Why The Gap Is Betting Its Future on the Kanye Effect
A deal with Kanye West worked for Adidas. Can it save Gap from bankruptcy?
Imagine the collective sigh of relief from Gap Inc.’s employees and shareholders on June 26. After a Bangladesh factory scandal, a bungled collaboration with designer Telfar Clemens, and employee layoffs and furloughs, their stock price spiked 42% in one day — its highest swing since 1980.
Earlier that day, the New York Times reported a 10-year licensing deal between Kanye West’s Yeezy and Gap. Gap hopes its upcoming Yeezy Gap line will generate $1 billion in annual sales within five years. That’s a lofty goal: Gap’s brand generated $4.6 billion in global revenue in 2019, and Gap Inc.’s net sales — including revenue from its brands Old Navy, Banana Republic, and Athleta — were $16.4 billion. If their projections pan out, Yeezy sales would account for over 6% of Gap Inc.’s overall revenue.
In addition to royalties, should Yeezy Gap meet revenue targets, Gap will grant Yeezy 8.5 million common shares. At its current stock price of $12, that stake would be worth just over $100 million. West reportedly takes around a 11% cut from Yeezy’s collaboration with Adidas, Adidas Yeezy, which since 2015 has released apparel as well as the popular Yeezy Boost sneaker line. Forbes estimates that Yeezy directly sold $1.3 billion worth of footwear with Adidas in 2019.
Adidas’s CEO Kasper Rørsted has acknowledged Yeezy’s intangible, all-important ability to generate hype, known as the Kanye Effect.
The morning of the announcement, West primed the Yeezy media ecosystem to amplify the Gap news the same day it broke, labeling the pseudo event #WestDayEver. He shared an unreleased music video filmed in 2005 for his song “Spaceship,” set in a store with Gap’s signature blue tones, inspired by his experiences working at Gap retail as a 15-year-old.
West simultaneously released his Yeezy Adidas Foam Runners at his Yeezy Supply e-commerce store, which sold out at his site in minutes. He teased a new song, which released June 30, 2020, entitled “Wash Us in the Blood.” He also reminded followers of his upcoming collaboration with Dr. Dre, a sequel to his latest album Jesus Is King. And in case that wasn’t enough buzz, he also shared the trailer for a new animated show, Kids See Ghosts, which West made with artists Kid Cudi and Takashi Murakami.
After its 42% peak earlier that day, Gap Inc. stock closed out the #WestDayEver up a still-respectable 19%.
A Tale of Two Brands
For West, it was the best of times: Kanye started the 2010s by releasing an album that Rolling Stone would rate the best of the decade. He would go on to win nine of his 21 Grammys this decade.
West’s early attempts to establish himself as a high-fashion giant resulted in some fumbles; his first runway show at the 2011 Paris Fashion Week left critics disappointed and confused. But he found a better audience in commercial fashion. In 2013, West abandoned his Air Yeezy sneaker deal with Nike to launch a Yeezy partnership with rival Adidas, where he could earn royalties and was afforded more creative control over product design. The Adidas Yeezy deal was successful enough to further expand in 2016. He declared he was $53 million in debt, pleaded with billionaires like Mark Zuckerberg and Larry Page to invest in him, then became a billionaire himself.
Gap used to be the brand that Sharon Stone wore to the Oscars, and that celebrities like Spike Lee, Madonna, and Missy Elliot would endorse.
For Gap, it was the worst of times: it started the 2010s with its own interpretation of the New Coke branding fiasco, shuttering its universally panned new logo within a week. Gap used to be the brand that Sharon Stone wore to the Oscars, and that celebrities like Spike Lee, Madonna, and Missy Elliot would endorse. One of Gap’s campaigns even took on the impossible task of making khakis cool by highlighting figures like Pablo Picasso, Amelia Earhart, and Frank Sinatra dressed in them. As Marker’s Rob Walker writes, “It fell into a no-man’s land in a retail landscape filled with highs and lows: retailers like Target and Uniqlo dominated basics, while brands like Zara and Madewell captured the imagination of women who wanted fashion. The Gap, in trying to become all of those things, eventually became none of them.”
But the Gap’s it-factor didn’t last — share prices have lagged for the last decade, peaking at $46.95 in 2015 before sliding back down to around $15 at the start of 2020. In 2019, the brand saw a 5% decline in same-store sales, and closed 141 locations globally. The Gap brand, like many retailers struggling to weather the pandemic, may be close to shuttering its stores.
For Gap, the Yeezy surge is a reprieve from the bad news with the immediate infusion of Yeezy talent, led by designer Mowalola Ogunlesi, and the added cultural cachet.
Why Gap is going all in on the Kanye Effect
Gap’s bet is about more than a fresh infusion of design talent, however — partnering with Yeezy has been financially lucrative for brands like Adidas and Nike. Yeezy Adidas sales make up half of Adidas portfolio brand Reebok’s sales.
Adidas’s CEO Kasper Rørsted has acknowledged Yeezy’s intangible, all-important ability to generate hype, known as the Kanye Effect. Like the similarly-named iPod Halo Effect, in which iPods (and subsequently iPhones) helped Apple sell more Macs, the Kanye Effect draws consumer attention and dollars to products in the same brand space as Yeezy. In Adidas’s case, business has surged since the Yeezy Adidas deal. Some speculate that customer fervor for Yeezy products helped Adidas sell more of their other shoes.
Promoting eyebrow-raising apparel and runway fashion are a part of the standard high fashion playbook; glitzy fashion shows serve primarily to build prestige and brand.
One expert, NPD Group’s sports industry analyst Matt Powell, argues against this, denying the existence of the Kanye effect and claiming in 2017 that Yeezy had no effect on Adidas sales. Despite reporting that Yeezy Boost 350 v2 was one of the top 10 shoes to have made the most money in fiscal 2018, bolstering sales by 6x, he remains skeptical of its sustainability.
Powell claims that the demand for Yeezy Adidas will wane as Adidas releases a greater volume of product, pointing to decreased sales of the Jordan brand after the market was saturated. Powell believes this applies to Gap as well, and the novelty will wear off after a single release.
But for West, this novelty is core to Yeezy’s strategy. Promoting eyebrow-raising apparel and runway fashion are a part of the standard high-fashion playbook; glitzy fashion shows serve primarily to build prestige and brand. They’re meant to stoke aspiration, which then encourages people to buy the mass-produced apparel and accessories. It’s not difficult to imagine West and his team finding ways to fit Yeezy Gap’s mass-produced clothing, which consumers will be able to buy in stores, among the spectacular, experimental, runway items in their Yeezy Season fashion shows, and perhaps alongside an album debut.
Gap in the Yeezy ecosystem
One of West’s advantages is his growing commercial ubiquity. As he made clear in his Gap announcement, his team has multiple projects in the works at any given moment. For example, consider West’s weekly Sunday Service shows (wildly popular before the pandemic), operas, and prospective Showtime series, all stages where he could showcase his latest products. There are also his purely speculative innovations, such as his social housing project Yeezy Home, as well as the rumored Yeezy toothbrush.
His business ecosystem serves as its own nonstop high-fashion runway show. It’s made West and Yeezy’s brand so powerful that even boring trademark and patent news makes headlines—like when he filed a trademark for a Yeezy beauty line and for Sunday Service merchandise.
As Trapital’s Dan Runcie writes, what makes Yeezy Gap so notable is that it resembles a private equity deal, a model pioneered by Jay Z making a deal with Sprint for $200 million in equity of Tidal. But like Adidas did with its NMD and Boost lines, Gap will need to maintain and improve its core products to ensure it can make the most of the Yeezy Gap deal.
In 2015, West said, “I’d like to be the Steve Jobs of the Gap.” His role is obviously far from identical to Jobs’ at Apple, but his mission will be the same — to breathe new life into a once-magical brand. The danger, however, is the line could end up being another boon for West, but still leave the mass retailer in the same wounded position.