Adidas: Inventory Management During a Product Crisis

Adidas, the German athletic wear firm, suffered a major business shock in October 2022 when it ended its collaboration with rapper Kanye West (aka Ye), the creative influence behind its leisure footwear brand Yeezy. The sneakers had been accounting for a growing portion of Adidas sales and profits, but his outspoken views and controversial behaviour were deemed offensive and generated so much negative publicity for the company that it decided to cut ties. The discontinuation of the Yeezy line meant that Adidas had to deal with a large volume of unsold inventory (estimated to be worth $500 million by the Wall Street Journal) in addition to lost future sales and profits.

This case uses Adidas’ financial reporting over three periods: (1) the pre-scandal profits earned by Adidas from Yeezy; (2) the post-scandal potential losses to be disclosed to, and discussed with, investors; and (3) the subsequent profits earned from selling Yeezy inventory in spring/summer 2023 once it became clear that demand remained robust. Students are asked to analyse (from period 1 reporting) the company’s exposure to a single product; Adidas’ inventory management in period 2 to quantify the scandal-related inventory costs; how much of a liability from Yeezy profits Adidas should set aside (from period 3) to donate to charity. This intended donation was a part of the German company’s strategy to avoid seeming to profit from a product now linked to the rapper’s antisemitic and racist outbursts.
While primarily a financial accounting study, the case touches on issues related to marketing, crisis management, ethics, and leadership.