Sneakernomics: A Billion Dollar Hobby
by Jonathan Ye
From the day he first donned a Chicago Bulls jersey, Michael Jordan captured the imagination of basketball fans worldwide. Aspiring ballers wanted to shoot like Mike, handle like Mike, and most of all, be like Mike. In 1985, Nike released the Air Jordan 1s, Michael’s first signature shoe, paving the way for a new culture, a sneaker culture. It allowed owners to have this tangible connection to their beloved star, Michael Jordan. 30 Air Jordans and countless other signature sneakers from a variety of brands later, a new market has arose, a resale sneaker market.
The sneaker resale market can essentially be considered a widespread cult following. Its consumers focus on limited, luxury sneakers by brands like Air Jordan, Adidas, Louis Vuitton, Balmain and countless other brands that give them a sort of status; the rarer and more hyped a shoe is, the greater the status it will give to its owner. Bewilderingly enough, many of these sneakers are not even worn; most are stored into display boxes as collectors’ items, away from the public eye.
The sneaker resale market has grown into an understated monster of a market that defies most conventional economic theory. As implied by the desire for rarity, scarcity in these rare shoes mean that the forces of demand outweigh the forces of supply. Consequently, prices are driven by scarcity, as there are an overwhelming number of consumers compared to few buyers. Most recent estimates, based off eBay data mining, have valued the sneaker resale market at about one billion dollars. In reality, it is difficult to create an accurate estimate of the value of the market as some economists liken it to the illegal drug trade market. Like the drug market, a “cartel” sets the sneaker price and other sellers would try to base their price around that. In this instance, many cite this “cartel” to be large sneaker consignment shops like Flight Club, who buy and resell sneakers as a dedicated business. However, the market lacks regulation, a centralized form of sale, and concrete information, making the true valuation a mystery.
So how does such a wasteful, inefficient market exist? Nike is to blame. Many financial analysts believe that Nike is leaving billions of dollars on the table within the realm of high-end sneakers. Why?
Because it builds brand image. Call it Nike’s zero dollar investment marketing tool. By offering only a limited amount of sneakers, consumers view Nike and Air Jordan as more prestigious as sneakers become more difficult to obtain, driving brand value upwards. Repeating this tactic, Nike creates a scarce good as more consumers demand for Nike’s rarest sneakers in order to create a valuable brand image for the company itself.
Nike is the market’s most powerful players. Boasting the Air Jordan, Lebron James’s, Kevin Durant’s, and Kobe Bryant’s signature lines, Nike makes up around 80–85% of resold sneakers, demonstrating their powerful grasp. New players are beginning to break into the market through the use of celebrities beyond basketball and the creation of sneakers that can be used for both casual wear and athletic purposes. Most notably, Adidas has collaborated with non-athletes, such as Kanye West and Rick Owens, to break Nike’s hold on luxury sneakers, and offer a fresh change from typical athletic endorsements. Smaller brands, such as Asics and New Balance, have taken note and collaborate with artists, streetwear moguls, and fashion designers to offer a product that is different from Nike’s typical athletic sneaker.
The sneaker market has reached a strange inflection point in terms of growth, as many analysts believe it is now shrinking. Changing their previous statement from before, Nike has begun to manufacture exponentially more pairs of new sneakers for many new releases, saturating the market. Analysts view this as a move by Nike to test whether or not it’d be more profitable to capture more sales instead of building a prestigious brand image. Some believe that the sneaker resale market can find new growth in China. Because China is basketball’s growing market and a country where its people are becoming wealthier, many believe that the Chinese market will become vibrant and lucrative as consumers and sellers will try to find shoe deals there rather than in the United States.
