No. 6: Ye Loses the Fashion World
For Ye, the musician and artist formerly known as Kanye West, 2022 has been a year of turmoil.
Three major multimillion-dollar collaborations were extinguished, his divorce from Kim Kardashian was finalized and a firestorm of criticism was directed at him for repeated controversial remarks, including antisemitic ones.
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His deals with Gap, Adidas and Balenciaga have all dissolved in the past three-and-a-half months, with major impact on the businesses of the U.S. retailer and German activewear brand. No longer considered to be among the more versatile entrepreneurs whose golden touch could benefit various products and industries, the 24-time Grammy winner found himself ostracized from the fashion industry that he had tried for years to be taken seriously by.
Where things go from here for the beleaguered celebrity is anyone’s guess. There have been rumblings that Ye is trying to get his design game going again. Making any inroads with major chains would be almost impossible at this point. Major retailers like Foot Locker canceled orders for his collaborative designs in response to the recent controversy.
As for the prospect of the musician teaming up with another brand or trying the direct-to-consumer route, Morningstar equity analyst David Swartz, said, “Yeah, good luck with that. At this point, he’s completely toxic. Who is going to work with him? I don’t think anybody…is going to want to go into business with somebody who praises Adolf Hitler in interviews.”
Attorneys for Ye at Cadwalader, Wickersham & Taft LLP did not acknowledge requests seeking an update about any outstanding legal disputes related to the three collaborative projects that ended this year.
Wassner Management Group’s chief executive officer Cole Wassner also doubted the likelihood of a Ye comeback. “It would have been one thing if he had come out after everything [happened] and apologized. But he’s doubled, tripled and quadrupled down and he keeps still going down the same path. He is anti-matter. 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 takes on the baggage of neo-Nazism at this point.”
The musician, who revealed a bipolar disorder diagnosis in 2016, has faced controversy through the years but that intensified this past fall. After walking in Balenciaga’s spring 2023 show in Paris in October, Ye later hosted a surprise show for his YZY Season 9 collection in the 8th arrondissement. There he wore a T-shirt imprinted with “White Lives Matter” and described himself as unmanageable in an opening monologue. He also dressed models in T-shirts with a photo of Pope John Paul II on the front and “White Lives Matter” on the back.
He faced a firestorm of public backlash. The artist responded with a litany of attacks directed at fashion editors, former friends and even luxury mogul Bernard Arnault. After being suspended from Instagram and Twitter for violating the platforms’ respective policies on hate speech, Ye said he had agreed to buy the 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 nixed that plan.)
In the weeks that followed Endeavor’s chief executive officer Ari Emanuel, in an op-ed in The Financial Times, called on the Grammy winner’s business partners to drop him. CAA later parted ways with the musician, as did MRC, which had wrapped up a documentary about him. Vogue, which had featured the musician and Kardashian on its April 2014 cover, also publicly distanced itself from the entertainer.
After initially taking the matter of its partnership with the Yeezy brand “under review” in early October, Adidas officially revealed its decision to stop working with Ye in late October. The athletic juggernaut did so then amid mounting public pressure and calls for a consumer boycott. By ending what was supposed to be a 10-year partnership, Adidas took a significant financial hit. The company stated that it stands to lose up to 250 million euros in net profit as a result.
Last year, Yeezy products helped Adidas ring up nearly $2 billion in sales, or about 8 percent of the company’s total revenues, according to Morgan Stanley.
Morningstar’s Swartz suggested that in the long run the damage to the brand and the 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 upward of $100 million and will likely reduce staff to save other costs, he said the brand also has other celebrity endorsements, including with Beyoncé’s Ivy Park line and Pharrell Williams, which could help it make up for lost sales. Adidas also could sign new ones.
However, the fourth-quarter impact on Adidas could be “pretty substantial” if last year’s plan was any indicator — 10 of the 65 Adidas Yeezy drops were released in that time frame, he said. “In 2023 and beyond, they can make up for it to some degree,” Swartz said. “This probably isn’t the biggest problem for Adidas right now, despite the media attention. The biggest problem for them is China, where their sales have fallen off a cliff,” he said, citing COVID-19, slave labor issues and the loss of market share to native brands as reasons why.
Although Adidas made it clear that it will no longer work with Ye and will no longer use the Yeezy brand, some Yeezy designs are expected to surface in the months ahead under the Adidas logo. In an earnings call, Adidas chief financial officer Harm Ohlmeyer noted that the company is the sole owner of all design rights registered to existing product. “We intend to make use of 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 under the Adidas logo could be tricky since some of the allure of the styles might not resonate as much given Ye’s public statements. “And they do run the risk of having some public relations issues if it looks like they’re still putting out sneakers that were designed in collaboration with somebody who made a lot of antisemitic statements,” he said.
The father of four’s and Adidas’ problems were compounded late last month when a Rolling Stone article alleged that more than 12 former Adidas and Yeezy staffers said Ye had created a toxic environment for those who worked under him on the Adidas-Yeezy line. The staffers said management was aware of the rapper’s behavior, which reportedly included showing porn videos at meetings and, again, making antisemitic comments.
Adidas was only one of the brands that moved to distance themselves from the controversy. As the musician’s public comments became more outrageous, Kering in late October said Balenciaga had parted ways with Ye and the brand removed from its website the image of him walking in its spring 2023 show. Accentuating the separation, Kering told WWD at the time that the company did not have any plans for future projects related to the artist. Balenciaga designer Demna — who was engulfed in his own controversy earlier this month related to two advertisements by the French fashion house — had also worked with the musician on the Yeezy Gap Engineered by Balenciaga line, as well as several of Ye’s own projects.
Even before the backlash against him had begun, Ye and his attorneys 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 alleged the retailer “abandoned contractual obligations” — namely for not selling YZY products in its stores and for not opening stores to sell Yeezy items.
After his controversial comments, Gap in late October issued a statement referencing how in September it had said it was ending the Yeezy Gap partnership, and how its former partner’s recent remarks and behavior further underscored why. It also removed Yeezy products from its stores and shut down the YeezyGap site at that time.
That separation was said to have left Gap with nearly $102 million worth of unsold merchandise, according to a source familiar with the situation, who requested anonymity. There was said to still be between 8,000 and 12,000 units of about 73 styles available last month that were being shopped around unsuccessfully to major discounters, including Burlington, T.J. Maxx, Citi Trends and Ross Stores.
Asked last month what will become of all the Yeezy inventory, a Gap spokesperson referenced a transcript of its third-quarter earnings announcement and said, “We don’t have anything more to share beyond that.” The company’s third-quarter earnings call noted that “Gap brands will be up against an approximate one point headwind as we anniversaried Yeezy Gap sales last year that will not be in the base this year.” That was among the factors that the company cited as to why fourth-quarter sales could be down by mid-single digits year-over-year.
Gap also noted how gross margin in the third quarter was 37.4 percent, deleveraging 470 basis points versus last year, inclusive of 130 basis points of deleverage related to a $53 million Yeezy Gap impairment charge.
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