For Ye, the musician and artist formerly known as Kanye West, 2022 has been a year of turmoil.
Three major multimillion-dollar partnerships have been terminated, his divorce from Kim Kardashian has been finalized, and a firestorm of criticism has been leveled against him for repeated controversial remarks, including anti-Semitic ones.
Its deals with Gap, Adidas and Balenciaga have all unraveled in the past three-and-a-half months, severely impacting the US retailer’s and German sportswear brand’s businesses. No longer regarded as one of the most versatile entrepreneurs whose golden touch could benefit various products and industries, the 24-time Grammy winner found himself ostracized by the fashion industry he’d sought to be taken seriously by for years.
No one knows where things go from here for the beleaguered celebrity. There have been rumors that Ye is trying to jump-start her design game. Raiding with major chains would be nearly impossible at this point. Major retailers like Foot Locker have canceled orders for its collaborative projects in response to the recent controversy.
Regarding the prospect of the musician partnering with another brand or trying the direct-to-consumer route, Morningstar equity analyst David Swartz, said, “Yeah, good luck. At this point, it’s completely toxic. Who will work with him? I don’t think anyone… will want to go into business with someone who praises Adolf Hitler in interviews.”
Ye’s attorneys at Cadwalader, Wickersham & Taft LLP did not acknowledge requests for an update on any pending legal disputes relating to the three collaborative projects that concluded this year.
Wassner Management Group chief executive Cole Wassner also doubted the likelihood of Ye’s return. “It would have been one thing if he had come out after all [happened] and apologized. But he has doubled and tripled and quadrupled and continues to walk the same path. It’s antimatter. He’s basically turned his name into kryptonite,” Wassner said. “It’s a poison pill for any retailer to try to work with him in any form at this point. Any brand that wants to touch him assumes the baggage of neo-Nazism at this point.”
The musician, who revealed a diagnosis of bipolar disorder in 2016, has faced controversy over the years, but that escalated last fall. After attending Balenciaga’s spring 2023 show in Paris in October, Ye then hosted a surprise show for her YZY Season 9 collection in the 8th arrondissement. There he wore a “White Lives Matter” embossed T-shirt and described himself as unmanageable in an opening monologue. He also dressed the models in T-shirts with a picture of Pope John Paul II on the front and “White Lives Matter” on the back.
He faced a storm of public backlash. The artist has responded with a litany of direct attacks on fashion editors, former friends and even luxury mogul Bernard Arnault. After being suspended by Instagram and Twitter for violating the platforms’ respective policies on hate speech, Ye said he has agreed to buy social media platform Parler.
(Despite making a joint statement about mutually agreeing to a deal in October, Parler’s parent company Parlement Technologies said earlier this month that both parties had parted ways and canceled that plan.)
In the following weeks Endeavour’s chief executive, Ari Emanuel, in an editorial in the Financial Times, called on the business associates of the Grammy winner to leave him. CAA later parted ways with the musician, as did MRC, who had wrapped up a documentary about him. Vogue, which featured the musician and Kardashian on its April 2014 cover, also publicly distanced itself from the entertainer.
After initially discussing the matter of its partnership with the Yeezy brand in early October, Adidas officially disclosed its decision to terminate its partnership with Ye at the end of October. The athletic giant did so amid mounting public pressure and consumer boycott calls. By ending what was to be a 10-year partnership, Adidas took a major financial hit. The company said it will lose up to 250 million euros in net profit as a result.
Last year, Yeezy products helped Adidas garner nearly $2 billion in sales, or about 8% of the company’s total revenue, according to Morgan Stanley.
Morningstar’s Swartz suggested that long-term damage to the brand and impact on Adidas’ earnings won’t be as significant as some people think it will be. Noting how the company will no longer have to pay annual royalties exceeding $100 million and will likely reduce staff to save other costs, he said the brand also has other celebrity endorsements, including Beyoncé and Pharrell Williams’ Ivy Park line, which it might help him compensate for lost sales. Even Adidas could sign new ones.
Still, the fourth-quarter impact on Adidas could be “quite substantial” if last year’s plan was any indicator: 10 of the Adidas Yeezy’s 65 drops were released in that time frame, he said. “In 2023 and beyond, they can fix that to some extent,” Swartz said. “This is probably not the biggest problem for Adidas right now, despite the media attention. The biggest problem for them is China where their sales have plummeted,” he said, citing COVID-19, forced labor issues and the loss of market share to native brands as reasons.
While Adidas has clarified that it will no longer work with Ye and will no longer use Yeezy branding, some Yeezy designs are expected to emerge in the coming months under the Adidas logo. In a call to earnings, Adidas chief financial officer Harm Ohlmeyer noted that the company is the sole owner of all registered design rights to the existing product. “We intend to use these rights as early as 2023,” he said.
But Tom Nikic, senior vice president of equity research for apparel and footwear at Wedbush Securities, said the brand’s plan to release Yeezy designs with the Adidas logo could be tricky as some of the styles’ appeal may not resonate as much given the public statements. by Ye . “And they run the risk of having PR problems if they appear to still be producing sneakers designed in collaboration with someone who has made a lot of anti-Semitic statements,” he said.
The father-of-four and Adidas’ problems worsened late last month when a Rolling Stone article said more than 12 former Adidas and Yeezy staffers said Ye had created a toxic environment for those who they worked under him on the Adidas-Yeezy line. Staff members said management was aware of the rapper’s behavior, which reportedly included viewing porn videos during meetings and, again, making anti-Semitic comments.
Adidas was just one of the brands that moved to distance themselves from the controversy. As the musician’s public comments became more outrageous, Kering said in late October that Balenciaga had split from Ye, and the brand removed an image of him walking in its spring 2023 show from its website. the split, Kering told WWD at the time that the company had no plans for future projects related to the artist. Balenciaga designer Demna – who was engulfed earlier this month by his own controversy surrounding two ads for the French fashion house – had also worked with the musician on the Yeezy Gap Engineered by Balenciaga line, as well as many of Ye.
Even before the backlash against him began, Ye and his lawyers had moved to distance themselves from Gap. The musicians’ attorneys reportedly sent a breach of contract notice to Gap executives in mid-August, and by mid-September, the contract was reportedly terminated. Ye said the retailer “abandoned contractual obligations,” specifically for failing to sell YZY products in his stores and failing to set up stores to sell Yeezy items.
Following his controversial comments, Gap released a statement in late October referencing how he said in September he was ending his partnership with Yeezy Gap and how his former partner’s recent remarks and behavior further underlined the reason. It also removed Yeezy products from its stores and shut down the YeezyGap site at the time.
That split is said to have left Gap with nearly $102 million in unsold merchandise, according to a source familiar with the situation, who declined to be named. Last month, between 8,000 and 12,000 units of about 73 styles were said to still be available as they were unsuccessfully sold at major discounters, including Burlington, TJ Maxx, Citi Trends and Ross Stores.
Asked last month what will become of all of Yeezy’s inventory, a Gap spokesperson referred to a transcript of its third-quarter earnings announcement and said, “We don’t have anything else to share beyond that.” The company’s third-quarter earnings call noted that “Gap brands will face a headwind of about a point as we celebrated Yeezy Gap sales last year that won’t be underpinning this year.” That was one of the factors cited by the company as to why fourth-quarter sales may have been down single-digit year-over-year.
Gap also noted that gross margin in the third quarter was 37.4%, on a 470 basis point deleveraging year-over-year, including 130 basis points of deleveraging related to a Yeezy Gap writedown. of 53 million dollars.