Background
A company’s reputation can be a critical determinant of a buyer’s willingness to purchase a manufacturer’s products. Adidas is one of the world’s most recognizable sports brands with a solid reputation. The determining factors in the company’s social capital are the quality of its products, its proactive social stance, and its funding of various programs and events.
That helped create a positive brand reputation among the target audience and ensured the company’s financial stability and profitability. However, a recent social issue surrounding Kanye West’s statements, who has been an Adidas partner for a long time, has negatively impacted the company’s operations.
Problem Statement
For a long time, Adidas has partnered with Kanye West and his company, Yeezy. Moreover, this partnership generated approximately 10% of Adidas’ annual profits (Popli, 2022). However, West’s public anti-Semitic and racist remarks on social media forced the company to end the partnership. The primary concern is that, due to their close business relationship, West’s statements could be perceived as reflecting Adidas’ position.
Consequently, to avoid reputational damage, the company terminated the cooperation agreement. However, Adidas did this much later than other companies, such as GAP, Balenciaga, Vogue, and JPMorgan Chase (Popli, 2022). This led to public outrage about the company’s social stance and worsened its reputation compared to other brands.
Additionally, the rupture of partnerships with Yeezy resulted in significant financial losses. Adidas could suffer losses of up to $246 million in the short term and $1.3 billion in the long term (Associated Press, 2023). It includes the operating costs of terminating the partnership, as well as its losses from unsold Yeezy products.
Moreover, continued sales of Kanye West’s partner products could threaten the company with even more significant financial losses and the loss of a large percentage of customers. According to experts, the company’s primary task is to minimize risks and negative consequences, without attempting to benefit from the sale of Yeezy’s leftovers (Kim, 2023). Therefore, Adidas must develop strategies to minimize the financial and reputational damage associated with unsold products.
Stakeholders Affected
The reputation issue has had a significant impact on key stakeholders. The company has suffered significant financial losses, which are expected to continue in the long term. Additionally, this conflict raised concerns among investors due to uncertainty about customer behavior and the stability of the company’s share price.
According to research, the breakup with Kanye West led to a 6% increase in Adidas’s interest among US customers, while in the UK, the brand’s reputation fell to 52.8% (Nguyen, 2022). Consequently, this situation created a particular reputational and financial threat to the company. However, celebrities and athletes are interested in partnering with Adidas (Reid, 2023). That creates new opportunities for strategic brand management.
Recommendations
Adidas needs to eliminate unsold Yeezy products to end its partnership with the brand and permanently free up warehouse space. To achieve this, the company may consider selling these products in smaller markets outside the US or eliminating the Yeezy label and selling them at a discount in America (Kim, 2023). Despite the need for additional funding for these options, they are optimal for Adidas to reduce the negative impact of the conflict.
Moreover, the company must clearly establish and communicate its social position in the media space. One contributing factor is forging new partnerships with athletes, artists, and celebrities (Reid, 2023). However, it is essential to conduct a thorough analysis of potential partnerships to avoid similar conflicts in the future. Additionally, Adidas may conduct several social campaigns in partnership with community organizations to enhance its social standing.
References
Associated Press. (2023). After Kanye Split, Adidas Weighs What to Do With $1.3B Worth of Yeezy Shoes. Billboard.
Kim, J. (2023). Adidas is looking to repurpose unsold Yeezy products. Here are some of its options. NPR.
Nguyen, H. (2022). How has the Kanye West fallout affected Adidas’ brand health? YouGov.
Popli, N. (2022). The Kanye West Fallout Will Cost Adidas At Least $250 Million This Year. Time.
Reid, H. (2023). Adidas, burnt by Kanye West split, seeks a new focus. Reuters.