Sportswear giant Adidas is currently deliberating the possibility of writing off a substantial amount of its outstanding Yeezy inventory, a product of its prior partnership with Ye, the rapper formerly known as Kanye West. This strategic move could entail a staggering $321 million (equivalent to 300 million euros) loss for the company. Adidas is, however, keeping its options open and considering alternative measures, such as increasing direct sales to consumers. CEO Bjorn Gulden, in his recent statement, referred to this potential write-off as the “financially the worst case scenario,” as reported by The Associated Press.
Adidas’ Efforts to Offload Yeezy Inventory
This contemplation comes as part of Adidas’ broader efforts to reduce its Yeezy inventory. The company initiated two sales events during the summer to achieve this goal. In the first sale held at the end of May, Adidas successfully generated revenues of approximately $437 million (400 million euros). The second sale, conducted in August, yielded $375 million (350 million euros). Collectively, these two sales brought in about $803 million (750 million euros), though this amount is 37.5% lower than the 1.2 billion euros earned from Yeezy in the first three quarters of the previous year. Notably, Adidas did not make any sales of Yeezy apparel during the first quarter of this year.
According to the company, the discontinuation of the regular Yeezy business had a substantial impact on its financial performance, with a negative effect of nearly €450 million in the year-over-year comparison during the first nine months of the year.
Financial Implications for Adidas
Adidas found itself holding a significant inventory of Yeezy shoes and other products when it severed its ties with Ye in October last year due to alleged antisemitic comments made by the rapper. The reported value of this remaining Yeezy inventory is approximately $1.3 billion.
As a result of these developments, Adidas now anticipates a reported operating loss of around €100 million in 2023. This projection takes into account the positive impact from the two Yeezy sales in the second and third quarters, amounting to approximately €300 million, the potential write-off of the remaining Yeezy inventory, now valued at around €300 million, and one-off costs linked to a strategic review, which could reach up to €200 million. This is a revision of their previous forecast of a 450 million euro operating loss.
In addition, Adidas now expects its currency-neutral revenues to experience a decline at a low-single-digit rate in 2023, whereas their earlier projection had indicated a decline at a mid-single-digit rate.
Adidas’ decision to consider a substantial write-off of Yeezy inventory is emblematic of the company’s efforts to reshape its financial outlook following the termination of its partnership with Ye. It reflects the broader challenges faced by global corporations in maintaining brand integrity while dealing with controversies surrounding their celebrity endorsers, a trend exemplified by other companies like Gap and Balenciaga, which also distanced themselves from Ye around the same time as Adidas did last year.
