Adidas Yeezy Crisis: Overcoming Hurdles and Projecting Recovery for 2024
The Adidas Yeezy crisis has been far from easy, but the company is projecting that 2024 is its year to turn the corner. The German sportswear maker expects operating profit to nearly double to about €500 million ($542.3 million) in 2024 following the company's break-up with Kanye West and the discontinuation of its Yeezy business.
Adidas' partnership with Kanye West, which resulted in the infamous Yeezy shoes, ended in 2022. This was due to anti-Semitic remarks made by the rapper, which led to a split between the two entities. Following the split, Adidas was left with a massive inventory of Yeezy shoes and was grappling with how to deal with it.
Initially, the company contemplated burning the leftover shoes. However, they later shifted to selling them, with a pledge to donate the proceeds to charity. But as time passed, Adidas considered writing off the $290-million-worth Yeezy inventory, a move deemed the 'worst case' by CEO Bjørn Gulden.
Fortunately, Adidas managed to sell a batch of Yeezy shoes online totaling $565 million. This massive selloff meant that the company likely won't have to take a big write-down on its remaining Yeezy merchandise. The world's second-largest sports brand was initially faced with about $1.3 billion worth of unsold Yeezy shoe inventory.
Adidas made an operating profit of €268 million ($290 million), which was a 60% drop from 2022's figures. Factors like foreign exchange fluctuations and muted sports apparel demand, some of which also impacted rivals like Puma, continued to weigh on Adidas's performance.
Not to mention that perhaps its main strategy problem over the last few years has centered on partnerships with other artists including Bad Bunny, Pharell Williams, and Beyoncé that haven't always met financial expectations. Sales for Ivy Park fell more than 50% to $40 million in 2022, far below the $250 million Adidas projected, according to the Wall Street Journal. The existing contract between Beyoncé and the brand, which pays her $20 million annually, expired last year.
Despite these challenges, Adidas has managed to make progress in overcoming the Yeezy crisis. When the company put its first batch of Yeezy's up for sale last year, it sold off four million sneakers within 48 hours. Fifteen Yeezy models were on offer, ranging from $70 to $260.
The discontinuation of the Yeezy business mainly dragged on the company's year-over-year numbers across the North America, Greater China, and EMEA regions. However, for 2024, Adidas expects to nearly double the 2023 profits to €500 million.
This promising outlook comes despite the company's break-up with Kanye West and the discontinuation of its Yeezy line. It beats the €100 million loss previously forecast for 2023 by CEO Bjorn Gulden.
Based on the financial results, it seems that Adidas has managed to overcome its initial hurdles and is on the path to recovery. Shares of Adidas are up more than 9% over the past year, indicating growing investor confidence.
Although the Yeezy crisis presented significant challenges, Adidas has shown resilience in adapting to the situation. With a clear focus on future growth strategies and a strong brand reputation, the sportswear giant is poised to rebuild and thrive in the coming years.
