By Craig Margolius
Five months after Adidas dumped the “Yeezy” brand from its portfolio, the German apparel company is struggling to fill the gap in lost profits.
However, evidence from secondary sneaker reseller markets shows how Adidas’ strong early statements to defuse the controversy, coupled with its cool patience, may provide a path for redeeming the brand – an important intangible asset for the company.
On October 25, 2022, Adidas announced it had terminated its contract with fashion designer and music artist Ye (formally known as Kanye West). At the time, GQ’s “Most Stylish Man of the Decade” was in the middle of a series of outbursts that quickly alienated him from major companies.
It wasn’t an easy decision for Adidas. The Yeezy deal (referring to a line of sneakers designed by the artist but produced by Adidas) accounted for about 5% of the company’s 2021 sales and the brand was heading to 7% in 2022 before the deal was broken.
Adidas warned shareholders to expect a “short-term negative impact” of up to €250 million. But by February, Adidas had to sheepishly update this to an eye-watering loss of €1.2 billion ($US1.3 billion) year-on-year, with another €500 million in potential write-offs if it can’t “re-purpose” the existing sneaker stock.
In response to this news, S&P Global Ratings lowered its outlook on Adidas from A+/A-1 down to A-/A-2. Shares in Adidas have fallen 44% over the last 12 months.
Adidas chief executive Bjørn Gulden, who took over shortly after the Yeezy deal ended, told shareholders the company “needs some time” before it can return to profit.
But it’s not all doom and gloom for the company. In fact, there are positive signs on the horizon.
For example, due to the controversy, many sneakers fans now see Yeezy sneakers as collectables and California-based reseller Impossible Kicks said demand for the shoes has surged 30% since last October.
“We sell about 30,000 sneakers in total every month. Probably 6000 to 7000 of those right now are Yeezys,” said its chief executive John Mocadlo.
Furthermore, rumours are already circulating that Adidas and Ye might be in the early stages of resurrecting the deal, although neither party has confirmed if any talks are happening.
No matter what move Adidas makes next, the entire scenario offered some intriguing lessons for thinking about the intangible asset of brand.
The first is that even with hundreds of millions of dollars invested into a brand like Yeezy, it was always hard for Adidas to know exactly how powerful or robust it truly was. All brand strategies face the same confidence gaps.
Brands can wargame bad PR all they like and invent clever ways to change tack to weather a public storm. Yet it’s always impossible to know how a brand will fare when the rain comes. Investment doesn’t always correlate with a brand’s strength, but exactly where a brand’s weaknesses might be is tough to know until the PR balloon is tested by the needles of scandal.
A brand under pressure can surprise a parent company by how quickly supposedly “loyal” customers reject it. Equally, it can be surprising how little customers care about a controversy to begin with, despite what the media says. It all depends on the day, the nature of the scandal and a million other ephemeral factors that are tough to forecast.
This leads to a second key lesson about managing a brand: don’t overreact.
Obviously, that can be tough advice in the middle of a PR storm, but aside from a handful of long-life scandals, the history of the Internet Age teaches one major thing: the prudence of patience.
With so many controversies happening each day, the average person can’t focus on one issue for more than a few days or weeks. The media can also be a blessing and curse for brands. While companies must respond to scandals, they also know that the media chases shiny objects. No matter the severity, it’s a good bet that the camera’s glare will pass to another scandal soon enough.
While Adidas certainly won’t use this controversy to generate attention, this strategy isn’t stupid. After all, “there’s no such thing as bad PR” is a business maxim for a reason.
The Kendo-like move of absorbing and refocusing the energy of a scandal to gain fresh market advantages is regularly deployed by all kinds of brands – to the point where scandals are regularly manufactured just to draw attention to a brand.
Overall, Adidas was correct to distance itself from Ye and the company has likely set up new guardrails to ensure something like that never happens again.
But the wider lesson of the Ye/Adidas blow-up is that no controversy lasts forever. The intangible asset of brand depends on strategy and patience. Brand is always much deeper than just a famous face or a funky logo.
The hard part is trusting in the power of a well-designed brand and keeping a cool head when the sharp objects start flying your way.
Originally published in Business Times