Choosing between bad and worse

Adidas is currently caught between a rock and a hard place, sitting on about $1.3 billion in Yeezy gear after the brand cut ties with Ye (formerly Kanye West) over his repeated antisemitic comments.

Following the split with Ye, Adidas reported roughly $630 million in lost sales in Q4 of 2022 because of the breakup, and the company expects an operating loss of over $730 million this year. As a result, it is cutting dividends until it figures out how to turn things around. During its earnings call this week, Adidas’ new CEO Bjørn Gulden told investors that getting rid of its Yeezy stock is a top priority.

“Getting rid of shoes cannot be that hard. So what’s the problem?”

Without diving too deep into Adidas’ issues in this specific case, there are at least three aspects for them to consider when making a decision.

• It would be unsustainable to burn or destroy the shoes. And Adidas has put a lot of effort into positioning its brand as sustainable over the years.
• If the gear is donated, the pieces would likely generate high demand in the resale market. This option is complicated from both fairness and tax perspectives.
• If Adidas rebrands and sells the items, Ye is still promised a cut of the profits. Rebranding would also incur additional costs, bringing the total to $1.3 billion.

“Why is it so hard to make a decision?”

Many things can make seemingly simple decisions complex. Here are five things that repeatedly create issues for global brands in similar lose-lose situations.

1. Measuring risk. Some parts of the calculation (profit from selling the gear, rebranding costs, etc.) are concrete financial figures. At the same time, other factors (such as financial reputation damage to the Adidas brand) are ballpark estimates that often lack concrete numbers. To compare alternatives when not all costs are in the same “currency” is not easy and requires combining data and human intuition.
2. Estimating outcomes. Uncertainty comes with a cost. It is often worth paying a premium for an outcome you are 100% sure of (e.g., selling the gear) compared to when you don’t know or control the end game (e.g., donating the gear). So, the uncertainty variable adds complexity to the calculation.
3. Organisational perspectives. The number of perspectives around the table is often vast. You will need legal, comms, logistics, accounting, and related teams to make an informed decision. There is often limited overlap among people’s competencies, making it hard to weigh the importance of different perspectives. Also, everyone from CEOs to lawyers is often eager to weigh in on the comms strategy, but only a few will claim to know the legal space. Unfortunately, at the end of the day, it often comes down to individuals rather than competencies.
4. Individual perspectives. Also, you will view the situation differently depending on your personality, training and culture. On top of a decision’s impact on your role and function, we also have different views on what is morally right. For example, some people value fairness highly, while others focus more on making “reasonable” decisions. But also, fair or rational to whom — the customer, the people hurt by Ye’s antisemitic remarks, or Adidas?
5. Looking ahead. When faced with a new situation, the chosen action often becomes a precedent for dealing with similar problems in the future. While it might seem reasonable to act one way today, it could be hard to deal with similar situations the same way in the future. Thinking several steps ahead and testing that the reasoning would still apply if the circumstances were slightly different also adds complexity to the calculation and takes time.

When I started to work with strategic mitigation, I quickly learned how hard it is for those outside the process to understand the complexity of the question. It is easy to be loud and sure about what to do when you don’t have all the information or the responsibility for the consequences. I wrote a bit about that in my post about Russia’s invasion of Ukraine. To become a good strategist, practice finding the unexpected angles that might impact the situation.

“What should Adidas do then?”

I’m now doing what I said above not to — and there’s a lot of information I do not have. However, in this case, one relatively safe option would be to sell the gear (high-certainty action) and donate the proceeds to charity (high-certainty action). It would likely have a small impact on reputation, some positive for donating profits to charity, some negative for a cut of the profits going to Ye.

Bjørn Gulden also touched vaguely on this solution in the earnings call, saying, “If we sell it, I promise that the people who have been hurt by this will also get something good out of this.”