Adidas (ADS:ETR) is considering writing off the remaining 300 million euros (approximately $320 million) worth of unsold Yeezy shoes, subsequent to severing ties with the artist formerly known as Kanye West, who now goes by “Ye.” The company will make a decision in the coming weeks regarding a potential third release of these shoes in the next year, with the aim of generating donations for organizations combatting antisemitism.
In October 2022, Adidas decided to discontinue its partnership with Ye due to antisemitic remarks he made online. Prior to this, the company had successfully sold 750 million euros worth of Yeezy shoes in two phases earlier in the year through their smartphone apps and website. A portion of the profits from these sales went to organizations such as the Anti-Defamation League and the Philonise & Keeta Floyd Institute for Social Change, led by social justice advocate Philonise Floyd, the brother of George Floyd.
Adidas has included the potential write-off of the remaining Yeezy inventory in its earnings outlook for this year. This adjustment has reduced the anticipated loss from 450 million euros to 100 million euros, partly due to the earlier two releases of Yeezy shoes. CEO Bjorn Gulden, who assumed leadership after the split with Ye, is spearheading efforts to recover from the loss of the formerly lucrative Yeezy business.
This announcement from Adidas coincides with a period of rising antisemitism and islamophobia, particularly after the outbreak of the Israel-Hamas conflict. Gulden expressed concern about the dire circumstances in the Middle East, mentioning that some of the company’s 600-plus employees in Israel had been called up for military service. Adidas is initiating donation programs to support the entire region, including Gaza, in collaboration with the SOS Kinderdoerfer Weltweit children’s relief agency to aid those affected by the conflict.
Regarding the unsold Yeezy inventory, the assumption made in the earnings outlook is that it “will be written off.” However, Gulden clarified that this decision is continually under evaluation, and no final determination has been reached. While the financial implications of writing off the inventory represent a worst-case scenario, it remains a possibility. Adidas hopes to explore options for additional releases in the coming year to maximize value and contribute to charitable causes, but a final decision has yet to be made due to the current financial uncertainty.
Gulden mentioned that there are numerous potential scenarios for handling the unsold shoes, and they are stored in various locations. He did not disclose the company’s plans if the shoes remain unsold.
The separation from Ye left Adidas, headquartered in Herzogenaurach, Germany, with unsold Yeezys valued at 1.2 billion euros and a quest for a responsible disposal means. Donating the shoes to those in need was considered but raised concerns about potential informal resales due to their high market value. Removing the brand identification through restitching was also considered dishonest.
Featured Image: Unsplash @ Daniel Chen