SCollective lawsuits in the USA, unpleasant inquiries from large investors and an unresolved legacy in the three-digit million range: Before the Adidas general meeting on Thursday, the signs are pointing to a storm. It will hardly be about the future plans of the largest German sporting goods manufacturer.
Everything revolves around the processing of the scandal ended cooperation with the US-Rapper Kanye West aka “Ye”. Because only gradually does it become clear how deep Adidas involved in the case.
Among new Adidas boss Bjørn Gulden’s many problems are millions of shoes. They store in around 50 distribution centers in countries around the world. In Germany it is a 55,000 square meter hall in Rieste, Lower Saxony, in which the boxes are piled up. When it opened, it was Adidas’ largest logistics center in the world.
And now there are piles of brand-new shoes that would have made many teenagers very happy just a year ago, but now bring little joy to those responsible for the company in Herzogenaurach, Franconia. Because these are products of the “Yeezy” brand, which were developed together with the cooperation partner.
The scandalous musician West from America, who was separated last year after his repeated anti-Semitic statements.
How many Yeezy shoes are stored exactly wants Adidas not revealed for market tactical reasons. But the company estimates its value at half a billion euros. A lot of dormant capital for a company that has recently had to issue one profit warning after another.
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The stored ones are for guilders Sneaker still a huge problem. Because they present him with a dilemma. From an economic point of view, he would have to sell the goods. The sales proceeds could be enough to lead the ailing Dax group out of the red.
The risk of sneaker shredding
However, former cooperation partner West would also benefit from it, allegedly with five percent of the proceeds. Adidas, a German company with a Nazi past, would have to pay a publicly professed anti-Semite an amount in the tens of millions.
An alternative would be to write off the money and destroy the goods. But shredding millions of shoes would be difficult to reconcile with the company’s sustainability goals and could bring more negative headlines. The third option would be to give the shoes away or donate them, risking that they would then circulate on the secondary market.
The situation has been known since the separation from West last autumn, without a solution seeming to be found at Adidas. When asked, the company regularly explains that it is examining the options. Gulden said in a conference call last week that he “does not want to give any water level reports”.
The longer he leaves the shoe question unanswered, the more the Yeezy legacy threatens to become a problem for the new CEO. Instead of drawing a line under the West chapter, Adidas continued to produce shoes from Gulden’s collection under Gulden’s leadership.
Business figures that have just been published show that EUR 100 million worth of Yeezy products were added to the inventory in the first quarter of 2023. Gulden justified this with contractual obligations and the protection of the production companies, but now no more Yeezy shoes would be manufactured.
Did Adidas produce mountains of shoes for half a year knowing that they would soon be destroyed or given away? Or do you want to sell the disputed footwear after all?
Such an approach would irritate the Central Council of Jews. “Adidas, even after the criticism from the Central Council, conscious of its corporate responsibility, ended the partnership with Kanye West with great consequence,” said its President Josef Schuster to WELT.
Scandal with history
“From my point of view, this also means that he no longer benefits from the cooperation through the sale of the inventory.” How the sneakers are ultimately to be dealt with is entirely up to the company, emphasized Schuster. Adidas did not contact the Central Council of Jews on the issue.
The long hesitation in the shoe cause is an uncomfortable reminder of the group’s hesitant approach last year, when it was only very late that it was possible to separate from West, when many other companies had long since turned their backs on “Ye”.
The rapper is said to have shown problematic behavior years earlier in the cooperation with Adidas. There are reports that he has become abusive towards employees and has made sexually explicit comments towards women.
Did Adidas management turn a blind eye to a collaboration that had long since become intolerable in order not to jeopardize a partnership that was very profitable for both parties?
The exact circumstances of the cooperation with West and the separation from him should be a central topic at the general meeting on Thursday. One of the largest shareholders wants to put the topic on the agenda. According to a report in the Financial Times, Union Investment wants to demand the publication of an internal investigation report on the allegations.
The savings bank fund company Deka, also a large shareholder, has even threatened to former CEO Kasper Rorsted as well as the chairman of the supervisory board and Bertelsmann boss Thomas Rabe to refuse discharge on Thursday.
Separation from West hit Adidas harder than other crises
How deeply involved in the fateful Western alliance Adidas is, even months after the breakup, was shown last week ago when the new boss delivered a quarterly report that is rarely seen. Because Gulden presented his first numbers in two versions – including and excluding the Kanye West effect.
Adidas’ net sales, for example, were down one percent year-on-year in the first quarter, with sales outside of the Yeezy range up nine percent. Sales in the US shrank by 20 percent. If you hide the Yeezy division, you would only have to report a minus of five percent.
And in online sales, you could report a 12 percent sales growth – instead of a 23 percent slump, which it actually was. The separation from West has had a much more devastating effect on the business figures of the global corporation than the economic consequences of the Russian war of aggression against Ukraine and possibly even the supply crisis.
The figures show how extremely dependent Adidas had become on a single person and how mercilessly the company was punished for it.
The shareholders who were also punished do not want to stop at venting their anger at the general meeting. In the USA, the first class action lawsuits by Adidas shareholders are already pending, accusing the management of having acted too late in the West case.
CFO Harm Ohlmeyer rejects the allegations as “unfounded”. No procedural provisions were made for this.
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