Adidas Wants to Avoid the Business Disaster That Would Come With Dropping the Yeezy

After much internet whispering about what would happen to the Yeezy, Adidas  (ADDDF)  confirmed that it will sell shoes with the same design but stripped of any reference to the rapper formerly known as Kanye West.

On Oct. 25, the sportswear giant finally cut all ties to the rapper-songwriter now going by Ye after he published a series of antisemitic posts on Twitter  (TWTR) - Get Free Report and doubled down in subsequent interviews. 

Gap  (GPS) - Get Free Report, JP Morgan  (JPM) - Get Free Report and Kering  (PPRUF) -owned Balenciaga had all already cut ties with Ye, but Adidas was both the hardest-hit and the most difficult to undo.

Ye and Adidas first signed a deal in 2013 that, due to rapper's massive popularity, helped the brand generate over $1.7 billion in profit through both the Yeezy sneakers that West designed and an accompanying clothing line.

Adidas Scrambling To Make Up For Last Revenue

With Yeezy items accounting for around 8% of the company's total profits, the consequences of the broken deal were immediate. Adidas said that it expects to lose over $246 million in profit over by the end of the year because of the severed partnership. 

"As publicly communicated on October 25, we had terminated the partnership with Ye immediately, ended production of Yeezy branded products and stopped all payments to Ye and his companies," Adidas CFO Harm Ohlmeyer said in a Nov. 9 earnings call. 

The $246 million also does not take into account the $500 million in lost revenue from people who are now not buying the sneakers. 

On the earnings call, Ohlmeyer told stockholders that the company still owns the rights to the Yeezy sneaker (West would occasionally go on interview tirades in which he claimed to own 100% of the sneaker) and will continue making it even without Ye's branding or involvement.

'It's Our Product'

"Let me be clear, we own all the IP, we own all the designs, we own all the versions and new colorways,” Ohlmeyer said. "It's our product. We do not own the Yeezy name."

Still in the process of putting out the fires of canceling the partnership and being associated with Ye's antisemitism, Adidas has offered few details about what the new Yeezy model will look like. 

"Going forward, we will leverage the existing inventory with the exact plans being developed as we speak," Ohlemeyer told analysts and stockholders.

On top of the overall direction of the company, reimagining the Yeezy without West will be one of the challenges facing incoming chief executive Bjørn Gulden. The 57-year-old Norwegian is poised to take over from Kasper Rørsted in 2023.

Some have expressed doubt about the company's strategy.

"[Adidas] should refrain from relaunching items under its own brand, as they will always be synonymous with West, and this would likely result in muted customer demand,”  Darcey Jupp, an analyst with GlobalData Apparel, told RetailDive.

Los Angeles Rams cornerback Jalen Ramsey put it even more simply in an Instagram story as some social media users criticized Adidas' efforts to disassociate itself from Ye's antisemitism and trolling behavior while continuing to to reap the sneaker's popularity.

"If you don't rock wit (sic) somebody, why would you still use they (sic) designs!?" Ramsey wrote.