The Relationship between Sneaker Trends and Human Psychology
I’m sure you have heard it a thousand times, trading psychology is just as important as company fundamentals when it comes to trading stocks. I would even argue that psychology is more important: at the end of the day, trends are entirely dictated by a shareholder’s perspective of an asset’s future.
At dire times like right now, more people than not let their emotions get ahold of their trading practices. A perfect example took place at the start of this month: as more and more traders gave into the widespread panic over COVID-19, it created a snowball effect which was then temporarily reversed by the $1.8 billion stimulus package.
“Trends are entirely dictated by a shareholder’s perspective of an asset’s future”
The interesting part is, human emotions are also reflected in sneaker prices.
Sneaker trends can generally be divided into four distinct phases, which each reflect varying consumer behavior:
Phase 1
The first phase is characterized by unusually high resale prices, where consumers are looking to purchase the sneaker prior to the release date. These consumers often have connections with manufacturers or sneaker company employees, and are thus able to have access to the shoe before the rest of the general public.
The increase in sneaker prices is contributed to the consumers’ desire to get early pairs in hand and/or their prediction that resale prices will jump even further post release. Days before the release date, resellers with early pairs start to panic and sell off their inventory before the new batch enters the market. They predict that this increase in the accessibility of the shoe will lower its resale price, which ultimately dictates the sharp decrease in shoe prices.
Phase 2
These popular sneakers are extremely hard to acquire for retail. Online releases are nothing short of chaotic: people around the world are constantly refreshing sneaker websites and frantically checking out, with the slim chance of outpacing other consumers by mere seconds. At physical stores, they enter their names in raffles, with just as small of a chance of being able to purchase the sneaker for retail.
The majority of consumers who are unlucky on release date have to resort to secondary resell markets. These consumers not only include those looking to purchase for personal wear, but also those who are looking to invest in these sneakers. With this influx of demand, the prices shoot back up in the second phase. It is important to note that the pairs sold during this phase are all from in-store releases, which is significantly less than the number sold online.
Phase 3
The third phase is signaled by a reverse in the upward trend from the previous phase. As pairs ordered online finally arrive at people’s front doors, there is now much more supply on the market. Many resellers, who are usually millennials that do not have another source of income, usually cannot afford to hold onto their pairs for a long period of time, so they try to outcompete each other on secondary markets by undercutting, and scrap whatever profit they can get.
Phase 4
The final phase is the investor’s pot of gold. After a majority of the sneaker’s stock has been sold to consumers that are eager to wear them, prices have bottomed out, and the market slowly creeps up. This is the “investing” period, where those who have been patient and waited out the storm are rewarded. The time frame lasts anywhere from 6 months to 3 years.
Below are two sneaker trends. The first one is common amongst desirable sneakers, while the second one reflects the effects of the coronavirus on the sneaker market.
The trend of the Jordan 1 Obsidian can be broken up into the four phases. Each phase reflects a different set of decisions, both on the buyer and the seller sides, as explained above.
The trend of the Nike Off White Dunks is more unusual, since it displays only the first three phases. Compared to the first trend, the third phase is much more elongated. Due to the immense amount of hype around the shoe post general release (at the beginning of Phase 2), prices shot up to $1000. Therefore, this price premium combined with the coronavirus has led the sneaker’s value to correct over time, potentially even being undervalued! For more information on how the coronavirus has led many sneakers like these Dunks to be undervalued, check out my recent article.
So, what can we learn from this?
Understanding human psychology is crucial when it comes to determining the best time to buy into sneaker investments. After the volatile market during the first couple weeks, sneaker prices will begin to decrease, and the market will start to bottom out. This is the ideal time to buy in. When that happens is dependent on the sneaker’s popularity and its price premium.
Now is a scary time for any market. People around you will panic and act on impulse. However, manage your psychology well, and you will reap its benefits in the future.
