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Why Adidas has 'really broken trust' with consumers amid Kanye West fallout: Expert

After weeks of silence, Adidas (ADDYY) has officially cut ties with rapper Kanye "Ye" West following his antisemitic remarks— but is it too little, too late?

Adidas "has really broken trust with their customers," Angeli Gianchandani, practitioner in residence at the University of New Haven, told Yahoo Finance Live (video above), stressing that the German brand will now have to repair its reputation.

"Being able to communicate immediately and getting in front of the crisis is important," she continued. "Your brand is your hero. That is your voice. That's your messaging. So if you're going to do any type of partnership, you need to really evaluate the risk at-hand. ... Branding is about creating a value proposition — anything and everything communicates."

Gianchandani surmised that current financial implications played a factor in the company's delayed response, explaining: "We're in the fourth quarter — everyone's racing to get to December and sales are really stressed. This may have been their priority before they they made the decision to really communicate what their brand values are and where they stand."

Rapper Kanye West makes a point as he holds his first rally in support of his presidential bid in North Charleston, South Carolina, July 19, 2020. REUTERS/Randall Hill
Rapper Kanye West makes a point as he holds his first rally in support of his presidential bid in North Charleston, South Carolina, July 19, 2020. REUTERS/Randall Hill (Randall Hill / Reuters)

Adidas severed ties with Ye on Tuesday morning after the rapper-turned-designer continued making antisemitic comments and stated that the company couldn't afford to terminate their partnership.

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In a statement, the company wrote: "Adidas does not tolerate antisemitism and any other sort of hate speech. Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness."

Adidas' decision follows a slew of high-profile brands taking a stand against the controversial rapper, including Balenciaga, Gap, CAA, and others.

Adidas noted that it would miss out on $250 million in profits this year as a result of the decision. The stock fell 3% on the news and is down about 65% year-to-date.

The company's lucrative Yeezy arrangement began in 2013 and was originally set to expire in 2026. Morningstar analyst David Swartz estimated annual Yeezy sales to add up to roughly $2 billion — making up approximately 10% of Adidas' total sales.

However, not all analysts think the relationship's demise is such a bad thing.

"At the end of the day, it'll be better for Adidas," Sam Poser, senior equity analyst at Williams Trading, said, citing the volatility in Ye's behavior.

At the same time, Poser noted that the company will experience short-term revenue losses. Coupled with inventory buildup, profit warnings, and underperformance in greater China, the brand will have a long road ahead.

"This is coming at a tough time for the company," Bernstein Analyst Aneesha Sherman told Yahoo Finance Live recently. "They had their second of two early earnings releases and guide-downs for the year. They are expecting Q4 to come in negative profitability anyway... and this $250 million will further reduce the bottom line for Q4."

Moving forward, Gianchandani suggested that Adidas should focus on expanding its portfolio, enhancing its in-house design team, and nabbing other influencers and partnerships to cater to the Gen-Z consumer.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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