Adidas AG has confirmed that Bjorn Gulden, the outgoing chief executive officer of rival Puma SE, will succeed Kasper Rorsted at the helm of the sportswear giant. His first task: Fill the €1.8 billion ($1.8 billion) hole left by the end of Adidas’s longstanding tie-up with disgraced musician Kanye West. That’s the revenue analysts at RBC estimate his Yeezy label generated for Adidas in 2021, amounting to 45% of the corporation’s net profit.
Last week, Adidas halved its forecast for 2022 net income from continuing operations to €250 million, reflecting the absence of the previously disclosed €250 million of income from the end of the Yeezy contract.
Adidas has stressed that it is the sole owner of all Yeezy designs. That leaves the door open to bringing the shoes back in another guise, and it is examining options for doing so next year. It will also save about €300 million on royalty payments and marketing, and it hopes this will help compensate for the majority of the shortfall in 2023.
But Yeezy without Ye looks problematic for two reasons.
First, some consumers may see the continuity of styles, even without the Yeezy name, as not going far enough in distancing Adidas from its former collaborator. Further backlash could put more financial pressure on the company. On the other hand, those still loyal to Ye may not buy the relaunched designs because they are no longer associated with the star.
Gulden, however, has a track record that may help Adidas find a way forward. He’s rejuvenated Puma since joining in July 2013: Sales more than doubled over the period to €6.8 billion in 2021. He lifted the operating margin to 8.2% last year from 2.1% in 2013. Puma shares have outperformed Adidas by about 62% on a total return basis in the nine years since Gulden signed on.
Puma, formerly controlled by Gucci owner Kering SA, has remained a fashion-forward sportswear company. Unlike Adidas, it has been quick to capitalize on Gen Z’s desire for retro 1990s styles, from chunky sneakers to logoed track pants and cross-body bags. Rihanna debuted her Fenty line with Puma in 2016. It also unveiled a three-way collaboration with fashion house Balmain and supermodel-actress Cara Delevingne in late 2019. Earlier this year, Puma launched an environmentally-friendly yoga collection with her.
While Adidas made progress in recent years in football and running, it has fallen behind in more fashion-focused areas. The loss of Yeezy only amplifies that failing.
Gulden could help re-energize this part of the business, particularly in footwear. For one, he could more effectively mine the Adidas archive. Womenswear is another opportunity for him: It accounts for only about a quarter of sales at Adidas and rival Nike Inc, compared with 50%-60% in the mainstream footwear and apparel market, according to analysts at Redburn. Here Adidas has a tie-up with Beyonce’s Ivy Park, which has yet to live up to its potential.
That’s not to say that Gulden, a former professional football and handball player, can’t do performance sportswear and apparel, too. In fact, he built that side of Puma’s business. He recruited Beyonce’s husband Jay-Z as creative director of Puma’s basketfall operations. And he doesn’t come to Adidas as a stranger: He worked for the company for seven years in the 1990s.
Since Adidas first said it was in talks with Gulden on 4 November, its shares have surged by about a quarter. Hopes of reopening in China have also helped lift the stock.
Still, there’s the matter of scale. Adidas’s sales are almost three time as big as Puma’s, making its turnaround a greater challenge. And changes to Adidas’s range of products, particularly sneakers, won’t happen overnight.
However, Adidas has to learn to live without Ye. Investors will be hoping that the new CEO can transform the company the way he revitalized Puma.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry.