Key Insights
- Adidas continues to face the repercussions of how it handled its partnership with Kanye West
- The company now faces a lawsuit from investors regarding the financial impact of Adidas' work with West under the Yeezy brand
- The sportswear brand is fighting to handle the ongoing PR crisis and its decrease in operating profit
Adidas shareholders have launched a class action lawsuit against the sports apparel brand based on withholding information about Kanye West’s problematic behaviour and how it could impact investors.
After the ending of its partnership with West due to offensive behaviour and antisemitic remarks, the company experienced a sharp decline in stocks. Investors claim that Adidas did not take precautionary measures to minimize the effect of the crisis and resulting financial losses.
Shareholders have also stated that the German sportswear company was formally warned by employees about the rapper’s problematic behaviour in 2018 and chose not to address the conflict.
Taking Stand Against Yeezy
Under his Yeezy brand, Kanye West designed sportswear and footwear for Adidas, resulting in huge success for the brand for its offering of celebrity-designer apparel at a reasonable price range.
Following increasingly troubling remarks by West, Adidas formally cut ties with him last October. "Ye's recent comments and actions have been unacceptable, hateful, and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness,” stated the company in a press release.
However, cutting ties with Ye did not save the company from financial loss and an ongoing PR crisis. Adidas was the last of Kanye West’s collaborators to publicly speak out against his use of hate speech.
Price of Brand Partnerships
Adidas revealed that deciding not to sell existing Yeezy stock could result in a $1.3 billion loss.
This is a tough cut for the company to take. The sportswear brand is already dealing with a decrease in profits, with its operating profit falling from an estimated $2.2 billion in 2021 to $740 million in 2022.
Additionally, shares in Adidas fell by 5.6% following the end of its collaboration with Yeezy, further widening the gap between Adidas and its main industry competitor Nike.
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The lawsuit filed by shareholders states that the company “ignored the risks of oversupply of Yeezy branded shoes in the event that the partnership were to suddenly end, and in particular, if demand for the shoes were to fall due to any controversy surrounding West.”
Adidas denies the claims and has stated that the company “will take all necessary measures to vigorously defend ourselves against them.”
In the Spotlight: Handling PR Crisis
Despite Kanye West himself not being party to the lawsuit, Adidas’ ongoing struggles speak to the importance of mitigating risk when selecting brand collaborators and effectively addressing questions in the segment of public relations.
The sportswear company’s decision not to address employee concerns regarding West in 2018, as well as its inaction in immediately speaking out against his antisemitic remarks, has led to repercussions that Adidas will be working towards mending in the coming year.
