Sneakers
From the ground up

Back in February, a few sneaker experts told us that Jordan releases were getting over-saturated, with way too many shoes hitting stores. Last month, Josh Luber, one of the sneakerhead data wizards over at StockX (formerly known as Campless), published an in-depth report arguing that Jordan’s dominance on the resell market may be slipping, as the brand is making it harder for collectors and resellers to make a profit.

For Jordan releases to stay hyped, the brand needs a thriving resell market. It needs resellers lining up on drop day because they know they can flip Jordans for a profit. Josh argues that Jordan is squeezing out professional resellers, as it is producing way too many shoes for some releases and way too little for others. If resellers can no longer make cash from Jordan drops, then that gives other brands — say, adidas — a golden opportunity to generate huge amounts of hype through limited releases (like the NMD, for example).

StockX provides the data for Highsnobiety‘s quarterly sneaker reports, and are absolute experts when it comes to the secondary market for sneakers.

Below we’ve provided a condensed version of Josh’s report, in his own words. Sneakerheads with a hardcore data fetish should head over to StockX to see the piece in full (warning: there’s lots of statistics).

Kane Holz / Highsnobiety.com

At one point, Nike, including Jordan Brand, accounted for 96% of the resell market.* That number has dropped consistently and considerably since February 2015 — when adidas launched the YEEZY. Since then, adidas has taken share of the resell market with every release. Kanye is this generation’s Jordan. There. I said it.

But this isn’t an analysis of adidas. That will come later. Because despite the rapid resell growth of the Brand with the Three Stripes, adidas is still a distant second to Nike. The majority of the resell dollars spent on any given day are still the latest Retro Jordan drop. But if the trends we’ve seen over the last 16 months continue, that may not be the case for long.

Jordan Brand has had a rough time on the resell circuit lately. In 2015, for the first time in a very, very long time, we saw some Retro Jordans sit, with a few even landing on clearance. So far during 2016 they’ve appeared to pull back from the edge – a few big shoes will make it feel like that – but on the whole the Jordan resell game has continued the decline started in 2015, and may be headed for more clearance racks than we’ve seen since the mid 2000s.

*All data in this article is through April 2016.

2015 Holiday Releases Were Horrible

The above chart shows the last four releases of the year for 2014 vs. 2015, and the amount of money resellers made on eBay in December of each year on those four shoes.

Resell profits dropped 70%. And if you ask resellers, they’d say that Nike took 70% of their profits.

These should be huge, instant sell-out shoes, which should also command big dollars on the secondary market. The Black Friday release, the Aqua 8, is still showing up at Nike outlets across the country, six months later. This was a monster OG shoe. The 2007 Aqua 8 release was reselling for $450 before this drop; this was a can’t-miss. Instead, Nike missed. Besides the inexplicable color change of the heel from black to grey, the Swoosh clearly released WAY too many pairs. When you combine that with rising retail prices, you’ll see that the money that resellers can make from general release Jordans is disappearing.

It’s not just the last four releases. Resell profit margin (which we calculate using eBay sales in the two months following the shoe’s release) has been declining for the last four years. Resell profit margins on General Release (GR) Jordans, which was almost 60% at the end of 2011, has fallen to less than 40% in four years.

One-Third of Jordans are Worthless

Average reselling costs are 18%: Transaction Fee 10%; Payment Processing 3%; Shipping 5%.*

*Yes, there are many places that you can sell for more or less than 18%. Consignment is usually 20% plus shipping if you’re mailing your kicks to the store. Facebook, Twitter and Instagram, for example, have no fees. But eBay still accounts for over 1/3 of the entire market, StockX is the fastest growing new market, and pretty much every other new sneaker market also charges a transaction fee around 10%.

So if reselling costs are 18%, then brands should use that number when deciding how much profit to take, and how much to leave behind – but it doesn’t seem like they do.

In 2015, Jordan Brand dropped 38 GR Retro Jordans. All but one (Jordan 9 Anthracite) sold for more on eBay than at retail. From Nike’s perspective, they were 37 for 38.

But when you consider 18% reselling costs…

The above chart shows that 12 of the 38 GR Retro Jordans had a resell margin of 18% or less. That means that one-third of all Jordans were essentially worthless to resellers.

Nike didn’t go 37 for 38. They went 26 for 38. That’s a big difference.

Premium Jordan Releases are Increasing

Profit margins are shrinking on GR Jordans. At the same time, the number of premium or high-end Jordan releases has increased.*

*We define premium Jordans as any which have a resell profit margin greater than 100%, or a retail price of $400 or more.

There were four times as many high-end Jordan releases in 2015 as there were in 2012.

It’s a shrinking of the middle class.

Gone are the shoes from which resellers could make $100 or $150. Compare these two shoes:

Jordan 4 Black Cement (11/1/12 release): $160 retail; $270 resell (three months following release); $110 profit; 68% profit margin.

Jordan 4 White Cement (2/13/16 release): $220 retail; $288 resell (three months following release); $68 profit; 31% profit margin.

Without this “middle class,” what’s left is either high volume general releases with almost no profit margin, or Quickstrikes that sell for two or three times retail.

Johannes Höhn / Highsnobiety.com

Don’t get me wrong – I love OVOs and Don Cs and Doernbechers as much as anyone – they’re great for the game. That’s what drives the hype and the hysteria and gets the whole community fired up, but these are super limited, which means that most people won’t be able to get a pair.

A few resellers with serious connections will make a LOT of money. But your average sneakerhead can’t get a pair. The 15-year-old kid trying to fund his collection by reselling can’t get a pair. And more hype from more Quickstrikes obscures the fact that he or she can’t make any money on GRs either. Kids used to be able to buy three pairs and sell two to pay for one – the way so many of us built our collections back in the day. There were 134,000 people who sold at least one pair of sneakers on eBay in 2015 – most resellers aren’t professionals; they’re trying to help fund an expensive habit. But that’s gone – at least, it’s gone for Jordans.

In short, there was more resell profit in 2016, but it was concentrated in fewer sneakers.

Is this a good thing? Is this a bad thing?

That depends on which side of the business you stand on. Except it’s not “sides,” is it? It’s more like a circle, with everyone having a slightly different view of the market depending on what your angle is.

Johannes Höhn / Highsnobiety.com

— If you’re a reseller, there are fewer shoes available from which you can make any money. But if you are able to get in on the cash cows, there is plenty of money to be made. We think this favors the professional reseller at the expense of the collection-builder, but that may not necessarily be the case. 15-year-olds will always have a lower time value of money and can therefore campout or spend the time to figure out how to acquire one or two pairs.

— If you’re Nike or Jordan Brand, you should expect hype around the big releases (and market, in general) to continue growing, but more GR pairs to sit on shelves and hit outlets. Each release is another – and separate – opportunity to play the resell game. You shouldn’t expect hype around the Jordan 12 “Wings” to cause sneakerheads to rock the Jordan 2 “Radio Raheem.”

— If you’re an investor who cares about the impact of the resell market on retail, this may be bad news. Jordan Brand has reached a saturation point with the increase of price and volume on individual shoes, so the best path to growth would seem to be sellout more releases, but it looks like JB is heading in the other direction. That said, I’m not putting my money against the Retro Jordan machine. I’m betting they figure it out before it’s too late.

— If you’re adidas you’ve watched Nike run the limited-release strategy for 30 years, you finally learned how to apply it to your business, and then you watch as Nike forgets what to do. Seize the moment. If you can become the brand that 15-year-old kids build their collections on, you may be able to retain some of the resell market share when Jordan Brand finally gets back to its roots.

— And if you’re a person who loves sneakers and just wants to cop a pair at retail without any hassle…what rock have you been living under for the past five years? That’s not the world we live in anymore. But you can expect more Jordans to be available for retail (or less) than ever before – just not OG pairs or the few super-hyped ones you’ll read about in blogs.

Of course, that’s just my opinion. I could be wrong.

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