Sole, Strut And Tears: A Billion Dollar Industry
Giulia Lina Callegari and Charles Bleachon 04 November, 2015 at 12:11
In recent years, the perception of sneakers has undergone a paradigm shift and expanded its reach from the world of workout staple to the lofty heights of de rigueur fashion necessity. With the role model status of professional athletes and the omnipresence that sneakers hold in today’s zeitgeist, sneaker market has grown at an alarming rate. In addition, it has also spawned a resell market worth just north of $1 billion in the U.S alone according to data website Campless.com. By all accounts, this is a global phenomenon, with the basketball market growing in China and sneakers finding their way into Europe through established fashion houses, the global resell market is starting to catch up with that of the U.S.
This market is a direct result of the Nike pioneered idea of “limited releases” in which a particular model of shoe is deliberately produced in smaller quantities than the forecasted demand so as to entice but never quite satisfy the consumer. This strategy of limiting supply creates a gap between what a shoe costs (at retail) and what it’s worth, this dichotomy is readily exploited by resellers and begrudgingly used by customers who failed to buy the shoes upon first release.
Unlike most apparel, sneakers have the potential to increase in value over time, for example, the Nike Yeezy Red October was originally sold for $250 at retail and now commands an average resell price of $5,000 on sites like Flightclub.com. The propensity of sneakers to increase in value have caused some to compare them to stocks, it is important to note that whilst the value of a stock is dictated by its perceived value, on the other hand, sneakers draw almost all their value from exclusivity.
With this in mind, the sneaker resell market is far closer in nature to the illegal drug trade. Much like how the supply of cocaine is highly limited by Latin American cartels. Nike, who along with its subsidiary brand Jordan hold an almost complete Monopoly, accounting for 96% of the entire resell market. On the other end of the spectrum, much like a local dealer the barrier for entry is very low, all that is needed is some stock and with most of the business being conducted over Ebay, or specialist sites like Kixify.com, finding customers is easy. Much like narcotics, prices are in no way regulated and fluctuate wildly based simply on perception. Even the violence of the drug trade is mirrored by the sneaker business with several reports of people being robbed and even killed for their shoes. However, much like the stock market example, there are several key factors that distinguish Nike from drug lords, namely the legality and lack of health risks associated with sneakers.
But why has Nike allowed this to happen? For every sneaker resold above retail the company is losing out on potential revenue, something they could easily change by either raising the average price of their sneakers or by releasing them in larger quantities. The truth is that despite losing money to resellers, Nike still benefits from the resell market. In most part, this is due to their unparalleled ability to forecast demand, it is estimated that only about 4% of all Jordan’s (the most popular shoe on the secondary market) are resold.
On the rare occasion when Nike fails to forecast how popular a shoe will be and it sells out immediately, which was the case with the “What The LeBron XI”. The interest that the shoe created was then leveraged to drive sales for the next model, which was released in far larger quantities. In short, Nike allows the secondary market to exist because it enables the brand to sell millions of 20-year-old sneakers a year without having to pay for advertising, PR, discounts or sales. In the face of all that $1 billion doesn’t seem all that much.