Adidas Update: The Aftermath of Terminating Partnership with Yeezy Brand
Written by Jahnvi Patel, MAZURKRAEMER LAW CLERK, Villanova School of Law, JD/MBA Candidate
Edited by Partner Salene Mazur Kraemer, Esq., MAZURKRAEMER MANAGING PARTNER, VLS Class of 2000
Our firm published an article a few months ago about how the pandemic affected consumer preferences. German footwear and apparel giant Adidas had restructured its distribution operations as part of a 5-year strategic plan called "Own The Game." Own The Game was to strengthen the Adidas brand's credibility, create a unique consumer experience, and continue to expand the company's sustainability activities through its e-commerce activities.
On October 25, 2022, Adidas announced that it was parting ways with rapper Kanye West ("Ye"), following his anti-Semitic tirades, an untimely public relations nightmare for the company whose stock already falling due to slumping sales.
Many now wonder what will become of the famous Yeezy shoes and how this will affect Adidas. The separation from Yeezy will likely have a short-term negative impact, costing Adidas around $247 million in lost sales from Ye's Yeezy line alone.
While Ye retains legal ownership of the company's Yeezy trademark, Adidas stated in a statement that it is "the sole owner of all design rights to existing products as well as previous and new colorways under the partnership." Adidas also stated that more information will be provided in the company's upcoming third-quarter earnings report on November 9.
Indeed, Adidas' stock dropped right after the announcement, though it is unclear whether this is solely due to the recent controversies involving Ye. According to Newsweek, as of the end of October, 2022, the price of Adidas' stock was down 13.65 percent from the previous five days, and according to Yahoo Finance, Adidas stock dropped 64 percent in 2022. Adidas shares fell 5.6 percent to $97.96 per share, according to Forbes, after the company dropped the rapper and fashion designer. Despite the recent news involving Ye, it appears that Adidas' shares were already on the decline. The brand previously reported that third-quarter sales increased by only 4%, and sales in China have slowed dramatically.
According to Bernstein analyst Aneesha Sherman, Adidas confirmed to her that it will completely shut down Yeezy, which accounts for a "high single-digit" percentage of all sales, rebranding the products as Adidas and giving the company's revenue a significant "haircut" until 2023.
Due to the demise of Yeezy, Bernstein reduced its revenue forecast for Adidas for 2023 by approximately $398 million. This brings Adidas' total losses from the breakup with West to $645 million, including the $247 million loss of sales this year stated by the company and the $400 million in lost revenue forecast by Bernstein for 2023.
Nike shares, however, are up 1.3% in the period, according to Evercore ISI analyst Omar Saad, and the "divergence appears to be widening" between retailers.
MAZURKRAEMER Law Clerk Jahnvi Patel continues to share her business insights as she moves through Villanova's rigorous JD/MBA program.