Signing Ye two years ago was a major coup for Gap, who were trying to turn things around, but it was always risky. While Gap is already dealing with the fallout, what Kanye does next could also pose a threat to Adidas AG’s Yeezy cash cow, which has been working with him for nearly 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. After that, it has to do without its most prominent partner.
This comes as a blow to the retailer, which recently split from chief executive officer Sonia Syngal, withdrew its 2022 guidance and just this week cut 500 jobs at the company. Gap did not respond to requests for comment. Ye could not be reached for comment.
Though Gap had multi-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 cool Kanye factor. Without Ye, it must address the issues it faces — most urgently, fixing Old Navy, which generates more than half of the group’s revenue — without the halo effect of celebrity.
But if losing Ye is a problem for Gap, it would be an even bigger headache for Adidas.
Yeezy and the sportswear giant struck a deal in 2013 that initially focused 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 euros, which is roughly 4% to 8% of Adidas sales.
Should the partnership end in 2026, when the current deal is due to expire, Adidas would experience financial pain — especially if the worst-case scenario materializes and existing Yeezy models are pulled off the 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.
But a separation does not have to affect the company. While Ye has an almost fanatical following and has brought Adidas a younger, more diverse customer base, particularly in the US, the collaboration has likely run its course. And Kanye doesn’t come cheap. Adidas pays him a royalty on Yeezy sales, which Cowen estimates to be in the low double-digit percentage. Other analysts suggest its cut could be even higher.
Rorsted will step down next year and the company is looking for a successor. A new leader has the opportunity to put their own stamp on the company’s relationships. Yes’s recent attacks on Adidas must be an unwelcome 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 has yet to reach its full potential and could be boosted, perhaps by recruiting Jay-Z to expand its menswear offering. But unless both person and product are a perfect match, there’s a risk that any replacement will look like a poor replacement for Kanye.
There’s a more promising way forward anyway: Adidas teamed up with Prada SpA in 2019 and produced three collections with the Italian luxury brand, which is currently enjoying a Gen Z revival. This year, Adidas also unveiled two collaborations with Kering SA’s Gucci. Given that competitor Nike Inc. wants to be a luxury brand, it’s wise to go for bling.
An even better blueprint would be to dig deep into Adidas’ own archive and find another way to bolster its fashion offering, especially among younger consumers, where it lags behind Nike. At the moment, the US sportswear giant’s styles like Air Force Ones and Air Jordan High Tops are the sneakers of choice for Gen Z. Reebok would have provided bounty for a ’90s-inspired revival, but Adidas sold the business last year. Hiring a new CEO with experience in 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 following to drive sales, it also needs the retail infrastructure. This includes not only translating his vision into wearable designs, but also managing production, sales, logistics, marketing and finance.
Retail is detail, as the old adage goes. That goes for the companies that face life beyond Ye, but it will also go for the musician himself.
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Andrea Felsted is a columnist for Bloomberg Opinion covering consumer goods and retail. She was previously a reporter for the Financial Times.
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