Adidas faces key question: What is Yeezy without Ye?
Adidas' move to part ways with Ye over his antisemitic comments raises questions about the future of one of the world's most coveted, and commercially valuable, sneaker brands.
In the short term, the sudden split effectively ends production of all Yeezy products by the German sportswear giant, dealing a significant financial blow to Adidas. Yeezy accounted for about 10% of the company's annual revenue, while Adidas said that terminating its deal with Ye will put a $246 million hit in its bottom line this year alone.
Moving forward, Adidas could continue to release new shoe designs that evoke Yeezy's brand — minus the label. The company said Tuesday in announcing the demise of the partnership with Ye, formerly known as Kanye West, that it retains the design rights for any new colorways.
"The press release implies Adidas plans to release some current Yeezy designs without the Yeezy name on them," Morningstar equity analyst David Swartz told CBS MoneyWatch. "I don't think that means all the Yeezy shoes in design process, but it could mean the ones released so far in new colorways."
Baird senior research analyst Jonathan Komp said he expects Adidas to release the new styles under its "Originals" business as it sees to stem the impact on its business.
Yet while Adidas could rebrand some Yeezy products in the pipeline, the hit to its business will be significant.
"They have shoes in various stages of planning and production already that have not been released. To have to destroy that inventory would be extremely costly and wasteful," Swartz said. "That's an unlikely scenario, but I'm not sure what will be done with the product that's not released. But it does seem like Adidas has some plan to release some Yeezy product under its own name."
For his part, Ye had previously indicated that he wanted out of the partnership, saying he wants to control his own brand and sell product directly to consumers. He will continue to own Yeezy, which he launched in 2016, as well as control trademarks for the brand. But West would likely face a legal challenge if he tried to resell preexisting designs from the Yeezy line for Adidas.
"He cannot resell designs that he's already been paid royalties for by Adidas," Swartz said. "They paid him big money, and they're not going to let him take their property and sell it. If it does end up in court, Adidas would have a stronger case."
A representative for Ye did not respond to a request for comment.
Other headwinds
To be sure, Adidas will survive. Analysts noted Yeezy products represent only a small fraction of the roughly 300 million pairs of shoes the company sells each year.
"Bigger picture, we believe Adidas remains one of the better positioned global athletic brands capable of benefiting from strong global athletic and athleisure trends along with enhanced efforts to address key consumer trends and to drive better long-term profitability," Komp said in a research note.
"The brand is particularly well positioned within the global football (soccer) and sportswear/fashion," he added.
But the dissolution of its deal with Ye does add one more obstacle for a company already facing a slew of challenges.
Among those issues, Adidas CEO Kasper Rorsted is set to exit the company, and it's unclear who will takeover in 2023. Also, Adidas' China sales are down because lockdowns to control COVID-19 have led to the closure of stores in what is a critical market. And shipping challenges have led to seasonal product arriving too late, forcing the company to slash prices in order to clear shelves.
"They couldn't sell stuff because stores kept closing, so they've been shipping stuff back to Adidas and the company is flooded with stuff they can't sell," Swartz said.
Adidas also faces consumer backlash for taking longer than other fashion brands to end its partnership with Ye and publicly denounce his hateful speech on social media platforms.
"They didn't respond fast enough and once they did, it was a little too late," said public relations pro Kristi Piehl. "When someone you've so publicly tied to a brand comes out and says something so egregious, you have a choice to make, and they could have said more earlier and prevented the damage. When Adidas failed to comment, people went to a place of thinking it might support Kanye."