What the hype: Pumped up kicks and the sneaker resale market

On New Year's eve, a sneaker collaboration with German sportswear giant Adidas and gamer Tyler "Ninja" Blevins was released online to much fanfare, selling out in under an hour. While these kicks were not a new model, they were still a first in the sneakersphere. "Ninja", one of the most followed video game players in the world with 22 million YouTube subscribers who watch him play Fortnite online, is the first gamer to design a sneaker, let alone for the brand with the three stripes. The Adidas Nite Jogger Ninja Time, which retailed for US$130, is currently selling at an average 45 per cent premium on online sneaker resale marketplace StockX, with the highest price paid being US$220, about 70 per cent over the sticker price. It's not known how many pairs Adidas made or sold, but in less than three weeks, some 60 pairs have changed hands on StockX.

Just a few months ago, in July 2019, an Adidas tie-up with canned beverage brand Arizona Iced Tea launched a surprise pop-up in New York, unleashing a first batch of shoes at 99 US cents a pair - the price of a can of the brand's iced tea.

The frenzy to grab a pair at that outrageous price resulted in violence and the New York Police Department had to shut down the event.

Sales of Adidas Arizonas on StockX average US$260, 30 per cent over their retail price of US$200. While most recent transactions priced the sneakers much lower, at about US$130, the lucky ones who snagged a pair at 99 US cents could have turned a 100-200 times profit on their purchase. By any measure, a more than decent return on investment.

These two recent limited edition releases, eye-opening for the average consumer, don't even come close to the limits reached by more coveted lines. A Nike collaboration with designer brand Off-White, the Nike Dunk Low Off-White, retailed at a none-too-prohibitive US$170. It has traded on StockX in the range of US$600 to US$1,200 in the four weeks since it was first sold at retail in December, with almost 15,000 transactions at resale. Ever-popular Adidas Yeezys sell in the US$200-US$400 range, still a 50-60 per cent premium over their retail price.

The rise of resale

While the rise of the sneaker has tracked the steady surge of streetwear and "ironic" style in fashion, the resale market for sneakers has boomed. Brands take advantage of the wildfires of social media and collaborations to grow demand for their products. Cynics will scoff at the hot air, but there's no denying that hype is a winning strategy for both brands and resellers alike.

Investment bank Cowen & Co put the global sneaker resale market at US$2 billion in July 2019, and projected that by 2025, the value of the market could triple to US$6 billion.

Private equity (PE) and venture capital (VC) players have already taken note.

"The State Of Fashion 2020", a report by management consultancy McKinsey & Company and Business Of Fashion, said: "While PE and VC investment in fashion peaked at nearly US$23 billion in 2017, the proportion of this investment going to fashion-tech players - from e-commerce platforms to direct-to-consumer (DTC) brands - reached highs of 57 per cent (in 2019), a marked increase from 28 per cent just two years ago."

A company that has been front and centre in fashion-tech is StockX, a source sneakerheads use to find not just the most hyped up and rare kicks but general releases too. Founded in 2016 by former IBM consultant Josh Luber, the Detroit-based start-up now has a billion-dollar valuation, with plans to go public in the near future.

StockX operates with the look and feel of an online stock trading platform. Shoes are allocated "tickers", users put in bid and ask prices, and are able to see last transactions, 52-week highs, how much sale price has fluctuated over the last 12 months, and even a gauge for price volatility.

StockX only sells authentic sneakers that are unworn and in their original boxes, and offers robust authentication to curb rising numbers of counterfeits. It bills a commission of 9.5 per cent and a 3 per cent payment processing fee from each sale, and according to Inc magazine, brokered over US$1 billion worth of transactions in 2019. The New York Times has also reported that StockX handles US$100 million in monthly gross product sales and has overtaken eBay in sneaker sales since 2019.

Other similar platforms have been gaining ground. China's Poizon is also considered a unicorn while another popular sneaker resale marketplace, Goat, has a nine-figure valuation.

Local players like Novelship, a reseller platform, and Saints, an online reseller store, have jumped in. Richard Xia, founder of Asia-Pacific-focused Novelship, believes it has a competitive advantage. He cites OECD reports that show more than 85 per cent of counterfeits come from Asia and, as there is no single trusted platform for the region, a regionally-focused reseller marketplace carries weight. Moreover, the bigger players like StockX and Poizon are busy developing their home markets at the moment, he adds.

Novelship is also working on integrating image recognition capabilities on its platform by the first half of 2020. This will help Novelship, which offers a 200 per cent refund on fakes that have slipped through their authentication process, to identify potential counterfeit items even before they reach its warehouse.

Alternative asset class?

That StockX pitches its platform on a level reminiscent of an exchange for financial instruments also speaks to the view of sneakers as investments. Some have even called it an alternative asset class.

In July 2019, Miles Nadal, a Canadian investor and collector, splashed US$1.2 million on 100 pairs of rare sneakers at a Sotheby's auction with sneaker consignment store Stadium Goods.

Mr Nadal, CEO of investment firm Peerage Capital, sees his acquisitions, which include one of the first Nikes ever made - the Waffle Racing Flat "Moon Shoe" - for US$437,500, as a monetary investment. He calls sneakers "walkable art".

At the very least, they represent a money-making proposition for many enterprising joes who have taken advantage of clever marketing and resilient demand for some models.

Mandeep Chopra, the founder of Limited Edt, Singapore's largest sneaker boutique chain, says: "The level of hype created by working with an influential artist or brand, selling with limited distribution and the perceived value of these products makes the consumer go after such products either for personal use or to make a fast buck."

The top resellers globally, many of whom started selling sneakers on eBay, Facebook and Instagram, have reportedly raked in up to US$200,000-US$300,000 each year in revenue from resale, and have worked their way up the sneaker foodchain.

Benjamin Kickz, 21, made his first million before his 18th birthday selling sneakers to celebrities like DJ Khaled and Drake.

For one Singaporean reseller in his early 20s, making S$1,000 profit on one pair of shoes in a cash-only sale was not uncommon. And while he was trading shoes "on the side", at the peak of business, he even rented warehouse space to stock shoes he purchased for resale. Sales however have since slowed for him, with many more sellers now on board.

Last month, Michael Rho, analyst for personal finance and consumer research firm ValueChampion, wrote that the current iteration of the Yeezy Boost 350, the V2, makes for a good resale commodity due to its regular but limited releases.

With data collected from Goat, Mr Rho found that half of the 10 most commonly resold shoes on the platform were Yeezy Boost 350 V2s and the median price of these was about US$470, a US$250 premium over their retail price of US$220. That's a 213 per cent gain for the seller.

And prices for the same model on Singapore marketplace Saints suggest returns were higher for sellers here, according to ValueChampion.

Mr Rho found the median price of Yeezy Boost 350 V2 in Singapore was S$887, a 254 per cent premium over the local retail price of S$349. He also found that the oldest and latest releases of the shoe cost more, which he attributed to the smaller quantities of older releases and trend factors for the newest ones.

The "drop" tactic

Limiting supply and creating exclusivity are nothing new to marketers in the luxury goods sector. The secondary market for Hermes handbags, for instance, while now much bigger thanks to the emergence of more platforms and more individual resellers, is still very much in business.

What adds to the covetability and resale potential of limited edition sneakers is the sales and marketing tactic employed by brands: the "drop". Popularised by streetwear brands, it takes a page off how Japanese streetwear brands in the 1980s launched their products.

New York-based label Supreme, which originated as a skateboarding brand in 1994 and now has a valuation of over US$1 billion, is often considered the master of the drop. The brand releases limited-edition runs of up to 15 new products every Thursday at 11am. The week's special releases are revealed to the public on the Monday before, allowing the hype to build up in the days before the drop. Adding to the cult-like appeal is the fact that Supreme, in what must be a stroke of retail genius, only has 11 brick-and-mortar stores worldwide.

As Coremedia's Don Hoffman notes in a blogpost: "Their clothing is nothing special, but with the brand's recognisable logo on items people will stand in line for hours, some of them even paying US$1,500 on the resale market for a US$32 T-shirt emblazoned with the rare Brooklyn box logo."

As with any commodity, rarity not only drives up demand but value, he adds, which in the case of streetwear, conveys a sense of status. "It indicates the wearer is not only someone in the know, but the owner of something scarce. And this exclusivity creates fanatical fans."

And fanatical fans will converge wherever there's a drop. In Singapore in July 2017, more than 300 people were already in line outside Louis Vuitton's flagship at ION before 7am, for a chance to get a raffle ticket that would guarantee them entry to the launch of Supreme's LV collection the following day.

Drops have been increasingly employed, especially in the last five years, by sportswear brands like Adidas, with luxury labels like Burberry and Gucci joining the bandwagon. So much so that The New York Times christened 2017 "the year of the drop".

The drop has also proved to be a savvy strategy for sneaker brands in particular. Their extensive back catalogues provide endless fodder to "re-issue" classic designs in original or never before seen colourways, playing on scarcity to drive hype and rustle up interest. Many limited release drops sell out in less than an hour. In some cases, inventory can be cleared in a matter of minutes.

Magnets for meaning

The consistent hype that accompanies the most sought after shoes does pose a question. If sneakers have been a common fashion accessory for the better half of a century (since Converse became the gold standard for basketball players - and teenyboppers - in the 1950s), what makes the current evolution different?

In an article for The Atlantic, fashion historian Kimberly Chrisman-Campbell writes that throughout its 200-year history, sneakers have played an unmatched role to other footwear.

She says: "Sneakers have signified everything from national identity, race, and class to masculinity and criminality; put simply, they are magnets for social and political meaning, intended or otherwise, in a way that sets them apart from other types of footwear."

Limited Edt's Mr Chopra acknowledges that the culture has always been present but "remained somewhat underground until the past decade, when the level of consciousness and awareness has grown to mainstream levels". The push into the mainstream came with the changing faces of influencers driving sneaker fashion, which only accelerated with social media.

For most of their history, sneakers were athlete-focused, with weight placed on performance over style and a similarly aligned marketing narrative. But in the past decade, there has been a marked shift from the athlete as star of the sneaker.

Mr Chopra says: "Sneakers have become a fashion accessory and used not just for sport, and have been embraced by both sexes, artists, celebrities, influencers and even big luxury fashion brands. In the past, the athlete used to be the main influencer. People wanted to be like Michael (Jordan) so they bought Jordans. Today, sneaker brands are working with musicians, designers and other brands."

Influencers like musicians and in the case of "Ninja", gamers, also have a wider reach, making them more friendly to the masses, especially those who aren't as keen on sports.

"You don't have to be an athlete, you could just be a kid that's curious about style," says Nick DePaula, the creative director of sneaker-focused media outlet Nice Kicks, in an interview with Business Insider.

American rapper and producer turned fashion icon Kanye West is often credited with popularising the new wave of sneakers. His concept of merging rap, art and high fashion led to the creation of his Yeezy shoe line. It was first launched with Nike in 2009 and then brought to Adidas in 2013. The Adidas Yeezy Boost 350s are arguably his most popular model, universally recognised even by those with no interest in sneakers.

West's frequent collaborator - Off-White founder Virgil Abloh - has worked with Nike and the Off-White collaborations, donned by many celebrities, are among the most sought after in the market.

Meanwhile, interest in designer Jerry Lorenzo's Fear of God surged after he was selected to design the official wardrobe for Justin Beiber's Promise tour in 2016. His subsequent sneaker collaborations with Vans and Nike were much hyped up, while his own Fear of God line retails in the US$600-US$700 range.

Jonathan Fong, co-founder of Street Superior, an annual sneaker and streetwear convention in Singapore says: "Growth here also has a lot to do with the influence of K-Pop." He cites K-Pop rap superstar G-Dragon and boyband BTS, both of whom have struck up partnerships with sneaker brands and have had successful releases.

Unpredictable business

That's not to say that reselling sneakers is the road to riches for the canny teenager eyeing an easy buck. While the Yeezy's popularity keeps resale prices supported, sneaker companies have not stopped pumping out more releases, which may result in more misses than hits.

Some models of famous collaborations have tanked in resale, bogged down by both the saturation of supply and the unpredictable nature of what shoes will be a hit.

Mr Chopra says: "There is always that risk for both retailers and resellers. Parties have to place their bets on what they believe can sell at a high price and how long they should hold these shoes for. There will always be difficulty in picking the most relevant offerings in the fast-changing sneaker and fashion industry."

A wrong bet will mean resellers have to sell at a loss, unlike retailers whose wholesale prices offer some protection to profit on items that go on sale. That said, Mr Chopra notes: "The crazy prices will last as long as there are people out there who covet these sneakers and can only access them on the resale market."

But does the sneaker boom have legs and have they become a sector unto themselves, or will demand fade and prices retreat?

McKinsey & Co and Business Of Fashion's "The State Of Fashion 2020" report puts Nike squarely up top of its "Super Winners" list. The ranking charts the top 20 players in retail in 2018, in terms of economic profit generated, a measure of value creation. Nike made US$2.98 billion in economic profit for the year, ahead of fast fashion giant Inditex (US$2.91 billion) and luxury supergroups LVMH (US$2.31 billion), Kering (US$1.51 billion) and Hermes (US$1.31 billion).

Retail industry executives surveyed "recognised Nike's drive for innovation across products, categories and business models, along with its ability to connect and build a community with its consumers", the report said.

Going by Nike's performance and investments, the sneaker market is still going strong and by extension, the resale market will continue on its merry way.

At his Off-White Fall 2020 menswear show last week, Abloh pointed to the end of streetwear, showing a collection which was more suits than sneaks. And yet, photos of his highly anticipated take on the Nike Air Jordan 5, unveiled at the Off-White show, are already circulating online and written breathlessly about, months ahead of when they are expected to go on sale.

A brief history of the sneaker

WITH roots dating back to the 18th century, sneakers were originally made fully from rubber. This gave users a relatively quiet footfall compared to other types of footwear, which is in turn how they got their name. The first iteration of rubber-soled shoes, originally called plimsolls, appeared in the late 19th century. A canvas top was added after the turn of the century.

Designed for athletic use, sneakers have been understandably tied to the hip of sports and athletes for much of their history.

Initially finding favour as a tennis shoe, this style cemented its place as a classic when the Converse Rubber Shoe Company approached its salesman, basketball player Chuck Taylor, to endorse its All Star model. "Chucks" remain among the most popular models a century after their debut in 1917.

They were standard-issue trainers for US armed forces personnel during World War II and continued to be used on basketball courts. By the 1950s, All Stars had achieved cult status and were frequently worn by Hollywood legend James Dean, which popularised their use among youth and greasers.

By the early 1970s, technological advances brought about a wave of new sneakers to the market, with many classics like the Adidas Superstar, Adidas Stan Smith and the Puma Suede released around this period. These and other models of the era played an instrumental role in the early hip-hop era as a sneaker of choice among disk-jockeys and breakdancers.

In the UK, sneakers became a popular choice of footwear at football games from the late 1970s. Fans who travelled to continental Europe to support their clubs in competition brought brands like Adidas, Fila and Lotto to the stadium terraces, playing a formative role in UK sneaker culture.

After posting its first quarterly loss in 1984, Nike, then a relatively new player established in 1972 focusing on running and tennis shoes, went "all in" on the popularity of basketball in urban America.

It signed Michael Jordan, then a rising basketball star and a rookie in the National Basketball Association (NBA), to an endorsement deal.

Flashing bold colourways that were previously unseen, Jordan's endorsement of Nike and his first signature model, the Air Jordan 1, gave birth to modern sneaker culture. The street loved the shoes; Nike sold US$70 million worth of them in months.

Even after Jordan retired from the NBA, his shoes remain bestsellers, with Nike's Jordan brand amassing US$3.14 billion in revenue in 2019, and Jordan's cut estimated to be about US$130 million.

Nike and Adidas, the two companies that dominate the US$100 billion sneaker market, have also seen their revenues grow greatly in recent years, with share prices of Adidas doubling and Nike's up 60 per cent in the past two years.