Adidas has ‘really broken trust with their customers’ amid Kanye West saga: Expert

Angeli Gianchandani, practitioner in residence at the University of New Haven, and Williams Trading Senior Equity Analyst Sam Poser join Yahoo Finance Live to detail how many major companies are severing financial ties to rapper Kanye West following his antisemitic remarks.

Video transcript

- Shares of Adidas, as you can see, down just over 3% on the German exchange after the huge news that Adidas had, indeed, finally cut ties with Kanye West, who also goes by "Ye," over a string of anti-Semitic remarks, the company saying this morning in a news release, "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."

Joining us now for a discussion on all this, Angeli Gianchandani, practitioner in residence at the University of New Haven, and Sam Poser, Williams Trading senior equity analyst. Nice to have you both. Angeli, we'll start with you. Why do you think it took Adidas so long to make what appeared to be an obvious move?

ANGELI GIANCHANDANI: You know, I think the financial implications really had their team thinking of how do they resolve this. We're in the fourth quarter. Everyone's racing to get to December. And sales are really stressed. We have the holiday sales. We have aging inventory. And this may have been their priority before they made the decision to really communicate what their brand values are and where they stand.

- Sam, you-- we see the stock off just over 3% today. Adidas without the Yeezy partnership-- what does that look like from a business perspective?

SAM POSER: Well, I mean, I thought when Kanye left Nike that, really, Kanye wanted the keys to the castle at Nike. Adidas decided to give it to him. And probably at the end of the day, it'll be better for Adidas even though, in the short term, likely, you know, they're going to lose some revenue.

- Are you surprised the stock is down just 3%, Sam? And do you think the hesitation had something to do with the CEO transition, which happens early next year?

SAM POSER: Well, I mean, the estimates are that-- I think it's about $2 billion that Kanye brings in. And if that's accurate, I mean, I don't I-- think those decisions are difficult. And, you know, I think, as somebody mentioned earlier, they were one of the first ones to put it under-- to put their agreement with him under review.

- Angeli, messaging-- or reputation-- let's start there-- means everything to a brand. When you take a look at what that messaging then should be from Adidas at this point, since it did take them so long to respond, what are the next steps that they need to take in order to win back maybe some of the customers who don't necessarily trust them right now?

ANGELI GIANCHANDANI: Well, that's what it's all about-- is they've really broken trust with their customers. And now they're really going to have to repair that. Being able to communicate and communicating immediately and getting in front of the crisis is important. And when it comes to crisis management with any brand working with a celebrity, you need to have this in place, crisis management. You can't control what a celebrity is going to say. But you need to know what your action will be. And your leadership needs to be aligned on what messaging will be. Hope for the best. Plan for the worst.

- Interesting. Sam, I want to ask you about another statement that was part of Adidas's announcement. And it said-- it was interesting. That leads you to wonder what's coming. "Adidas is the sole owner of all design rights to existing products, as well as previous and new colorways, under the partnership." We may not know more until November 9, when they report. Does that lead you to believe Adidas may try to keep this brand alive under some different name? And is there a legal challenge ahead?

SAM POSER: I would-- starting with the last question, I don't know. There already are, if you look at the website, some interpretations of some of the Kanye product under the Adidas logo. And I believe that may have been one of the reasons why Kanye was trying-- was potentially trying to sever that relationship prior to today's announcement, anyway.

So yeah. I mean, these agreements that were made, and the one with Nike and so on-- the designs belong to-- they belong to the company, not to Kanye. So, you know, what they're going to do and how that will be received, I think, are to be determined. And my guess is, given that Adidas is looking for a new CEO, that's not going to be an upcoming earnings revelation.

- Angeli, I'm going to put a similar question to you. But what do you think, from a branding perspective, from a marketing perspective, that they should do with the designs that they have from the Yeezy collection and how they should address at them with the public?

ANGELI GIANCHANDANI: You know, I think they need to expand their portfolio. They really need to look to other influencers and other partnerships that can support them. The whole premise with working with him was to really attract a younger customer. Gen Z, Gen X, millennials-- they were attracted to this type of merchandise. If they have a gap in their portfolio, they need to think long-term. And they need to look at a strategy that will be beneficial, not rely on a personality or celebrity. And how they do that-- they'll really need to think about how they really reinvent their in-house design team.

- Angeli, for other companies, let's just say in this sector, what is the lesson here in terms of crisis management?

ANGELI GIANCHANDANI: Crisis management-- your brand is your hero. So that is your voice. And that's your messaging. So if you're going to do any type of partnership, you need to really evaluate the risk at hand. You need to be able to have a plan and understand what that roadmap looks like.

Branding is about creating a value proposition. And when you are messaging anything, everything communicates. So really focus on your brand as the hero. Your product is the hero. And your messaging is what pulls customers in. That's what people are attracted to, your brand values and your voice.

- Sam, you cover Foot Locker in the note that you just put out this morning. You said that Adidas cutting ties with Kanye will have an immediate effect, further increased challenges facing Foot Locker today. What does that look like?

SAM POSER: Well, I mean-- so Nike-- we believe that Nike has reduced their allocations to Foot Locker. We think it's in the $800 million to a billion dollars of cost. And they also plan to expand their business with Adidas over the next few years to about $2 billion. The only sort of instant sellout, rapid sellout category of shoes they had from Adidas was Kanye. So that's a lot of business gone right away. And from what we understand, other parts of Adidas aren't doing quite as well. And as I wrote in the note, you know, Foot Locker has a lot of open to buy dollars to buy things other than Nike. The question was, and probably is more magnified today-- is, do the consumers have the open to purchase when all that new product shows up that's not Nike? And that-- given what happened with Kanye today, that just got a lot worse for Foot Locker.