In 2013, Adidas struck a deal with Kanye West to create Yeezy-branded shoe and clothing collections for the sportswear giant.
Landing West, who previously had an endorsement deal with Nike, was a coup for Adidas. Three years later, Adidas expanded its relationship with him, heralding it as the “most significant partnership ever created between an athletic brand and a non-athlete.”
It was a lucrative relationship. Yeezy products generated nearly $2 billion in sales last year for Adidas (ADDDF), accounting for 8% of the company’s total sales, according to Morgan Stanley. The line also helped Adidas (ADDDF) get shelf space at major retailers and brought new customers into the stores who bought other Adidas (ADDDF) merchandise.
Adidas’ big bet on West, who has legally changed his name to Ye, has now collapsed, leaving a hole in the brand’s strategy and illustrating the dangers and drawbacks of celebrity endorsers.
On Tuesday, Adidas cut ties with Ye over a series of anti-Semitic tweets and comments by the musician and designer, and said it will end production of all Yeezy-branded products and stop paying him. The move will result in a €250 million hit ($246 million) to Adidas’ fourth quarter sales.
Other fashion brands that bet on Ye, including Gap (GPS)and Balenciaga, have also ended their partnerships in recent weeks. Gap’s stock surged in 2020 when the company announced West would create a Yeezy Gap (GPS)line of clothing.
The partnership with Ye and subsequent fallout highlights the risks of retail brands relying on celebrities to appeal to shoppers.
Celebrity deals can generate huge sales and attention for brands. A 2012 study published in the Journal of Advertising Research found that celebrity endorsements from athletes can increase a brand’s sales by 4%. “Sales and stock returns jump noticeably with each major achievement by the athlete,” the researchers found.
But there are major costs if a celebrity who is closely linked to a brand becomes engulfed in a scandal or controversy.
“The saga of Ye, not just with Adidas but with brands like Gap and Balenciaga, underlines the importance of vetting celebrities thoroughly and avoiding those who are overly controversial,” said Neil Saunders, an analyst at GlobalData Retail. “Companies or brands that fail to heed this will get stung.”
Although Ye was not a pitchman for Adidas and Gap, as Fogle was for Subway, he designed exclusive merchandise for the company and was a key part of its overall strategy.
Brands stood by Ye — and even deepened their partnerships with him — despite a slew of controversies and incendiary comments he has made in recent years. He described 400 years of slavery as a choice, claimed that Harriet Tubman, who rescued dozens of enslaved people, “never actually freed the slaves. Ye also launched a bid for president in 2020.
He has said he was diagnosed with bipolar disorder in 2016 and was hospitalized.
“Kanye has been, and is, a very important part of our strategy and has been a fantastic creator,” Adidas CEO Kasper Rorsted said in 2018. “I’m not going to comment on every comment he or somebody else [is] making.”
Adidas waited too long to cut ties with Ye after he posted a threatening and anti-Semitic comment on Twitter on October 8 and followed that with a series of anti-Semitic comments in interviews October 16 and 17, said Stefan Hock, an assistant professor of marketing at the University of Connecticut.
Hock has studied brands’ responses to negative publicity around celebrity endorsers and found that the timing of a company’s reaction can impact its stock price.
Instead of pulling the plug on Ye immediately, Adidas’ slow response allowed anger and protests over the brand’s ties to him to grow online for more than a week.
“The best thing to do is if you have an endorser who misbehaves is to cut ties quickly,” Hock said. “If you drag your feet it creates a downward spiral.”