Kanye West knocks out adidas | a job

Eight years ago, Xabi Alonso, the Real Madrid player at the time, starred in one of Adidas’ most defining ads. As he left the training ground, cameras caught him arguing with Cristiano Ronaldo about the primacy of the brand’s three stripes over Nike, the star’s Portuguese sponsor. “Adidas is History,” summed up the Spanish midfielder, “Nike has been in football for three days.” It was an escape from the brand’s classic concept, and thus a leap into urban fashion, which is why the German company launched Yeezy in 2015, in collaboration with Kanye West. Now, after the famous rapper was disqualified for his anti-Semitic comments, Yeezy has turned from his growth engine into his biggest headache. This, combined with less dynamism in China, makes 2023 a transitional year for Adidas, which calculates it could lose up to $700 million if it fails to issue stock Backlog of Yeezy.

The German group ended 2022 with a lead in sales (22,511 million, 6% more), but its annual profit, at 612 million euros, fell by 71%. The numbers, provided on March 8, warned of the zigzag path ahead: In the fourth quarter of 2022, the red numbers were 512 million. The company, which cut its margins during the year, has not achieved any of the strategic goals it promised. In fact, it has been since August 2021, when it sold Reebok, without complying with it. Seeking a course correction, Adidas appointed a new CEO last November. The chosen one was Bjorn Golden, the former CEO of Puma, his great rival.

“You look at the numbers and it’s clear we’re not performing as well as we should,” Golden declared in an interview on the day of the results presentation. The reasons given by Adidas for this setback are varied: from geopolitical tensions – with its exit from Russia, a market with deep roots – to its loss of power in the Chinese market. In addition, its policy of increasing prices due to cost inflation led to a further build-up of inventories in markets such as Europe, which would have to be sold at deep discounts. And in the middle of it all, mayhem with Kanye West, now known as Ye.

Yeezy was Adidas’ most lucrative line: it could command high prices – between 200 and 400 euros per pair of shoes – and all products were sold without middlemen or the need for discounts, with a 40% return. “They’ve built a great brand in five years,” says José Luis Nueno, professor at IESE Business School and expert in distribution. Last June, before his split from Ye, they calculated that they would sell €1.7 billion worth of Yeezy products over the course of the year. “According to the rate of sales and the growth it had, that would mean selling 10,000 million to Adidas in 2026,” says Nino. Of the 700 million euros in losses that the German group expects by 2023, 500 correspond to the loss of this line.

The American rapper’s fall from grace was confirmed when, last October, he made a series of racist and anti-Semitic statements. Immediately, Adidas decided to cut it. However, the initial social rejection of his comments did not seem to be noticeable in the value of the products he photographed with the brand. The cancellation of the line has restricted supply and raised its prices significantly on flea markets: for the Yeezy Boost 350, one of their most valuable models, they pay up to 575 euros in StockX, one of the specialized pages in the world of slippers. Yeezy is trading on the upswing, and for Noino, that’s no surprise: “It’s a line aimed at youth with a little memory.”

Now, Adidas finds itself in a major dilemma: It has €1.2 billion worth of Yeezy products gathering dust, and all the options open to it present drawbacks: On the one hand, Nueno points out, they can continue with the collection but remove the Yeezy brand badge. However, this can also lead to social rebuke for sticking to the line despite Yi’s anti-Semitic and racist comments. They can also, says the expert, sell what’s left at cost and give up their juicy margins. The new CEO floated a similar idea: sell what’s left and donate the profits.

Whatever they do, the market seems to consider that the solution will not be perfect: if Adidas thinks it could incur losses of up to 700 million, investors aim for around 300 million. On the day they announced the cancellation, the sporting goods manufacturer plunged more than 4% on the stock market. Since then, its stock value has fallen by more than 35%. Since the epidemic, the stock market has fallen more than 50%, and the total value of the group (25,000 million) is only one and a half times the expected turnover for this year. Nike’s value-to-sales ratio is 3.4 times.

boycott

And if that wasn’t headache enough, Adidas offers another size that isn’t even smaller: China. The Asian giant was Adidas’ most profitable market, and accounted for 20% of its sales. The zero covid policy led to a 50% drop in sales in the most recent quarter. In addition, as Bankinter analysts point out, the boycott of Western brands in 2021 has caused them to lose market share to domestic brands. Arantxa Piñeiro, investment analyst at Banco Sabadell, notes that “it is difficult to distinguish what happened in China, but this situation must change, because it is one of the most relevant markets for this sector.”

The solution Adidas is suggesting is to get into the mud in the domestic business: “China’s needs may differ from those of Germany or the United States,” the company’s CEO noted. For Piñeiro, the company’s line is clear: “It has to be a local business, made by locals and by locals.” Thus, Golden has a lot of work to do. The manager had already managed to turn Puma around at that time and was appreciated by the market. Analysts received positive feedback from them last week. From Quinn, the financial division of US multinational TD Securities, they even think Adidas is very pessimistic about its targets for this year considering that China has left constraints behind. “2023 will be a year of transition, and then we’ll see,” concludes Pinheiro.

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