Sneakers: The $2 Billion Market That’s Worth a Shot?
The price of the most expensive pair of sneakers ever sold? That would be $560,000, the hammer price for the original 1985 Nike Air Jordan 1s worn and autographed by the great man himself. Most investors can more realistically expect to pay four to five-figures for a pair of rare kicks, but the fast-growing sneaker resale market is already valued at $2 billion in North America alone with projected annual growth of 20%1.
Aside from simply buying individual pairs direct from Nike or Adidas, investors can also access this lucrative market through fractional ownership as well as resale platforms which act almost as an asset manager. Let’s take a look at how the market works and what tricks you can use to get in ahead of the sneakerheads.
Market Overview
The sneaker resale market has flourished during the COVID-19 pandemic with consumers stuck at home trawling ecommerce sites for impulse buys. Sneaker marketplace StockX estimates that by 2025 the sneakers resale market in the US could reach at least $15 billion2, while more conservative estimates from Cowen put the figure at just over $6 billion by 2025.
Data source: Lux and Bug 2018, Cowen 2019
Nike Jordans are the top-selling brand on StockX’s resale platform by number of trades, with an average resale premium of 54% over retail prices. Nike ranked a close second by trades, achieving a 46% premium over retail. Interestingly, Nike itself has also performed well over the past year thanks to a stronger focus on their Direct-to-Consumer strategy. Over the past year the stock has surged 44.95% with Q4 2020 revenue coming in at $12.3 billion, beating Wall Street consensus estimates of $11.0 billion by a moonshot.
Key Market Players
Over the last decade the sneaker market has diversified and digitalised, enhancing access and transparency and virtually eliminating counterfeit products from the major resale platforms.
Asset Managers
StockX and GOAT both do the job of an asset manager; they authenticate the product, store it until liquidation and ship it to the buyer. You can buy new releases from retailers, pre-owned sneakers from other resellers, or items directly owned by the platforms. StockX and GOAT have almost similar fees, but StockX is unique among other apps due to its price history feature. It’s worth noting that StockX itself has performed very well recently, achieving a 35% jump in valuation to $3.8 billion earlier this year.
Fractional Ownership
Otis and Rally treat sneakers like stocks. They securitize the item with the SEC, then slice it up in multiple shares that go on the market through an IPO. Both apps focus on the higher-end of the sneakers market, featuring exclusive collections or limited editions. The cost of an IPO share typically ranges from $1-20, making it accessible to all investors and sneaker enthusiasts.
Resale & New Release Apps
Sneaker Con and Kixify are your typical shoe buying apps which focus more on the everyday consumer and retail collections. Their main advantage is that they have the lowest commission (8%) among all reseller apps. Nike SNKRS and Adidas Confirmed represent the apps of Nike and Adidas, where users can enter a raffle to buy new releases at the retailer price.
Investor Tools
Secured is a membership-only platform that helps its users access upcoming releases and limited collections put out by retailers. They provide sneaker bots, early drop links and register you in every raffle to increase your chance of acquiring sneakers at retail prices. Suplexed is another useful resource that provides a release calendar and compares selling prices and offers across 4 different resellers (StockX, Goat, Flight Club, and Stadium Goods).
Potential Risks
As any sneakerhead will know, the biggest challenge to buying rare sneakers on the secondary market is the risk of counterfeits. In 2019 the feds finally caught up with a New York-based counterfeiting gang who had managed to ship a mindblowing 385,280 pairs of fake Air Jordans into the country.
In response to this threat, both resale platforms and big brands are getting tough on authenticity and provenance. Nike’s preferred approach is to file lawsuits against culprits, including websites and social media accounts allegedly selling “falsely labelled” products. In 2020 Ebay launched a new authentication service which covers all sneakers sold on the platform in the US with a value of over $100, and StockX and GOAT both offer similar services. Investors are advised to only buy through reputable sites or stores and to keep in mind one golden rule - if the price seems too good to be true, it probably is!
Liquidity can be another drawback, as well as market sensitivity to economic turbulence as we recently witnessed with the COVID-19 pandemic. One quick example is the Off-White x Air Jordan 5 which was released in February 2020 at a retail price of $224. This quickly soared to $1,699 for a pair of size 10’s before falling to just $653 at the end of March 2020. The most recent sale of this model on StockX fetched $596.
Identifying Investment-Grade Sneakers
The main value drivers are brand, rarity, physical condition, and a little bit of hype. Nike dominates the investment-grade sneaker market thanks to their otherworldly designs, limited edition releases, and high-profile partnerships with everyone from Led Zeppelin and Cardi B to Serena Williams and Anna Wintour.
A great example is their Nike Air MAG Back to the Future which were inspired by Marty McFly’s self-lacing shoes in the namesake movie. Nike released just 89 pairs in 2006 and they now rank as one of the most expensive sneakers at resale with a price of up to $200,000.
Spotting Undervalued Opportunities
So how can investors leverage this potentially lucrative market for consistent returns? Generating alpha with most luxury or collectible assets is often about spotting undervalued opportunities ahead of the competition. This might be easier said than done, but keeping up to date with the latest releases is crucial if you plan to go it alone.
You’ll generally need to purchase sneakers at retail prices to generate the best returns, and you can increase your chances of securing rare releases by entering as many raffles as you can on sites like Eastbay, Foot Locker, and Finish Line. For those who prefer a less risky and more hands-off approach, low-cost fractional ownership with Rally or Otis can be a good way to test the market.