The Adidas Yeezy Line Expansion Is Working...For Now

The expansion of Adidas AG (ADR) ADDYY's Yeezy brands supply has led to a significant sales increase, up 500 percent in the fourth quarter according to recent NPD Group data. Kim Kardashian West even bragged about the results, but expanding the once ultra-exclusive brand could come with a significant cost down the line.

Oversupply Can Hurt

In its initial releases, Adidas’ Yeezy line was available in extremely limited quantities which in turn drove hype and a healthy resale market. Now that the company is making the shoes far more available for everyone, it's finally meeting demand but killing the resale market, an important component that drove excitement around the shoes. It remains to be seen whether or not it can withstand the pressure of an expanded allocation.

“As we saw with Jordan, oversupply can hurt demand,” Matt Powell, senior advisor at NPD Group told Benzinga.

Powell is referencing the missteps Nike Inc. NKE made with its Jordan Brand, flooding the market with too much supply of shoes that were once almost unattainable, and in turn damaged the brands cache. It's part of the reason that led Adidas to overtake Jordan as the No. 2 selling shoe brand in the U.S. in 2017, but the brand may be falling into the same trap that Nike did. Jordan eventually had to scale back its supply and is working to get back on track, but once you damage a brands cache, it’s difficult to come back from.

"Jordan has not been able to do it yet. [It] can take years," Powell said.

Back in 2017, Powell said Nike let the Jordan business get overheated, which slowed down the liquidations.

“The sentiment on Twitter is that Jordan is not cool anymore, which is overblown. But there is no question that retro Jordans [are] not selling out immediately like they used to,” Powell told Benzinga at the time.

Yeezy Effect

Retro Jordan demand and appeal used to spill over into Jordan’s performance offerings but that ceased when the supply increased. Adidas likely experienced the same effect, when Yeezy’s were not available to purchase outright, demand spilled over into models that looked similar in style like the PureBoost, Ultra Boost and Tubular Shadow.

The Yeezy effect, which is vehemently argued about whether or not Kanye West was the catalyst that sparked Adidas rise in North America, is in danger of going away.

It's always a balancing act. How do you feed an unrequited demand without tarnishing the brand's value and aura?

With the Jordan example hiding in plain sight, it's hard to imagine Adidas isn't taking this precedent into account and has a plan with what they're getting themselves into. It's just a matter of time until we see how this plays out.

Related Links:

Adidas CEO Talks Tariffs, Yeezy Release And The Rise Of 3D-Printed Shoes

Adidas Continues North American Tear With 31% Sales Growth

Photo credit: Isaiah979, from Wikimedia Commons