In 2013, Adidas struck a deal with Kanye West to create Yeezy-branded shoe and apparel 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, declaring it “the most significant partnership ever between an athletic brand and a non-athlete.”
It was a beneficial relationship. Yeezy products generated nearly $2 trillion in sales for Adidas ( ADDDF ) last year, accounting for 8% of the company’s sales, according to Morgan Stanley. The line helped Adidas (ADDDF) gain shelf space in major department stores and brought new customers to stores that purchased other Adidas (ADDDF) products.
Adidas’ big bet on West, which it has legally renamed Ye, has now collapsed, leaving a hole in the brand’s strategy and illustrating the risks and drawbacks of celebrity endorsements.
On Tuesday, Adidas cut ties with Ye over the musician and designer’s anti-Semitic tweets and comments, and said it would end production and stop paying for all Yeezy-branded products. The move will add 250 million euros ($246 million) to Adidas’ fourth-quarter sales.
Other fashion brands betting on Ye, including Gap ( GPS ) and Balenciaga, have ended partnerships in recent weeks. Gap’s stock soared in 2020 when the company announced it would launch a clothing line called West Yeezy Gap ( GPS ).
The partnership with Ye and subsequent fallout highlight the perils of retail brands relying on celebrities to appeal to shoppers.
Celebrity endorsements can generate huge sales and attention for brands. A 2012 study published in the Journal of Advertising Research found that celebrity endorsements of athletes can increase a brand’s sales by 4%. “Sales and stock returns jump significantly with each major achievement achieved by the athlete,” the researchers found.
But there are high costs if a celebrity closely associated with a brand gets embroiled in scandal or controversy.
“Ye’s saga, not only with Adidas but also with brands like Gap and Balenciaga, underscores the importance of scrutinizing celebrities and avoiding those who are too controversial,” said GlobalData Retail analyst Neil Saunders. “Companies or brands that don’t pay attention to that will get stung.”
Some examples of long-time celebrity endorsers whose scandals affected the brand include: Subway and Jared Fogle, Jell-O and Bill Cosby, and Nike and Lance Armstrong.
While Ye wasn’t a player at Adidas and Gap, as Fogle was for Subway, he designed exclusive merchandise for the company and was central to its overall strategy.
Mark stood by Ye – and they even deepened their partnership with him – despite the many controversies and heated comments he has made in recent years. Describing 400 years of slavery as an opportunity, Harriet Tubman, who rescued dozens of slaves, “didn’t really free the slaves. Ye also ran for president in 2020.
He said he was diagnosed with bipolar disorder in 2016 and hospitalized.
“Kanye has been, and is, a very important part of our strategy, and he’s been a fantastic creator,” Adidas CEO Kasper Rorsted said in 2018. “I’m not going to comment on every comment by him or anyone else. [is] doing”.
Adidas waited too long to cut ties with Ye after he posted threatening, anti-Semitic comments on Twitter on Oct. 8 and continued with anti-Semitic comments in interviews on Oct. 16 and 17, said Stefan Hock, an assistant professor. in marketing from the University of Connecticut.
Hock has studied brands’ responses to negative publicity surrounding celebrity endorsements and found that the timing of a company’s reaction can affect its stock price.
Instead of removing Ye immediately, Adidas’ slow response fueled online outrage and protests over the brand’s ties to him for more than a week.
“The best thing to do if you have a patron who behaves is to cut ties quickly,” Hock said. “If you drag your feet it creates a downward spiral.”