Adidas’ breakup with Kanye West, now known as Ye, battered company profits last year, it revealed on Wednesday.
The German sportswear giant posted a net loss of €513 million in 2022, largely due to its inability to sell the former rapper’s ‘Yeezy’ line of shoes.
Adidas and Ye parted ways in October after he made anti-Semitic remarks on social media.
The public outcry pressured the international brand, along with others, to cut ties with Ye, the most-decorated hip-hop artist in history.
Ye’s mental health was put under the spotlight by the controversy, with some pointing out his bipolar condition.
Slumping revenue in China and higher supply costs were also behind Adidas’s fourth-quarter losses.
It is now trying to find ways to replace the flagship Yeezy line, which analysts have said generated 15% of net income.
In a statement, CEO Bjorn Gulden called 2023 a “transition year”.
“We can then start to build a profitable business again in 2024,” he added.
Net sales between September and December were up 1.3% at €5.21 billion compared to the same quarter a year before.
However, the €600 million hit to revenue from halting the partnership with Ye held sales back.
Best foot forward
During an earnings call Wednesday, Gulden said there were “many variables” affecting what to do with the shoes now stacked in warehouses.
Destroying them could “raise sustainability issues,” though some companies have offered recycling solutions, said Gulden. Re-stitching them to hide the Yeezy brand so they could be sold “is not very honest, so it’s not an option,” he added.
Suggestions to give them away to those in need in places like earthquake-hit Syria or Turkey would mean the product would “come back again very quickly” due to its high market value, “so that’s not really an option,” Gulden said.
If Adidas does decide to sell the shoes, “I can promise you that the people that have been hurt by this will also get something good out of it and get donations and proceeds in different ways, shapes or forms,” the CEO said.
Gulden added that “so many companies” were willing to buy the popular shoes but that would mean paying royalties to Ye. Rumours that the company was in talks to sell them, however, “are not true.”
Takings were further damaged by a 50% drop in revenue in China, besides higher supply and shipping costs, which could not be clawed back through higher prices.
Toxic environment
Gulden also said Adidas is still investigating former employees’ allegations that Ye created a toxic work environment and that the sportswear company knew about his problematic behaviour and failed to protect workers.
In 2021, the German shoe and sportswear giant made a profit of €213 million.
Adidas said it would also be shaking up its top-tier sales and marketing executives.
Arthur Hoeld, now head of the Europe, Middle East and Africa region, will replace global sales head Roland Auschel, who has worked at the company for 33 years.
Meanwhile, Brian Grevy, head of global brands, will step down on 31 March.
CEO Gulden will take charge of his product and marketing activities.