He is one of the most famous artists in the world, and it seems that everything he does courts some sort of controversy, but one thing that is for sure is that Kanye West can’t be ignored.
The 43-year-old is recognized throughout the world for being a rapper, producer, outspoken political activist and even for being a member of the Kardashian family but few would regard him as a businessman who has developed one of the most successful sneaker brands in the world.
The Seed of an Idea
Back in 2007, Kanye found himself on a private jet with then Nike CEO, Mark Parker, when in typical Kanye fashion, out of nowhere he decided to tell the businessman of his billion-dollar idea.
The rapper started to sketch out some rough shoe designs on some scrap paper. Those designs were what would later become Yeezy 1.0.
You might think that the CEO of the biggest sports brand in the world might have just been indulging the overenthusiastic Kanye like when you tell a child that their terrible artwork is a masterpiece, but to everyone’s surprise the CEO bought in to his idea.
The two parted ways, with Parker giving his word that they would take the idea further and would be in touch.
It’s 2007 and Kanye West is just releasing his 3rd studio album, Graduation, off the back of his two biggest selling multi-platinum albums. It’s fair to say that he is hot property at this point and would be an attractive business partner for most companies.
However, he is also prone to the odd political outburst which may pose an unnecessary risk to some businesses. In 2005, he accused the then US President, George Bush Jr, of not caring about about black people in response to the Government’s handling of Hurricane Katrina.
Despite the potential pitfalls, Nike arranged for Kanye to meet with Tinker Hatfield, the designer of their most lucrative shoe, the Air Jordan.
Two years later in April 2009, Air Yeezy was born.
Nike wasn’t going to take on too much risk with the new brand they were experimenting with as the design of the shoe itself broadly mirrored that of their most successful line, the Air Jordans.
It was almost guaranteed that the Yeezy line would be a success as one of the obvious benefits in having a high profile celebrity design a new sports shoe is that they advertise themselves. With Kanye’s connections every prominent hip-hop star and NBA player were going to be wearing the new Yeezy’s at some point.
The Yeezy’s were flying off the shelf which led Nike to make two more releases in 2012 and 2014. Everything seemed to be running smoothly.
However, Kanye increasingly felt frustrated that his business partners had the attitude of – ‘let’s just indulge this eccentric celebrity and hope that everything remains profitable’.
Kanye believed that this product could be bigger than the Air Jordan’s if it had the right commitment from the company. The Jordan’s are Nike’s most lucrative line and were worth billions of dollars to the company. Nike felt that they had indulged Kanye far enough and that he could never compete with their number one line that took years to build.
The business relationship came to ahead when Kanye himself started to demand a royalty on the sales of the Yeezy. Nike rarely gave a royalty to a celebrity line and whilst they did offer to give a certain percentage to charity in lieu of a royalty, it wasn’t enough and West terminated his agreement in 2013.
Ditching Nike for Adidas
Kanye was furious with Nike’s stance and he knew to them he wasn’t a big deal. As soon as the dust had settled, he was on the phone with Nike’s rivals trying to get them on board.
First up was Puma who, in a similar vein to Nike, weren’t really that interested and felt it was all bravado. It’s never been done before so why would a multi-million dollar conglomerate take the unnecessary risk?
In an interview with Charlamagne Tha God, Kanye even remarked that the Puma rep that he met with in order to broker a new business relationship should be fired for blowing off one of the most lucrative deals in the business.
With Puma showing a lack of commitment it looked like the rap star would have to do this by himself. As somewhat of a last resort he contacted German sports giant Adidas to see if they had any sort of interest.
Turns out they did and their agreement would eventually become one of the most historic deals in the industry.
Not only were the European sports manufacturer on board, but they showed the commitment Kanye was craving. The two thrashed out a deal that saw the rapper retain 100% of the Yeezy brand, a yearly marketing fee and crucially it was the first time West would be receiving a royalty for his product – which amounted to 15%.
Michael Jordan receives 5% royalty from Nike.
Hold on for one moment, you might be thinking that if the product was really that good why would Nike and Puma pass on this supposedly huge opportunity?
They are in the business of making money and if there is one thing they know, its sport shoes.
This is where the genius of the Adidas really came into its own. Not only had the German sports group quelled and satisfied their potentially erratic new business partner but they also embarked on a strategy that would later turn out to be an inspired more.
The strategy was to aim for long term success of the Yeezy brand rather than immediate success. This was a counter intuitive approach as given the publicity Kanye was able to bring, short term and quick sales would have seem like the most obvious strategy.
However, Adidas believed that by creating a certain “mystique” around the brand they could drive up demand. In order to achieve this they would go down the route of high-end fashion by attaching a premium price tag to the Yeezy brand and only release batches or “drops” of the product at certain times.
By limiting sales in the short term, Adidas were playing the higher risk strategy of betting on the pent-up demand growing in the long term to similar levels of the Air Jordan.
The strategy paid off…big time.
The “drops” were highly successful and often sold out within minutes as the air of “exclusivity” grew with each release.
Six years later, in 2019, Yeezy did $1.5 billion in sales, a phenomenal achievement when you realise the Air Jordan line did $3 billion. Not only that but after Kanye’s superb negotiating, he actually ended up making more than the basket ball legend as Jordan made “only” $130m compared to Kanye’s royalty of $140m.
With six years Kanye West has grown his Yeezy line so that he now receives more from them than Michael Jordan does for Air Jordans which have been around for decades.
No one saw that coming.
It is often said that there is a fine line between genius and madness, but Kanye’s actions demonstrate the qualities you require to make it in business.
Believe in your product to the point that if no one shares the vision, then they need to go. Everyone needs to be on board.
Don’t compromise on things even if you are not the “expert”. The more input you get from “experts” the sooner the product is no longer yours and you will find yourself working on something you don’t believe in.
Be grateful for those who have helped you along your journey even if you have disagreements along the way. In this interview Kanye believed that he was due some bad karma for the way he treated Nike after the fallout but he now recognises the tremendous opportunity they gave him.