Analysis | Kanye-Gap breakup will be difficult for Adidas

Kanye West wants to go it alone.

The musician told Bloomberg News last week that he was done with his business partners and planned to diversify his solo fashion empire. Gap Inc. is ending its deal with the rapper and his fashion brand Yeezy, 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 blow for Gap, which was trying to pull off a turnaround, but it was still risky. While Gap is already dealing with the fallout, what Kanye does next could also be a threat to Adidas AG’s cash cow Yeezy, who has worked with him for nearly a decade.

Under the terms of the deal with Gap, the chain will continue to sell its existing Yeezy products through the first half of 2023, according to Bloomberg. Subsequently, she must do without her most prominent partner.

It’s a blow for the retailer, which recently parted ways with chief executive Sonia Syngal, withdrew its guidance for 2022 and cut 500 jobs from the company this week. Gap did not respond to requests for comment. You could not be reached for a comment.

Although Gap has billion dollar ambitions for the Yeezy line, the partnership is still in its infancy. This means that the impact on sales will be limited. What the Gap will miss is Kanye’s cool factor. Without Ye, he must solve the problems he faces – urgently fixing Old Navy, which generates more than half of the group’s sales – without the halo effect of fame.

But if losing Ye is a problem for Gap, it would be even more of a 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 increase supply. Cowen analysts estimate that Yeezy now generates annual sales of $1 billion ($986 million) to €1.5 billion, or about 4-8% of Adidas’ revenue.

If the partnership were to end in 2026, when the current contract expires, Adidas would feel financial hardship — especially if the worst-case scenario were to happen and existing Yeezy styles were pulled from shelves. (The two could agree to keep Yeezy Boosts and Slides on the market, but that’s by no means guaranteed.) Adidas declined to comment.

Still, a breakup doesn’t need to drain the company. While Ye commands an almost fanatical following and has brought Adidas a younger and more diverse following, particularly in the US, the collaboration has likely run its course. And Kanye is not cheap. Adidas pays him a royalty on Yeezy sales, estimated by Cowen to be a low double-digit percentage. Other analysts suggest his cut could be even higher.

Rorsted will step down next year and the company is looking for a successor. A new leader will have the opportunity to put his own stamp on corporate 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. Granted, Adidas has Beyonce’s Ivy Park collection, which has yet to reach its full potential and could be turbocharged, perhaps bringing in Jay-Z to expand its menswear offering. But unless the person and the product are a perfect fit, any replacement is likely to look like a poor Kanye substitute.

There’s a more promising path anyway: Adidas teamed up with Prada SpA in 2019 and produced three collections with the Italian luxury brand, which is currently experiencing a Gen Z revival. This year, Adidas also launched two collaborations with Gucci from Kering SA. Given that rival Nike Inc. wants to be a luxury brand, betting on the bling is smart.

An even better plan would be to dig deep into Adidas’ own archives and find another way to bolster its fashion offering, especially with younger consumers, where it lags behind Nike. Right now, styles from the American sportswear giant, such as the Air Force Ones and Air Jordan hi-tops, are the Gen Z sneakers of choice. Reebok reportedly provided rich picks for a ’90s-inspired revival, but Adidas sold the company last year. Hiring a new CEO with experience developing successful products or building brands should be Adidas’ first step.

As for Ye, going it alone will not be easy. While it has the profile and fanbase to generate sales, it will also need the retail infrastructure. This includes not only translating his vision into wearable designs, but also managing production, distribution, logistics, marketing and finance.

Retail is retail, the old saying goes. This applies to companies facing life beyond Ye, but it will also be true for the musician himself.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

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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