When Adidas announced on Tuesday that it had ended its relationship with Ye, the rapper formerly known as Kanye West, the company put a price tag on the cost of the move: up to $246 million in profits this year.
Yeezy, a footwear and apparel partnership between Ye and Adidas launched in 2015, will immediately cease operations due to hate speech and actions taken by the rapper, Adidas said in a statement Tuesday. The company will stop production of all Adidas Yeezy products and stop payments to Ye, the statement added.
Costs could run into the hundreds of millions, in part because Adidas could pull Yeezy products from physical and online store shelves, losing revenue from potential sales, apparel industry experts told ABC News. .
What’s more, the severing of ties coincides with the holiday season, when companies haul a large amount of inventory in anticipation of heavy year-end traffic, said Bob Antoshak, a consultant and industry veteran of 30 years, at ABC News.
“If they take products off the shelves, they will have a lot more products to write off than they would in other quarters,” he said. “If it was the first quarter of next year, it wouldn’t be close at all.”
Adidas has faced increasing pressure to sever ties with Ye in recent weeks after the rapper made anti-Semitic comments on Twitter, podcasts and interviews.
Earlier this month, Ye also stoked controversy after appearing in a surprise performance in Paris wearing a t-shirt bearing the phrase “White Lives Matter”, which the Anti-Defamation League called hate speech and slammed it. been promoted by white supremacist groups.
“Adidas does not tolerate anti-Semitism and any other type of hate speech,” the company said in a press release. “Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness.”
The company declined to respond to ABC News’ request for details on the costs incurred by the company spin-off.
Clothing retailer Gap, which also retained a partnership with Yeezy, ended that agreement in September, the company said in a statement Tuesday, adding that it was taking immediate action to remove Yeezy Gap products from its stores. .
“Anti-Semitism, racism and hatred in any form are inexcusable and will not be tolerated consistent with our values,” Gap said in the statement.
Last year, Yeezy was valued between $3.2 billion and $4.7 billion by Swiss investment bank UBS, Bloomberg reported.
The Yeezy line represents about $1 billion to $2 billion in annual sales for Adidas, according to Evercore ISI analyst Omar Saad.
The financial losses suffered by Adidas are also due to ongoing projects that must be abandoned, which likely include agreements already established with manufacturers, said to ABC News Saheli Goswami, professor of textiles, fashion merchandising and design at the University of Rhode Island.
“If Adidas was working with a supplier to develop products for next season, now that existing commercial link has to be stopped,” she said. “The question becomes: who will bear the cost?
Despite the financial blow incurred by a potential loss of merchandise, Adidas minimized the damage to its reputation by severing ties with Ye, said Antoshak, the industry consultant.
“From a business perspective, the longer the relationship continued – and it was a toxic relationship – it would end up costing the company more,” he said.
Adidas, a German company, has come under increased scrutiny due to heightened concerns about anti-Semitism in its home country, Goswami said. In Germany, people who make antisemitic comments online can be prosecuted.
Goswami applauded Adidas’ decision, but said the company shouldn’t expect consumers to grant the decision such success.
“You don’t get a medal for doing the right thing, but you can be harshly criticized if you don’t,” she said. “How consumers perceive you is important to your future business relationship.”