• by Sarah Mahoney  @mahoney_sarah, March 9, 2023

Adidas, already in the middle of a massive brand reset, is sitting on a mountain of unsold shoes. And the company, led by new chief executive officer Bjørn Gulden, still doesn’t know what to do about the Yeezy inventory.

In a conference call discussing the company’s fourth-quarter results, Gulden laid out the options.

Destroying the shoes, representing about $1.3 billion in sales, “is a sustainability issue. And if you sell them, you hurt the brand. It’s a complicated choice, which is why we haven’t made a decision.”

Gulden said that while many people have suggested donating the shoes to those in need, like earthquake survivors in Turkey, they don’t understand that these are “not normal shoes.” Due to the history of the brand, he said, the shoes would likely resurface on resale sites. And the goal of terminating its relationship with Ye, formerly known as Kanye West, was to keep the shoes out of circulation following his repeated antisemetic remarks.

No matter what the company does, “there are reputation risks,” Gulden said. Another option is selling the shoes at cost, so the company doesn’t profit from the disgraced rapper’s designs. “Or we could sell them with a small margin and give that money away as donations,” he said. Meanwhile, the company will continue to look for solutions that “damage us the least and do some good.”

Gulden called Ye “one of the most creative people on the planet. This is very difficult, sensitive situation, and it’s very sad that it is falling apart.”

Gulden, who started as CEO in January, acknowledged that the company has other problems, too. The company’s performance products continue to excel, gaining 19% last year. But it struggles in lifestyle, where sales have fallen about 5%. And Adidas has been significantly challenged in the U.S., “where discounting is a drug.”

Gulden disputes criticism that Adidas hasn’t brought enough into product innovations. “But in lifestyle, creating trends, creating stories, tweaking our archives -- we’ve been too slow. It has to do with empowering people to be more creative.”

COVID didn’t help. “Some of the street culture…hasn’t been out there.” Adidas celebrities, including Beyonce and Pharrell Williams, “haven’t been at festivals, haven’t been on tour. The places we can create brand heat have been hampered.” Now, he said, “we have all the ingredients, with everything we need to create that heat.”

This year will be a massive reset “to clean up a lot of the old mess.”

The company anticipates revenue to decline in the high single digits due to too much inventory in the U.S., Europe and the Middle East and continued economic uncertainty. It expects an operating loss of about $740 million.

Gulden also announced management changes, including the departure of Brian Grevy, executive board member of Adidas AG, responsible for global brands. Gulden will assume all brand and marketing responsibilities, which the company says will “enable the required fast decision-making across all business units and departments.”

Gulden told investors his goal -- without a specific deadline -- is to return the company to double-digit sales growth.

Observers are cautiously optimistic and think Gulden, who joined Adidas from Puma, may be bringing his A-game. “Gulden is focused on increasing speed/agility, enhancing relevance via global creation centers, shifting focus toward wholesale, improving marketing and strengthening culture,” writes Jonathan Komp, an analyst who follows the company for Baird.

“The business continues to be in flux,” writes Tom Nikic, an analyst who follows Adidas for Wedbush. “And while Gulden is highly capable, it will likely take some time to execute on his vision. We remain in wait-and-see mode.”