A deep dive into the business of sneaker reselling, the startups powering it and the reasons why it might not stay lucrative for much longer.
For the average sneakerhead, shoes do much more than just protect the feet and enhance one’s ensemble. Sneaker enthusiasts find thrill in buying unique and limited-edition sneakers and see owning and wearing sneakers as a confidence boost. They not only pay a pretty penny for their expensive kicks but also work just as hard at making that money back by reselling the sneakers for a higher price—typically making an average profit of US$80-US$100 per pair.
All of this should tell us that sneakerheads aren’t just a subculture but rather have strong financial power. So much so that as of 2022, the global sneaker reselling market was worth US$6 billion globally. As with any other industry, many unique sneaker reselling businesses have been created to cash in on the demand for expensive sneakers. Here are three innovative startups that are shaking up the sneaker resale market and an examination of the future of this industry:
dropout
dropout is an Italian retail business that sells limited-edition sneakers and streetwear. The company was founded in 2018 by entrepreneur Kola Tytler. What makes dropout stand out in the resale space is its Hypeanalyzer tool, a free algorithmic tool meant to help people easily find out the price and demand for different limited-edition sneakers and clothes. The tool goes through thousands of shoes and compares them to see which of them has a higher resale value. It does so by factoring in things like consignment rates and discounts. As of 2022, dropout has a yearly turnover of EUR 2 million (US$2.15 million).
Kicks Crew
Kicks Crew is an American B2B2C (business to business to consumer) sneaker marketplace founded in 2008. The company works directly with verified sneaker retailers to ensure that buyers can rest easy knowing that they bought an authentic product. Unlike some other sneaker reselling businesses, Kicks Crew doesn’t sell secondhand products. Instead, it purchases overstock and excess inventory from retailers and then resells them to sneakerheads. As of 2022, Kicks Crew sells the inventory of 20 different multi-store retailers and has raised US$6 million in funding.
GOAT
Founded in 2015, GOAT (Greatest of All Time) is a billion-dollar sneaker reselling marketplace that allows individual sellers to resell sneakers from their collections. The company gets individual sellers to send their products to GOAT’s offices for inspection. Once the product is confirmed to be authentic, it is photographed and listed on GOAT’s website. Its unique selling point is that it offers customers full refunds and insurance for sneaker purchases of over US$300. It even caters to the needs of the sellers by providing them with a refurbishing service for used shoes, helping them sell for a higher price. In 2021, GOAT Group (GOAT’s parent company) raised US$195 million taking its valuation to US$3.7 billion.
Challenges ahead for the sneaker resale market
All three of the sellers above profited during the COVID-19 pandemic because, at the time, sneakers were being treated like a speculative asset that people were actively investing in (as was the case with cryptocurrency and non-fungible tokens (NFTs)). However, as the COVID bubble popped, people weren’t so eager to purchase sneakers.
Research firm Altan Insights looked into the data of resale platform Stock X and found that the average return value of new sneaker collections has dropped by 7%. One of the most recent reasons for this could be the Kanye West situation that made brands like Adidas cut ties with him and one devout Yeezy fan even went as far as to burn his US$15,000 Yeezy shoe collection.
But besides that, there are other factors too. For instance, in October 2022, Nike cracked down on sneaker resellers that use bots to mass purchase the latest collections. To prevent that from happening, Nike changed its sale agreement so that it could cancel orders. The new agreement put limits on how many pairs of shoes could be bought and also began to charge restocking fees (fees charged when someone returns an item for a refund).
Has the sneaker resale market reached its tipping point?
If you are wondering whether the sneaker resale bubble has completely burst, the answer is no. A lot of sneakers still go for high prices; for instance, the Air Jordan 1 (Black and Gold) has a resale value of US$25,000. Other sneakers, like Nike’s 2007 limited-edition “Freddy Krueger” Dunk Lows, have a resale value of anywhere between US$40,000 and US$95,000. It is even expected that, by 2030, the sneaker resale market will be worth US$30 billion.
The sneaker resale market is unlikely to disappear entirely, but it may be entering a new phase where resellers will need to be more strategic in their approach and diversify their offerings to stay competitive. For instance, GOAT has acquired the clothing resale company Grailed to expand its apparel offering. Similarly, Stock X now has a section on its website where it sells products at a discounted rate. However, only time will tell whether these strategies will be successful in sustaining the market in the years to come.
Also read:
- Brands Cut Ties with Kanye: The Downsides of Celebrity Endorsements
- Are Luxury Goods Really Worth It?
Header image courtesy of Envato.
