sell the sneakers, restitching and selling them dishonestly, and giving them away to people in need, which could result in expected resales due to their high market value. However, each of these options has significant drawbacks, and Adidas has yet to find a viable solution to the issue.

Losing the Yeezy brand has had a significant impact on Adidas, with Gulden stating that it is "of course hurting us". If the company decides not to sell its remaining Yeezy stock, it is expected to reduce earnings by 500 million euros this year. In the first quarter of 2023, profit was down to 60 million euros, compared to 437 million euros in the same period a year ago. Net sales declined by 1% to 5.27 billion euros, and would have risen by 9% if the Yeezy line had been included, the company said.

Gulden has described 2023 as a "year of transition" for Adidas, as it seeks to move beyond the split with West and restart growth. He has stated that the company is aiming for a "better '24 and a good '25". However, the company also faces other problems related to West, as investors have recently sued Adidas, alleging that the company knew about his offensive remarks and harmful behavior years before the split and failed to take precautionary measures to limit financial losses.

The lawsuit, which represents people who bought Adidas securities between May 3, 2018, and February 21, 2023, points to comments made by West in 2018 where he suggested that slavery was a "choice", as well as reports of antisemitic statements made by West in front of Adidas staff. Adidas has rejected these claims and has stated that it will take all necessary measures to defend itself against the lawsuit. The company has already incurred a loss of 600 million euros in sales in the last three months of 2022 due to the split, which helped to drive the company to a net loss of 513 million euros.

Adidas has warned that it may face an operating loss of 700 million euros this year, primarily due to the 500 million-euro hit it would take if it fails to sell the existing Yeezy shoes. The company is now seeking to find a solution to the issue and move beyond the negative impact of the split with West, as it looks to rebuild its brand and regain its position in the sportswear market.