Why Adidas had to put reputation before profit

Last week, after a chorus of outrage against Kanye West, now officially known as Ye, grew, Adidas finally severed ties with the controversial music artist.

It took two weeks of what even Adidas employees deemed on social media to be “silence internally and externally” for the sportswear brand to say it was ending its lucrative partnership with the Adidas Yeezy product line. During those weeks, the brand came under fire from stakeholder groups for taking too long to take decisive action. 

Meanwhile, in the last month alone, the artist has been suspended from social media platforms Twitter and Instagram (he briefly returned to Instagram but was again restricted and is back on Twitter), had his products pulled from Gap with immediate effect, and high-end fashion house Balenciaga has terminated its association with him. Whilst his racist and offensive comments do not need repeating, the question must be asked: what exactly did he expect? 

The Yeezy Adidas line is estimated to bring in $1.8 billion in annual revenue, so perhaps Ye believed he was untouchable. However, Adidas finally recognized the reputational impact of Ye’s words, and after a “thorough review” of the partnership, the brand ended its association with the musician and stated that “Adidas does not tolerate antisemitism and any sort of hate speech.”

His comments were also deemed as “unacceptable, hateful and dangerous” and that they violated “the company’s values of diversity and inclusion, mutual respect and fairness.” The financial impact of severing the relationship is expected to be a short-term hit of more than $250 million for the firm’s 2022 net income. But eventually Adidas was simply forced to put its long-term reputation and brand equity before profit margins.

Adidas’ delay could have been guided by a real hope that West would apologize for his comments and both sides could continue their financially successful partnership. However, it clearly became impossible to silence the deafening outrage from Adidas’ stakeholders, most notably support groups, customers and employees. The court of public opinion was certainly loud and insistent. 

The lack of apology by the hip-hop star, and the inevitable concern about what he will say or do next, means that any global corporate would be risking the reputation of their brand by associating with him. 

The saga highlights factors that corporates need to be aware of in 2022. First, stakeholder groups hold significant power, urgency and legitimacy, and they need to be listened to. Opposition and challenge can come from the most surprising places, and if you don’t have a means to listen to these voices, you’re immediately on the back foot.

In Adidas’ case, a great deal of momentum gathered around the story when Adidas’ own employees started taking to social media channels to voice their concern. If employees are suggesting they feel ignored or not supported at a time of huge crisis where they work, this can be extremely damaging, and really highlights the importance of employee communication, listening and not undervaluing them as a significant stakeholder group. 

A second learning is that inactivity can be hugely damaging. Adidas may have reached a public conclusion on the issue after some delay, but if it had waited any longer, the lack of commentary on the issue may have done serious long-term harm to its brand and reputation. 

Finally, the Ye debacle has shone a light on the importance of fully vetting any brand endorsement deal and gaining a clear understanding about how aligned any ambassador or partnership is with a corporation’s own values. If there are any disconnects, that could spell real reputational risks in the future.

Whilst controversy can drive sales in the short term, companies or brands that fail to act swiftly when celebrities step out-of-line will get stung, especially if they become over-reliant on a difficult personality. In an era of super-celebrities and multi-million-dollar brand endorsement deals, the Adidas-Ye story speaks volumes about the prime importance of brand equity and reputation, and that no one is beyond reproach.

Alberto López-Valenzuela is senior partner at Penta.