Sneakers As An Alternative Asset Class

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“Themes underpinning this market include digital communities, data, product scarcity, and network effects.”

Sneakers As An Alternative Asset Class, Part II, John Kernan et al.

Shifts in taste over the past few years have led to exponential growth in the sneaker resale market. While traditionally a niche field, with more focused customer bases, it has now become more mainstream as numerous models are considered cultural icons due to collaborations with celebrities, athletes, and other brands.

Cowen Analyst

Over past seasons, we have observed a shift in the cultural perception of streetwear, with many high-end fashion houses adopting new streetwear inspired styles or collaborating with brands already in the field. This is a reflection of the overall consumers downward shift towards more casual looks with an appetite for comfort, exclusivity, and clout. Louis Vuitton collaborating with Supreme, Virgil Abloh’s 2018 appointment as artistic director for menswear at Louis Vuitton following iconic collaborations with Nike, and Dior’s recent collaboration with Air Jordan and Stussy are iconic examples of this change. Although the sneaker resale market is separate from the overall streetwear industry, the two are very much linked.

Mainstream interest in sneakers has also increased across all age groups. Market data suggests positive growth in individual ownership of sneakers, with those owning at least 4 to 5 pairs increasing more than 4% in the period between 2014-2019 globally. Furthermore, the growth of that segment – overtaking that of those who own 4-5 pairs – shows that this is a growing space and indicates further room for growth.

Chart from Cowen Analysis Report: note the growth in 6-10 pairs and overtaking those with 4-5 pairs. There is an increase in quantity demanded which will have an effect on the grey market, aftersale prices.

Although brands such as Nike or Adidas do not reap any of the direct revenue benefits from the price premiums on the resale market, they take advantage of the hype created around their products to ensure a continuous increase in demand. With limited releases, brands are marketing their product without spending a dime. The natural consequence of this tactic – unfortunately for customers – is the massive inflation in prices, with some pairs in the resale market often trading anywhere from 100% to 500% of the retail price.

This hype has not been lost in the eyes of institutional investors who have realised the value of the resale market worldwide, estimated to be worth around $6B growing at approximately 15% y/y. Experts suggest the market could be worth nearly $30B in the next 10 years. In fact, the resale market is now expanding at an exponentially faster rate than their retail counterparts. Over the past years, the biggest names in the reselling community have attracted attention and raised large amounts of capital from retail giants, venture capital firms, and luxury groups.

Stockx has raised $160.2MM over the past four years, from notable groups such as Google Ventures, and became the first sneaker reseller to obtain ‘unicorn’ status, meaning a billion dollar valuation. Prior to being acquired by FarFetch for a sum of $250MM, Stadium Goods received approximately $17.1MM from investors, $11.5MM of which came from Luxury giant LVMH, while Grailed has raised approximately $16.5MM from venture capital firms through their Seed and Series A rounds. The GOAT Group also went through various investment rounds prior to their 2018 merger with Flight Club, and most recently received $100MM from Foot Locker.

These stakes are not surprising though. According to a Stockx report, sneaker resale prices rose 6%, while the S&P 500 went down 10% in the period between February and May 2020. In an analysis of Nike’s financial performance, it was revealed that the brand’s stock performed 3 to 4 percentage points above the S&P 500 during 13 high-volatility periods in the last 10 years. While other brands such as Adidas and New Balance have also been experiencing encouraging results, Nike remains the favorite of the sector in investors’ eyes.

Throughout the Covid-19 pandemic, the industry has performed well – better than some other sectors – which serves as an encouraging outlook into the future. The reality is that the resale market depends on the overall success of these brands, and these brands benefit drastically from the resale market in terms of free marketing. As both move increasingly towards digital mediums of sale, it will be interesting to see where things are in the next few years. Regardless of what happens, Hypeplug will be here along the way to give you all the necessary insights.

Data and figures all from the Sneakers As An Alternative Asset Class, and Sneakers As An Alternative Asset, Part II. Both reports are led by John Kernan and Oliver Chen.

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