German apparel giant Adidas has had a hard time figuring out what to do with $1.3 billion worth of Yeezy shoes after parting ways with Kanye West. The musician designed the shoes himself, but just a few years later, his partnership with the company fell apart in late 2022 following a string of antisemitic comments.
After spending months trying to decide what to do with a big pile of extra shoes, including considering burning them, Adidas’ chief said the company is taking a more altruistic approach—donating them to non-governmental charity organizations.
“What we are trying to do over time is to sell parts of these goods and then donate to organizations that help us and that also have been hurt by Kanye’s statements,” CEO Björn Gulden told investors Thursday during Adidas’ annual shareholder meeting held in Fuerth, Germany. “Burning is not the solution.”
Gulden added that a number of NGOs that Adidas had spoken to aligned with the company’s thinking about not burning the shoes, but didn’t name any of them. He highlighted that there was no clear-cut timeline yet for when the Yeezy products would be sold.
“When we will do that and how we will do that is not clear yet, but we are working on those things,” Gulden said.
Adidas ended its partnership with West (who now calls himself “Ye”) in October, after the rapper made a series of public antisemitic remarks. The company faced massive financial pressure as a result, as Yeezy shoes were a lucrative part of Adidas’ business. In the last three months of 2022, the company’s net loss amounted to $540 million, attributed in part to the glut of unsold Yeezy shoes, and forecasted its first annual loss in 2023 linked to West’s shoe brand.
When contacted by Fortune for a comment, representatives for Adidas provided a part of the transcript where Gulden told shareholders about its Yeezy inventory on Thursday.
It’s not easy for Yeezy
Even after Adidas stopped selling Yeezys, demand remained high, and customers began to treat them like collectibles. The CEO of high-end merchandise reseller Impossible Kicks, John Mocadlo, noted a 30% spike in Yeezy sales from October to November last year when the Adidas partnership ended, CNN reported.
The company has mulled over several options for dealing with their remaining Yeezy inventory in recent months but none were ideal. Burning the shoes would “raise sustainability issues,” Gulden said during Adidas’ earnings call in March. Stitching over the Yeezy brand label would not be “very honest,” and donating the shoes to disaster-struck regions would mean the popular yet controversial product would “come back again very quickly” owing to its high market value among buyers, according to Gulden.
The company said that whatever course of action it would take to get rid of the remaining Yeezy gear would be done to help the communities that were targeted by West’s offensive comments.
“I can promise you that the people that have been hurt by this will also get something good out of it and get donations and proceeds in different ways, shapes or forms,” Gulden said in March about what Adidas will do if it goes ahead with selling the Yeezy shoes.
The financial impact of giving away proceeds to charity is unclear, as Adidas didn’t clarify if it will redirect all that it makes from selling some of the Yeezy gear. But if Yeezy products indeed accounted for 15% of the company’s net income as per analyst estimates reported by the Associated Press, the donation could continue to hurt the company in coming months.
West’s Yeezy line isn’t the only problem Adidas is facing this year.
In March, the company said it was ending its partnership with Beyoncé after poor merchandise sales on their collaboration called “Ivy Park.” The German company reportedly paid the pop-star $20 million per year as part of the deal. It also saw a sharp decline in China sales—down 36% in 2022 compared to 2021 due to a difficult market environment to navigate and product returns by customers, the company noted in its earnings report.
When it comes to West, Adidas is now facing a class action lawsuit from its investors accusing it of turning a blind eye to the rapper’s harmful conduct, and not taking the required precautions to limit the financial bleeding from cutting West’s partnership.
For its part, the German sportswear company has already begun efforts to rebuild itself. Gulden, who was appointed in November after Adidas cut ties with West, called 2023 a “transition year” so the company can regrow.
“Adidas has all the ingredients to be successful. But we need to put our focus back on our core: product, consumers, retail partners, and athletes,” the Adidas chief said in a March statement.