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Sneakers As An Asset Class: 'The New Wave Of E-Commerce' Or A Bubble?

Sneakers As An Asset Class: 'The New Wave Of E-Commerce' Or A Bubble?

The rise of sneaker and luxury resale platforms in recent years has many consumers looking at shoes as investments as much as fashion or footwear.

The commoditization of sneakers has given rise to several resale platforms that are raising capital. Two of them, Detroit-based StockX and China-based Poison, have reached unicorn status.

StockX announced Wednesday it raised $110 million in new funding, putting its valuation at more than $1 billion.

StockX also hired Scott Cutler as its new CEO. Cutler previously worked at eBay Inc (NASDAQ: EBAY) and StubHub.

"StockX is revolutionizing e-commerce," Cutler said in a statement.

"That is why the company is one of the fastest growing technology companies in the world with a rapidly expanding global user base comprised of passionate enthusiasts; it is what sets StockX apart and why I welcome the opportunity to lead the team as we look to what's next —extending the reach of the platform and broadening its offering to provide more users with access to an authentic, transparent, anonymous marketplace."

Cowen: Market Will Triple By 2025

Poison is located in China, a region with enormous potential, according to Cowen analyst John Kernan.

Cowen estimates the sneaker resale market is valued at $2-billion-plus in North America and expects the market to triple by 2025.

“This market is important to understand for investors because of the changing dynamics of distribution — a mobile-led ecosystem fueled by data, community and brand loyalty," the analyst said in a note earlier this year.

It's a market led by innovative marketplaces, young consumers and a culture that views sneakers as a "critical" form of self-expression, he said.

"The growth of the market will generate value-creating opportunities for brands able to participate."

The popularity of Adidas AG (ADR) (OTC: ADDYY) has exploded in North America since 2015, and it went from virtually non-existent to being a notable player in the resale market, primarily due to its Yeezy brand.

Kernan said he expects Nike Inc (NYSE: NKE) and the Jordan brand to dominate the resale market with a 90% plus share of the market.

The Caveat

The risk: footwear and apparel brands could upend the resale market by making more product.

“The whole industry is based on scarcity. The reason people wait in line to buy a pair of shoes is so they can flip it for some multiple on the price they pay,” the NPD Group's Matt Powell told Benzinga.

“The only way they can is if supply stays limited. As we saw with Yeezy over the holiday, what had been a nice multiple declined as the supply increased," he said. "You can't build a commodity when the supply is not controllable; here we are completely blind to the quantity available."

Powell said he does not see the pace of growth as sustainable.

Platforms like StockX can sell other products, but there is a cap on sneaker volume, he said.

"I don’t think the brands are going to sit back and watch these platforms take all the profits; it is not in their best interest.”

GOAT Group VP: 'Brands Need Resale For Perception'

The sneaker resale market is essential for footwear manufacturers due to the "waterfall effect" ultra-premium shoes have on lower-priced models, Matt Cohen, VP of business development and strategy at the GOAT Group, told Benzinga.

The hype surrounding the most in-demand shoes trickles down to sales of less-expensive shoes, he said.

“The brand perception and brand value comes from the sneaker resale community — that drives value throughout the chain."

Brands want the demand for a portion over their products to outstrip supply, Cohen said. By having products that are coveted on the resale market, brands can improve the value of their entire business, he said.

“More so than ever, the resale mentality that is about creating pent-up demand, limiting supply intentionally and creating a secondary market around that product. [It's] here to stay and is only getting bigger.”

Resale platforms like GOAT are becoming more than just secondary markets to buy products and are part of entire shift in how e-commerce works, Cohen said.

“40% of our transactions occur at retail pricing or below. Whether we are a resale platform or not, this is the new wave of e-commerce."

Related Links:

Cowen: Sneaker Popularity, Resale Market Are Encouraging Signs For Brands

Cowen: StockX's Influence In Footwear Is Accelerating After $44M Funding Round

Photo courtesy of Nike.


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