Adidas has $500 million worth of Kanye West sneakers and no good options
Shortly after NFL star Michael Vick was indicted in July 2007 for running a dog fighting operation, Nike suspended the release of his signature shoe line. Vick went on to plead guilty and have his contract suspended, but less clear is what exactly happened to all those sneakers.
Nike would not say, but industry analyst Matt Powell believes it destroyed its supply of Air Zoom Vick Vs.
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Adidas now has a similar dilemma with its Yeezy line, observers say, except on a scale unseen in the fashion industry. Months after cutting ties with rapper and fashion designer Kanye West over his flagrant antisemitism, the German company on Feb. 9 warned it was looking at massive losses if it couldn't sell its inventory, raising questions about its options for the now-tainted brand, including literally burning the shoes.
That's a significant shift from its outlook in November, when officials said they could recoup the "vast majority" of losses by rebranding the distinctive shoes - which retail from roughly $200 to nearly $600 - and selling them at a discount.
The predicament offers a glimpse of what happens when a fashion line meets a sudden end. And experts say the decision, which Adidas has said is still months away, will be especially challenging because the company faces ethical and financial tripwires at every turn.
Newly installed CEO Bjørn Gulden signaled this month that the company might not sell any existing product, which analysts valued from $300 million to $500 million. The company said it could lose as much 1.2 billion euros ($1.3 billion) in revenue this year and 500 million euros in operating profit if it cannot repurpose the merchandise.
"What makes this so dramatic is how big it is," said Wedbush analyst Tom Nikic, noting that the Yeezy brand was doing nearly $2 billion a year in revenue. "That's really a big, substantial part of [Adidas's] business - and the abruptness with which it happened" is also remarkable.
The company ended its relationship with the entertainer, who now goes by Ye, in late October following a string of controversies beginning with him appearing in a "White Lives Matter" T-shirt at his Paris Fashion Week show. Days later, he made antisemitic comments on Instagram and Twitter, and then doubled down on that rhetoric in a podcast and an unaired portion of an interview with Fox News host Tucker Carlson.
Celebrities, political leaders and Jewish organizations condemned the artist and called out Adidas, which was slower to act than his other business partners. Balenciaga, JPMorgan Chase and other companies had ended relationships with him weeks earlier, and Gap announced it would no longer carry his products.
Adidas could still move forward with a plan to sell the merchandise at a discount, without the label, said Nikic, transforming them into what he calls, "zombie Yeezys."
"But that's quite frankly a risky proposition," Nikic said. "It could backfire on them from a PR perspective. It would still look like they were profiting off of a collaboration with someone who made blatant antisemitic statements."
Another option is liquidating the remaining merchandise through discount stores like T.J. Maxx or selling it by the pound to a go-between who could then distribute it to retailers in developing countries, said Mark Cohen, Columbia University's director of retail studies.
"This is a common practice in lesser-developed countries where goods find their way into a local marketplace," Cohen said.
Experts said that liquidation is a normal part of the retail business. For example, Allbirds, a shoe company, announced in August that it would have to liquidate nearly $12 million in clothing after an unsuccessful push into activewear-like leggings. The company did not respond to questions about how those products were dispersed.
Cohen is convinced that the Yeezys will eventually find their way to consumers. "Almost everything you can imagine that is manufactured in the world is sold somewhere, somehow, at some price," he said. "And these high-value Kanye West sneakers are going to wind up on people's feet - maybe people who value the Kanye association or [people] who don't care; they just want fresh, clean, modern footwear."
Another option is to destroy the shoes - a practice that some experts say is still common in the industry despite ethical and environmental concerns. Nike cut up shoes it decided not to sell at its store in New York SoHo, the New York Times reported in 2017. Other fashion brands - such as Coach, Victoria's Secret and Louis Vuitton - have received negative attention in recent years for destroying their merchandise in an effort to preserve the value of their brand. In 2018, Burberry said it would end the practice of burning unsold merchandise after announcing that it destroyed some $37 million worth of goods.
But analysts said that would be the worst outcome - one that makes little financial sense and comes with its own public relations pitfalls.
Elizabeth Napier, an assistant professor at the University of Toledo, who has studied how fashion companies dispose of unsold products, said the best option for Adidas would be to donate the shoes to disaster relief, such as efforts in Turkey and Syria following an earthquake in February that killed more than 46,000 people.
"I don't know why they just won't come out right now and do that," Napier said.
The issue speaks to the inherent risk of celebrity deals, Cohen said, which rely on the consistency of a star's talent and popularity.
"They sometimes personally take a left or right turn, which leaves their counterparty in a bind because the behavior they're exhibiting ... doesn't align with the host company's values," Cohen said. "And this gets endlessly tricky."
Nike - which ended up re-signing Vick in 2011, saying the athlete acknowledged his "past mistakes" in dog fighting - recently faced another dilemma in October after Kyrie Irving tweeted a link to, and then refused to disavow, an antisemitic film. The Oregon-based sneaker giant eventually cut ties with the NBA star and said it would not release Kyrie 8.
In a statement to The Post, Nike said that it was "prioritizing donation and recycling of Kyrie 8 product," although it did not say how. Nike has a program that transforms what it considers unusable inventory into material for things like gym floors and even other shoes.
It's unclear whether Adidas has considered that option, but analysts said it would be a losing one. Adidas would only "gain some goodwill by donating a few basketball courts," Powell said.
No matter what Adidas does, Powell said, "they're losing all the way around - there are no winners in this one."
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