Adidas, burned by the end of its partnership with the musician formerly known as Kanye West, needs a new direction but should consider new celebrity partnerships more strategically and not rely as heavily on one person, according to industry experts.
The company’s decision to cut ties with the rapper known as Ye since 2021 was upheld on Wednesday by the company’s new chief executive, Bjorn Gulden. However, he also highlighted the distinctive value of the Yeezy shoe brand, which has grown to be a significant source of revenue.
Sportswear companies have long engaged in lucrative but potentially dangerous business dealings with celebrities. In a statement to reporters on Wednesday, Gulden stated that Adidas would continue to work with celebrities and artists in addition to athletes.
“It’s not a matter of either/or, you have to do both,” he said. “You build credibility as a performance brand by being with athletes, but there’s very few athletes that you can do lifestyle with.”
Gulden did, however, make a suggestion that Adidas’ priorities might change, saying the business needs to return to its fundamentals.
“You will see us invest in more sports, and be wider again than we have been, because that is also the DNA of this company,” he said.
Gulden, who took over as CEO on January 1, has promised to turn Adidas around after the company warned of a 700 million euro operating loss this year as a result of the breakup with Ye.
The magnitude of the blow surprised investors because Adidas had previously not disclosed the revenue generated by Yeezy, the result of what the company called “the most significant partnership ever created between a non-athlete and an athletic brand” in 2016.
Six years after referring to Ye as a “creative pioneer” with “visionary imagination,” Adidas terminated the collaboration, citing “unacceptable, hateful, and dangerous” comments made by the star on social media and in interviews beginning in October of last year.
Adidas could be more cautious in selecting celebrities to partner with as a result of this episode, according to Cristina Fernandez, senior research analyst at Telsey Advisory Group in New York.
“To me it’s about diversification, but also about that specific celebrity or athlete maybe not being as risky as this one was.”
The 38-year partnership between US sportswear giant Nike and Michael Jordan for the Air Jordan line of basketball shoes and clothing is an example of a long-lasting and profitable relationship.
According to Nike’s 2022 annual report, the Jordan brand generated $5.1 billion in sales in 2022, a 7% increase over 2021.
While Adidas has collaborated with celebrities such as Beyonce, Pharrell Williams, Stella McCartney, and Rita Ora, and recently launched a new label with actor Jenna Ortega, the Yeezy line has proven to be the most successful.
“Partnerships with celebrities clearly play a big role, but there is a risk because the person you partner with can go off the rails,” said Mario Ortelli, managing director at luxury and high-end retail advisory firm Ortelli & Co.
Adidas, according to Ortelli, has spread itself too thin with celebrity collaborations and collections with brands such as Balenciaga, Gucci, Prada, and Moncler.
Due to the pandemic, brand tie-up announcements were delayed, resulting in several being unveiled in quick succession, according to Gulden.
“We will work with brand partners in the future, but probably not four within 18 months,” he said.
Overall, investors believe Gulden, the former CEO of neighboring and rival Puma, can turn around Adidas: its shares are up 23% since his appointment on November 8.
“The CEO has come from a story of fantastic growth [at Puma],” said Ortelli. “Let’s see if he can make the same magic at Adidas.”
(Adapted from Latestly.com)