Yeezy's involvement couldn't save Adidas from lagging behind Nike in the retail market, a gap that has been widening for years.
The All About Adidas Saga
Here we go, diving into the tale of Adidas' fall from grace. Back in 2013, Adidas reached a deal with Kanye West, a move that seemed smart as it kept them in the game against Nike, who was still raking in $25 billion that year. Adidas managed 14.2 billion euros, a gap of nearly $6 billion.
Fast forward a decade, and Adidas is projected to suffer its first annual loss in three decades, thanks, in part, to the fallout from the Yeezy partnership. This messy breakup resulted in a whopping 600 million euros hit to Adidas' fourth-quarter revenue, with potential losses of up to 1.2 billion euros in 2023 if they can't sell their remaining inventory.
Tom Nikic, an analyst, sums it up: "The Kanye West thing was very much a right time, right place, right person situation, which eventually became very much a wrong person situation."
With West's string of antisemitic comments and a history of problematic behavior, it's no surprise that Adidas decided to cut ties. But, as Barbara Kahn, a marketing professor at the University of Pennsylvania puts it, "It is kind of unprecedented."
So, what to do with all that Yeezy loot? After months of debate, employees, consumers, and stakeholders voted for selling the leftover product, despite its questionable provenance. And guess what? People are buying! The Financial Times reported Adidas received orders worth over $500 million for the first batch of Yeezy merchandise, exceeding forecasts and leaving some orders unfilled.
Despite this success, Adidas is looking more like a brand that's lost its way. A partnership with Beyoncé has faltered, the sale of their Reebok brand was necessary after years of underperformance, and CEO Kasper Rorsted was replaced a few months early. Adidas' 2022 sales are lower than four years ago.
As Matt Powell, an adviser with Spurwink River, says, "It's not the category. [The fact that they're having problems] is not the category."
Adidas had a good thing going in 2013, but how did it all go wrong? Let's keep tabs on this story. Subscribe to the Retail Dive free daily newsletter.
Experience the High Life - And Then the Crash
While Adidas held second place in the sportswear market, the revenue gap between them and Nike expanded over the past decade. Adidas' sales growth slowed significantly, with only a 10% increase in 2015, an 18% jump in 2016, and a 16% rise in 2017 before things slowed down noticeably in 2018.
The Superstar, initially a basketball shoe but now a staple Adidas lifestyle sneaker, was a major player during this period, securing the number one spot in the United States market. However, its success was short-lived, and when it started to wane, Adidas lost much of the ground it had gained.
The Stan Smith and the Ultraboost were other strong performers during this period. But as Nikic points out, "It's been a long time since the Ultraboost came out - and there hasn't been much to point to, to say like, 'OK, yeah, this seems like the next big thing for Adi.' We've been waiting for Adi's next big thing for a long time."
Collaborations, Scandals, and Missed Opportunities
The end of the Yeezy partnership may be the most glaring example of Adidas' missteps, but it's not the only one. The retailer tied itself to a celebrity known for unstable behavior and made a significant bet on the partnership, ignoring the warning signs.
Unlike some other celebrity scandals, this one wasn't easy to ignore, with widespread criticism and a lack of prestige or "signaling effect" for Adidas. In contrast, when Tiger Woods was caught in a scandal, Derdenger, a marketing and strategy associate professor at Carnegie Mellon University, found that Woods' prestige effect on customers was severely eroded, but they were still drawn in by his athletic prowess, his "signaling effect."
The same can't be said for the Ivy Park line, Adidas' collaboration with Beyoncé. Despite Beyoncé's cachet and prestige, the line underperformed Adidas' expectations, leading to the reported end of the partnership. Adidas did not respond to a request for comment on the matter.
Powell believes Adidas' marketing strategy is too heavily skewed towards collaborations. The small-batch nature of these collaborations, then their wide release on social media, doesn't help Adidas commercialize them effectively for broader audiences and maximize sales.
A Eurocentric Approach (That Might Need a Rethink)
Another problem may be that Adidas' approach is too Eurocentric. While soccer (football) plays a significant role globally, basketball reigns supreme in the United States, and Adidas is playing catch-up with rival Nike, who holds a "stranglehold" on the basketball market.
The $12 billion difference in North American sales between Nike and Adidas highlights this disparity. Powell suggests that for years, Adidas' U.S. partners have pressed Europe to provide products tailored for the U.S. market, arguing that the European and U.S. markets require distinct strategies.
Gulden, Adidas' new CEO, may already be addressing this issue, but time will tell if it will be enough to reverse Adidas' decline.
Sounds like it's gonna be a bumpy ride for Adidas, y'all. Stay tuned for updates. Subscribe to the Retail Dive free daily newsletter.
- The energy surrounding Adidas' fall from grace can be felt as they confront the possibility of their first annual loss in three decades, a blow attributed in part to the dissolution of their Yeezy partnership.
- The opinion among analysts is that Adidas' missteps, like their association with Kanye West despite his problematic behavior, have contributed to their current situation.
- Meanwhile, the basketball world continues to thrive on TV, with the space for Adidas to regain its competitive edge shrinking in the sports industry.
- The culture of collaboration appears to be a double-edged sword for Adidas, as their reliance on celebrity endorsements, such as the Yeezy and Ivy Park partnerships, has not always yielded the desired results.
- The fashion industry has evolved significantly, and the AI-driven retail landscape now plays a critical role in shaping consumer trends and preferences.
- Amidst this shift, labor policies and investor interests remain key factors in deciding the future of brands like Adidas, as they grapple with the challenges posed by the pandemic and the ongoing economic fluctuations.
- The lifestyle sector, particularly sneakers, has experienced unprecedented demand, with consumers eagerly snapping up repurposed Yeezy merchandise despite the questionable origins.
- It's a race against time for Adidas, as they attempt to overhaul their business strategy, refresh their collaborations, and capitalize on the emerging AI-driven retail trends.
- Balancing short-term gains from successful collaborations with long-term investments in new technologies will be crucial for Adidas as they navigate the complex retail landscape.
- In the face of stiff competition, especially in the North American market, Adidas must reassess its approach to the basketball market, aiming for a more locally tailored offering to compete effectively against industry giants like Nike.
