When Adidas cut ties with Ye, formerly known as Kanye West, over the rapper's antisemitic remarks, the sportswear giant quickly had another problem on its hands: what to do with all of its merchandise associated with Ye, branded as Yeezy.
Adidas says it stopped production of Yeezy products as well as payments to Ye and his companies back in October — adding that the German company does not tolerate antisemitism or other types of hate speech.
But the breakup came at a considerable cost for the brand.
In a profit warning issued on Thursday, Adidas said the decision to not sell existing merchandise is expected to slash the company's full-year revenue by 1.2 billion euros (about $1.28 billion) and its operating profit by 500 million euros ($533 million) this year.
The loss may be even greater if the company decides not to "repurpose" any of its unsold Yeezy merchandise.
Getting rid of unwanted, leftover products or figuring out how to repurpose them is a common problem for the retail industry. Reselling inventory at a discount, donating or upcycling are different options that companies consider.
Experts say Adidas is in a uniquely difficult position to try to make a profit off its unsold inventory given the distinct design of Yeezy products and the reputational damage caused by its designer, Ye.
"There's no way to get out of this gracefully or profitably," Matt Powell, a footwear retail expert who has worked with Adidas, said. "The question is, how can they lighten the bad things that are going to happen?"
Here are a few options for what Adidas could do with its unsold Yeezy products:
Removing the Yeezy label and reselling the merchandise at a discount in its own stores in the U.S.
One option for Adidas is to remove Yeezy-identifying labels and attempt to resell its inventory at its own stores and its retail partners for a discount. That strategy may be Adidas' best bet to turn some profit, Powell said, but repackaging the merchandise comes with its own challenges.
"All of this work is extremely labor intensive and it can only be done one shoe at a time," he said. "So, it's very costly to go through this process."
The Yeezy line is also tricky to refashion because of its distinct designs.
Consider the foam runner — a futuristic slip-on with sculpted lines and a monochrome finish. Adidas could try to sell its own version of the foam runner, but consumers may still associate the shoe with its former designer.
"Will the consumer buy it? That remains to be seen," Powell said. "That's where the biggest question mark is in all of this."
Selling the Yeezy merchandise in smaller markets outside the U.S.
Generally, repurposing products at a deep discount could have consequences for a brand's reputation. So companies look to smaller markets, likely in developing countries, to make a profit without hurting their image in big consumer markets such as the U.S. and Europe.
Adidas may have better luck selling the Yeezy line in smaller markets, said Marshall Fisher, a professor at the Wharton School of the University of Pennsylvania who studies retail operations and supply chain management.
"Somewhere where it's not visible in their primary markets would be one approach they might take," Fisher, who has worked with Nike, told NPR.
He added that removing the Yeezy labels will still be important to this strategy, and there is still a chance that even smaller markets may not be interested in the discounted products given its reputation.
Experts say destroying the merchandise is not a smart move
Although repurposing comes with its own risks, retail experts say destroying the unsold items is not a "viable strategy" — not just because of the financial loss, but the possible backlash.
Companies such as Burberry, Coach and H&M have received heavy criticism in previous years for disposing of wearable apparel.
"We've seen that happen with other luxury brands out there who didn't want to see their product discounted at the end of the season," Powell said.
On the other hand, Fisher said donating the goods "is much better for reputation and for sustainability," and it would be a viable option for Adidas if it decided not to turn a profit.
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