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Distressed Merch: $1.3 BILLION of Yeezy gear...?

What will Adidas do with $1.3 BILLION of Yeezy gear...?

MASSIVE bets on expensive goods rarely pay off before you break even on the investment. It takes time to sell...and A LOT can happen in the mean time that's out of a retailer's control. Cash flow is going to hurt. Ouch.

Is this an extreme example? Yes. But can indy retailers still learn from it? 100%. From my experience, it's risky to front load. It's sneakily expensive to increase the PO to get 'better terms'. I tell my retailers every day to "plan flexibility in how you manage the buy."

Retail Brew said it best:

Like everyone with a Deathly Hallows tattoo, Adidas is stuck with a very expensive reminder that a lot has changed in the last few years. The athletic brand is sitting on roughly $1.3 billion worth of Yeezy gear after cutting ties with Ye, formerly known as Kanye West, for his antisemitic comments.

No one knows how to get rid of it

During an earnings call yesterday, the new Adidas CEO Bjørn Gulden made it clear that ditching its unwanted Yeezy stock is a top priority.

However, the company is sort of stuck between a rock and an antisemitic sneaker:

1) Burning or trashing the gear would be unsustainable.

2) Donating the shoes could create a boom in the resale market.

3) Even if Adidas rebrands the items and sells them, Ye is still promised a cut of the profits.

The most likely option? Sell the kicks and donate the proceeds to charity. Gulden vaguely upvoted this solution in yesterday’s call, saying, “If we sell it, I promise that the people who have been hurt by this will also get something good out of this.”

Big picture: Figuring out how to offload warehouses full of taboo merch isn’t the only headache Gulden is dealing with following the company’s breakup with Ye. Adidas reported roughly $630 million in lost sales in Q4 of 2022 because of the split. As a result, Gulden cautioned investors investors not to have high hopes for 2023, calling it a “transition year.” The company is also cutting dividends as it figures out how to replace its $1.5 billion Ye collab.

Even bigger picture: The company expects an operating loss of over $730 million this year. The last time Adidas reported an annual loss, George H. W. Bush was president and Wayne’s World was still a “new movie” (31 years ago).—MM

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