Why the Kanye West-Gap breakup will be tough on Adidas
The musician wants to run his Yeezy fashion and footwear alone. That’s a big blow to the companies that pinned a revival on the celeb
Kanye West wants to go it alone.
The musician told Bloomberg News last week that he was done with his corporate partners and plans to branch out his fashion empire solo. Gap Inc. is winding down its deal with the rapper and his Yeezy fashion label, after a public spat in which Ye, as he is known, criticized the company, Bloomberg News reported.
Signing Ye two years ago was a major coup for Gap, which was trying to pull off a turnaround, but it was always risky. While Gap is already dealing with the fallout, what Kanye does next may also be a threat to the Yeezy cash cow at Adidas AG, which has worked with him for almost a decade.
Under the terms of the agreement with Gap, the chain will continue to sell its existing Yeezy products into the first half of 2023, according to Bloomberg. Thereafter, it must do without its most high-profile partner.
This is a blow to the retailer, which has recently parted company with Chief Executive Officer Sonia Syngal, withdrawn its 2022 guidance and just this week cut 500 corporate jobs. Gap did not respond to requests for comment. Ye could not be reached for comment.
Although Gap had billion-dollar ambitions for the Yeezy line, the partnership is still in its infancy. That means the impact on sales will be limited. What Gap will miss is the Kanye cool factor. Without Ye, it must address the issues it faces — most urgently fixing Old Navy, which generates over half of the group’s sales — without the celebrity’s halo effect.
But if losing Ye is a problem for Gap, it would be an even bigger headache for Adidas.
Yeezy and the sportswear group struck a deal in 2013, initially focusing on high-priced, limited-edition sneakers. But in 2018, CEO Kasper Rorsted announced plans to “democratize” Yeezy and ramp up supply. Analysts at Cowen estimate that Yeezy now generates annual sales of 1 billion ($986 million) to 1.5 billion euros, roughly 4% to 8% of Adidas revenue.
If the partnership were to end in 2026, when the current contract is said to expire, Adidas would feel some financial pain — especially if the worst-case scenario happened and existing Yeezy styles are taken off of shelves. (The two could agree to keep Yeezy Boosts and Slides on the market, but this is by no means guaranteed.) Adidas declined to comment.
Yet a breakup needn’t tank the company. While Ye commands an almost fanatical following, and brought Adidas a younger, more diverse customer base, particularly in the US, the collaboration has probably run its course. And Kanye doesn’t come cheap. Adidas pays him a royalty on Yeezy sales, estimated by Cowen to be a low double-digit percentage. Other analysts suggest his cut may be even higher.
Rorsted will step down next year, and the company is hunting for a successor. A new leader will have an opportunity to put their own stamp on the company’s relationships. Ye’s recent attacks on Adidas must be an unwanted distraction.
In the event of a split, replacing Ye with another cultural icon would be a mistake. True, Adidas has Beyonce’s Ivy Park collection, which hasn’t yet reached its full potential and could be turbo-charged, perhaps by enlisting Jay-Z to expand its menswear offering. But unless both person and product are a perfect fit, any replacement risks looking like a poor substitute for Kanye.
There’s a more promising route forward anyway: Adidas teamed up with Prada SpA in 2019 and has produced three collections with the Italian luxury brand, which is currently enjoying a Gen Z revival. This year Adidas has also debuted two collaborations with Kering SA’s Gucci. Given that rival Nike Inc. wants to be a luxury brand, betting on bling is wise.
An even better blueprint would be to dig deep into Adidas’s own archive and find another way to bolster its fashion offering, particularly among younger consumers, where it is lagging Nike. Right now, the US sportswear giant’s styles, such as Air Force Ones and Air Jordan high tops, are the Gen Z sneakers of choice. Reebok would have provided rich pickings for a ‘90s inspired revival, but Adidas sold the business last year. Hiring a new chief executive with experience of developing successful products, or building brands, should be Adidas’s first step.
As for Ye, going it alone won’t be straightforward. Although he has the profile and fan base to drive sales, he’ll also need the retail infrastructure. That includes not only translating his vision into wearable designs, but managing production, distribution, logistics, marketing and financials.
Retail is detail, so the old adage goes. That applies to the companies facing life beyond Ye, but it’ll also be true of the musician himself.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
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First Published:26 Sep 2022, 11:00 AM IST
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