• Bill Newhart

Why the Hype? - The State of the Market

Updated: Oct 31, 2020

By now, it should come as no surprise that the sneaker industry is here to stay. Worn by hip-hop icons and star athletes alike, sneakers continue to establish their relevance in mainstream media, making it harder to go a day without seeing the next collaboration between two mega brands – I’m looking at you, Nike x Dior. Still, what’s perhaps even more impressive than the rising popularity of hyped collabs and new takes on classic silhouettes is the exponential growth of the sneaker market as whole.

Image Credit: The Sports Fan Journal (Left); Nike News (Right)

In 2019, experts estimated the primary sneaker market (general releases from retailers including Nike, Adidas, Asics, New Balance, etc.) was worth more than $100 billion globally. What’s even more astounding is the secondary sneaker market (platforms such as StockX, GOAT, and consigners like Stadium Goods) captured approximately $6 billion of global transaction volume last year alone. Those are some eye-popping numbers….and it doesn’t end there. By 2030, volume on the secondary sneaker market has the potential to more than quadruple in size, largely driven through an increased number of ‘sneakerheads’, investment appetite in the space, and the emergence of sneakers as an alternative asset class.

The most important question to ask through this whole process is “How does something that retails for $150-$300 resell for, at times, more than $1,000?”. One word: Hype. Each day, we’re surrounded by influence, ranging from viral social media content to an increasing media presence captured by sneaker-wearing personas. This effect has created more ‘sneakerheads’ than ever. Coupled with a limited supply marketing tactic imposed by retailers and pioneered by streetwear brand, Supreme, the ‘artificial scarcity’ achieves its desired outcome. Put simply, people want what they can’t have; and it’s in retailers’ best interests to continue this approach.

Source: StockX Historic Pricing (most recent); Cashe

At the end of the day, the ‘artificial scarcity’ approach is a win/win for both buyers and retailers. Some sneaker drops sell out in minutes (if not seconds, in some instances), while others can remain on the shelves for days. That’s valuable information for the retailer and gives the consumer a voice in the process. Further, this information is instantly reflected in the secondary market resale prices. Is this sneaker a must-have “Grail”? If so, it’ll most definitely fetch a higher price in the secondary market. On the flip side, are you tired of Jordan Brand’s seeming 100th iteration of the black and red colorway? Speak out against it with your purchasing power and watch as the resale falls more in line with expectations. I witnessed this first-hand, as the lucky recipient of a handful of Jordan 1 ‘Black Toe’ sneakers at release. “Why sell now, the price will only go up?”, I asked myself. And it did for a time, before quickly coming back down to earth. I’m over it now….I promise.

Source: Stadium Goods (Left); StockX Historical Pricing (Right)

Still, I’m in no way condoning the astronomical prices of the resale market. Personally, coughing up $5,300 for a pair of Jordan 1 Off-White ‘Chicago’s isn’t in the cards for me anytime soon. However, I do respect what the secondary sneaker market has become over the years. As someone with a financial background, the thought of sneakers creating an alternative marketplace is very appealing. And I’m not the only one to notice. More money has flowed into the space in recent years, bolstered by an increasing number of drops and the somewhat uncorrelated, illiquid premium associated with the sneakers – quickly becoming assets – themselves. Why invest in the S&P 500, generating an average historic return of 6-8%, when you can put money to work in some hyped colorways and silhouettes fetching a return more than 400% above retail cost? You can’t argue with those numbers. Nonetheless, while the S&P has a little longer of a track record to work with than the secondary sneaker market, I’m excited to see how the space develops in the coming years and recognize the longer-term potential of this asset class.

Source: Cowen Equity Research 2019

Cover Image: NiceKicks

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