Recently, three of the biggest players in the sneaker resale game (Stadium Goods, Flight Club, and GOAT) announced significant structural changes. Stadium Goods, the NYC-based consignment shop, received an undisclosed investment from LVMH Luxury Ventures, the venture capital arm of luxury conglomerate Moët Hennessy Louis Vuitton. That same day, Flight Club – Stadium’s New York neighbor and direct competitor – broke news of its impending merger with LA-based sneaker marketplace GOAT.
Notably, the GOAT/Flight Club merger was the focus of a $60 million Series C funding round completed before the announcement went public, bringing the newly-formed entity’s total capital raised to date to a staggering $97.6 million. GOAT had previously raised $37.6 million of outside funding.
While the timing of this month’s simultaneous announcements certainly spiked awareness of the scale of modern sneaker resale, the market has been bubbling for a while. With stores in Virginia and Los Angeles, Round Two also opened a New York storefront this October. That same month, online resale platform Grailed launched Heroine, a women’s-focused vertical.
Earlier in 2017, Stadium Goods made news with a $4.6 million Series A in January 2017 – less than one year after StockX founder Josh Luber joined the Quicken Loans family of companies to launch StockX alongside billionaire Dan Gilbert, owner of the Cleveland Cavaliers. In the background, everything from the international rise of sneaker conventions to a burgeoning celeb-driven endorsement culture has poured fuel on the fire emojis.
In the minds of both investors and enthusiasts alike, sneaker resale appears to present an untapped opportunity. To sneakerheads just trying to cop fresh pairs, however, the attention or organized business interests may be a cause of anxiety.
Here’s what GOAT/Flight Club, Stadium Goods/LVMH, and all the recent activity in the sneaker resale market means… in less time than it takes for the SNKRS app to cart.
A $1 Billion Dollar Market & Growing…
The global sneaker resale market is currently valued around $1 billion USD. While this may seem like a lot of money, it’s important to note that this number accounts for every pair of shoes sold on the secondary market anywhere.
This includes major sneaker-focused players (GOAT/Flight Club, Stadium Goods, StockX, KLEKT, etc.), generalized auction sites which still turn significant volumes of sneakers (eBay, etc.), and the hundreds of local consignment stores which, while they may have devoted followings, may also have little or no e-commerce (e.g. Philadelphia’s Common Ground).
It’s also worth noting the many Facebook groups, Craigslist posts, Sneakercon booths, and friends’ little brothers’ (plural) who buy and sell sneakers in ways that a) don’t create easily logged and analyzed data points and b) use pricing structures outside of a sticker tag.
Before long, that $1 billion USD begins to look like a lot of very small pieces – yet, $1 billion itself is still a reasonably-formidable number. The game has become a competition to collect as many of those pieces as possible.
There are precedents for scaled resale of desirable products in other (and diverse) markets. Event tickets are perhaps the most successful example: companies like StubHub (acquired by eBay in 2007 for $310 million) make billions of dollars a year in transactions fees gleaned by providing sellers of inherently-limited event tickets a platform through which to efficiently find buyers.
However, unlike scalping tickets, reselling sneakers presents some interesting operational barriers to any would-be tycoons.
Tickets are easily and efficiently verifiable as authentic. Tickets are limited by factors external to both issuers and resellers. Tickets are also sent in the mail for essentially no cost.
Sneakers, well… aren’t.
Consider, for a moment, a concert ticket. The ticket is limited in series – no more tickets can be issued than there is legal space in the venue. The ticket is limited in timing – if you buy a ticket for February 21, it has no value the next day. The ticket is also limited in use – it is perfectly binary, used or unused, with an immediately-verifiable value attached to either state.
Sneakers, well… aren’t.
When a 9/10 2013 Jordan 1 hits GOAT, it becomes a small boat on a giant ocean. Its condition is subjective. Its lifetime is theoretically unlimited. Most importantly of all, its availability is entirely up to its producer, Nike.
“This is the ‘Achilles’’ Heel’ of this industry,” said Matt Powell, sports business analyst for The NPD Group. “Their [resellers] fortunes are controlled by forces outside of their business. If there’s too much product in the marketplace, it forces the resale market to collapse.”
“The Jordan market on resale was 90% of the business 4 or 5 years ago, but now, it’s almost non-existent. Why did that happen? Because Jordan just put more in the marketplace.”
Live Nation can’t expand Madison Square Garden overnight, but Nike can always turn on the sewing machines. Forget being a small boat – try sailing that ocean without knowing if there’s a cliff at the end.
The result is a battle for scale, expressed through outside funding or consolidation. Whoever can scale fastest (“collect the most pieces”) not only brings in dollars; they also bring in data points, which are used to better price goods on the platform to reliably capture the all-important markup.
To borrow the economics term, the sneaker reseller that can most effectively determine “willingness to pay” will have an advantage over competitors. No one wakes up believing that $418 is the best price to pay for a YEEZY 350 V2 “Beluga 2.0,” but with enough data points (which, given that the preceding was GOAT’s best-selling shoe and corresponding average price for 2017), the nature of sneakerhead emotions can be assumed well enough to make business decisions at scale.
Scale begets scale; hence, a race for scale. If it sounds simple, it’s because, for the most part, it is. Whether that scale is accomplished through mergers and acquisitions (GOAT/Flight Club) or outside funding (StockX, Stadium Goods, Grailed, etc.), in an industry reliant on the whims of external producers, it could be winner-takes-all.
Amazon for Sneakers…
This race for scale is not inherently bad for sneakerheads.
One potential result is that a single winning e-commerce platform ends up as an “Amazon for sneakers,” where trades from all over the world are centralized and can be trusted to be fulfilled, even from other resale brands whose stock has been either been folded in or simply listed on the site. This would make buying and selling sneakers just plain easier. However, such a possibility is still many years off.
The newly formed GOAT/Flight Club is sitting on a tremendous amount of money (again, nearly $100 million), but will also carry a similarly tremendous valuation (i.e. how much the company is worth, calculated using projected future earnings) that likely stretches well into the hundreds of millions of dollars. If the market as a whole is worth around $1 billion, GOAT’s investors may expect it to capture as much as 33% of all resold shoe sales worldwide.
“GOAT has really grown to become a dominating force in the lifestyle segment. We sell the rare sneakers that Flight Club does, but we also sell everyday shoes, said Liz Goodno, Director of Communications at GOAT, speaking to Highsnobiety. “Through our marketing and the really good relationship we have with Apple, we’ve been able to capture a broader market that’s just shopping for sneakers. We’re not trying to dominate the resell market; we’re trying to grow the market as a whole.”
Considering there are no realistic penalties that could be imposed for a given seller also listing shoes simultaneously on Grailed, eBay, StockX, and their local Facebook groups, that number will be difficult for GOAT to accomplish. However, they’ve got momentum and a fresh funding round. Who knows what the future holds?
Opposite GOAT/Flight Club is StockX, a similar online resell platform that has recently diversified into streetwear, watches, and bags. While little is publicly known about StockX’s operational budget, the Detroit-based company is a part of the Quicken Loans family of companies, and therefore hooked up to the same money pipe that single-handedly redeveloped large swaths of Midtown Detroit. Your correspondent visited StockX HQ last Fall, and between the rapidly expanding office and their imposing verification op, it’s safe to say they’re playing to win with both confidence and resources. The battle for “most pieces collected” will likely be between GOAT and StockX.
Stadium Goods, meanwhile, appears reserved but ambitious. With enough outside funding to scale online, Stadium could further carve out a locally focused “concierge” niche with retail stores in global megacities that is supported by an LVMH-backed e-commerce presence.
“As we continue to scale the business and whenever we take in outside funding, there are specific areas that require additional capital to nurture this growth. In particular, growing our proprietary tech offering, brick-and-mortar expansion, marketing efforts and staffing,” said Jed Stiller, co-founder and managing partner of Stadium Goods.
LVMH is making big investments in digital retail (see: the June 2017 launch of 24 Sèvres), so the possibility of exclusive first-run LVMH product being “released” through Stadium Goods’ channels doesn’t seem too farfetched. Imagine, if you will, a streetwear collab on the scale of LV x Supreme “leaking” through Stadium Goods as a worldwide distribution point, first in shops in New York/London, then online. It wouldn’t collect quite as many pieces as the winner of the above winner-takes-all, but the potential markup would be much, much higher. As a reminder: Apple has only 14% of global smartphone market share. They’re also worth close to $1 trillion USD.
Ultimately, any reseller with ambitions to scale must effectively confront the fact that brands like Nike and adidas still hold the power. One simple solution is to convince shoe brands to list product directly on the platform. In the midst of a changing retail landscape, brands have a strong financial incentive to sell direct-to-consumer – Nike’s “Customer Direct Offensive” is perhaps the boldest play, and coincided with a recent decision to dramatically trim the company’s total number of retailers from over 30,000 to just 40 key partners.
“It’s important to remember that we’re really dealing with a very tiny sliver of the marketplace here,” continued Powell. “Why would someone go to a consignment site to buy a pair of Air Monarchs? What’s the market? It’s not like Famous Footwear is selling counterfeit Monarchs.”
“That might be a branding strategy, but if anyone is going to dominate the market, it’s going to be the brand site. These brands all have great relationships with retailers already, so why jeopardize those relationships to sell through a consignment site?”
A more ambitious solution is for a reseller to attempt to grow the total resale market through international expansion. China is the world’s second-largest sportswear market, but arguably lacks a developed resale culture to the extent of the United States. Europe and Japan both have mature resale markets rife with their own regional players (in Europe, sites like K’LEKT and store networks like Berlin’s own Paul’s Boutique; in Japan, Yahoo! Auctions and, well, the legendary Japanese vintage scene), but the behavioral precedent already somewhat exists, although perhaps not at the scale of the United States. The goal would, of course, be to change that for the better.
Expanding into any new geography brings a huge host of operational challenges, but if done right, that $1 billion USD has sky-high growth.
The Decision at the Line
In context, the recent GOAT/Flight Club merger and the LVMH investment in Stadium Goods are part of a larger maturation of the resale sneaker market that sees a few central players squaring up into a winner-takes-all battle for the industry.
The industry’s inherent volatility (i.e. dependence on factors entirely outside of its own control, like whether or not adidas wants to re-release a specific hyped NMD) appears to position resellers for either a platform v. platform slug-fest or the carving out of a limited yet lucrative niche.
While it remains to be seen who takes home the gold, the competition is sure to be exciting. For fans, there’s no better time to watch.
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- Main & Featured Image: Thomas Welch / Highsnobiety