Kanye West plunges Adidas into the crisis – but he’s not the only reason Study: Frog leg consumption in Europe endangers animal species

Adidas has been in crisis for quite some time. Last week, the sporting goods manufacturer issued its fourth profit warning in a row. The most important message here: The loss of turnover due to the termination of the collaboration with Kanye West is gnawing at the company’s figures.

While that seems understandable and should certainly carry some weight, Adidas struggles on other fronts as well. One of the problems: the brand is not so ‘cool’ anymore.

This has been announced by Adidas

“The numbers speak for themselves. We are currently not performing as well as we should,” Bjørn Gulden, the new CEO of Adidas, said in a statement on Thursday. The announcement included the company’s fourth profit warning since July.

For the coming year, Adidas expects a “decline in currency-adjusted sales in the high single digits”. That would mean, the company continued, that for 2023, “operating results would be around break-even levels.” In other words: hardly any profit can be made.

“The year 2023 will be a transition year to lay the foundations to be a growing and profitable company again,” says the company, which is based in Herzogenaurach near Nuremberg. These goals are also reflected in the fact that Adidas also expects one-off expenses of up to 200 million euros in 2023 – costs that are “part of a strategic review” that the sporting goods manufacturer is now undertaking to become more profitable again in the future.

A profit warning like Adidas’s on Thursday rarely bodes well. And so the markets reacted: the share lost more than eleven percent on Friday.

Big losses due to collaboration with Kanye West

In its statement, Adidas management particularly emphasizes the losses that the brand will continue to suffer as a result of the termination of the partnership with Kanye West. In October, the company announced it would end its highly profitable partnership with the rapper after his anti-Semitic remarks sparked outrage.

Now Adidas is sitting on a plethora of “Yeezy” products (“Adidas Yeezy” describes the fashion collaboration between the company and the rapper). According to the Adidas press release, it is currently unclear what will happen to it. We are currently exploring various options for future use of the “Yeezy” product inventory.

However, as the company reports, the “Yeezy” debacle has left a revenue loss of $1.2 billion and a profit drop of $500 million simply due to the lack of sales. And we’re not even talking about any write-offs. Than:

Should the company irrevocably decide not to use its current inventory of Yeezy products, this would result in the write-off of the Yeezy inventory and reduce the company’s operating income this year by an additional EUR 500 million. declaration. If that happens, there could even be a loss in 2023.

destruction of clothes?

So what to do with the products? One option would be to strip the clothes of their “Yeezy” name and branding to sell them that way. At least that’s what Adidas communicated immediately after the divorce from Kanye West. The company said selling the items under its own name would save $434 million in royalties and marketing costs.

However, analysts say it will be difficult to resell the rebranded merchandise and the only option for them is to destroy or donate the clothing. “There are really no good options for this ailing brand that is somewhere between prestige and luxury,” an analyst told CNN.

New CEO should fix it

Last October it was announced that Adidas would hire a new CEO. Bjørn Gulden is no stranger: for almost ten years the Norwegian competitor Puma led. And it was really successful: in 2022, Puma wrote the best numbers in the history of the brand. According to various analysts, these were impressive figures, especially at a time when not only sports equipment manufacturers were struggling with sales problems, for example in China.

The news of a change in Gulden’s share price was also reflected in Adidas shares: After only knowing one direction in 2022 – downwards – the share jumped almost 20 percent in early November.

Competitors also suffered from the poor stock market year of 2022: Nike lost no less than 13 percent since last February and Puma more than 30 percent. But while these two have made a strong recovery recently, the same cannot be foreseen for Adidas, which has lost 40 percent in a year.

Kanye West isn’t the only reason

Aside from the “Yeezy” debacle, the company didn’t specifically address other reasons for the poor numbers in its announcement. But as the “Manager Magazin” reports, they do exist.

For example, there is the important sales market of China, which has been of great concern to Adidas since the corona crisis. In 2022 alone, the company had to accept a drop in sales of more than 30 percent in China, its most lucrative sales market.

Adidas also failed to mention the disappointing sales of products from the collaboration with Beyoncé’s Ivy Park brand: The Wall Street Journal reported last week that sales of the once-trendy streetwear brand rose 50 percent last year to a drop of about $40 million – well below internal projections of $250 million. The collaboration was “strong and successful”, Adidas then defended itself to the “Wall Street Journal”.

But what could make Adidas even more difficult in the long run is the lack of so-called “brand heat”, as “Manager Magazin” writes. The expression describes how ‘hot’ a brand is: how well can it present itself as a lifestyle brand, to what extent is it considered ‘in’ and how is the brand perceived by its customers.

In other words, in this case it means: Adidas is not so ‘cool’ anymore. According to “Manager Magazin”, analysts have long criticized the brand’s lack of “brand heat”. For example, they are based on the evaluation of social media platforms. Here too, the stock market figures would support this conclusion: Adidas has lost almost 23 percent of its value on the stock exchange in the past five years – while its competitors Nike and Puma have each risen by almost 80 percent.

At Puma, the new CEO Gulden made ‘brand heat’ a central part of his marketing strategy. Whether he can do the same at Adidas remains to be seen. In any case, from the point of view of the new CEO Gulden, it does not seem a bad time to emphasize the failed cooperation with “Ye” as the reason for the ailing figures.