Have you ever wondered why a certain sneaker resells for a higher price than the other? Why is the Air Jordan 1 silhouette so profitable? Why do the Yeezy’s resell so hard even though they’re not the best-looking sneaker out there? What makes a sneaker a profitable resale and what makes it a brick?
These are the sort of questions I ask myself whenever a new sneaker drop and its resale price is breaking through the ceiling. Why are consumers so willing to pay more than a thousand dollars for a sneaker whose original price is only a couple hundred bucks? Sure, you can say that there are a limited number of sneakers in production but what explains the fact that similar colorways of profitable sneakers don’t fare as well.
While the economics of Supply and Demand explains how the resale price is determined but what explains the Demand for a sneaker?
Why are we as humans so interested in certain sneakers more than others? Is it primarily because of the “tinker bell effect” – the idea that something has value only because we believe it does?
In this article, I aim to understand and help you understand, what drives this resale market that is worth more than a billion dollars. Therefore, without further delay, let’s get into the factors of a resale price.
(I use the example of the Air Jordan 1 to help explain the Cultural Impact point because that sneaker truly revolutionized the sneaker resale business)
When you think of the Air Jordan 1, what thought comes across your mind? For me, it’s obviously the GOAT of the game – Michael Jordan. We have associated his playstyle, his life, his achievements, with a tangible product – the sneaker. But there have been other amazing players before Michael Jordan and currently, we have the likes of Lebron James and Steph Curry, but their sneakers often brick on the market.
Therefore, this helps explain the concept that it’s not enough to have a collaboration, to make a sneaker resellable. Then what explains why the Nike Air Jordans’ is a success but the Nike Lebrons’ is mediocre in terms of resale. Surely, both are perfectly adequate basketball sneakers.
The differentiating factor is that of the cultural impact the sneaker has had on society. Jordan was so impactful on the court that everything he touched or wore turned into instant gold. Fans were rallying behind him in every game and his career was not linear. The man had to go through many trials and tribulations to stand where he does right now.
We have to give credit to the Nike marketing department for making the Air Jordan the kind of success it is right now. They successfully blended the idea that the Air Jordans weren’t simply a sneaker. They were a concept. And if you had them, then you were in a clan of like-minded individuals.
The ads such as “Like-Mike” or the iconic Air Jordan Jumpman or Wings logo truly crafted a niche for the brand in the vast jungle of sneakers. As Jordan became more and more successful throughout his career, his sneakers became more sought after which is completely natural and expected.
But what really amazes me that even after being off the court for so long, his name branded sneakers are still deeply sought after.
Therefore, if you want to make a sneaker that has a high resale, make sure it becomes a part of a culture – otherwise, you’re just going to be on a lonely island.
Take yourself down a memory lane and think of the first time you saw the Nike self-lacing sneakers in Back To The Future series. Were you amazed? Because I knew I was. I wanted those sneakers so badly because it had something that none of the other sneakers did – new tech.
Therefore, if a sneaker has a new feature or characteristic, that none of the other on the market do – then it spikes up the demand. The most prominent example we have of this factor is the visible Nike Air unit. This was Tinker Hatfield’s genius idea and it has served him and Nike well over the years.
People had seen nothing like it ever before and they lined up to get the sneakers that feature a visible Nike Air unit. The feature was such a success that we’ve seen it translate across sports, from running to basketball. Therefore, the lesson here is that if a sneaker has new tech that is also productive for the wearer, then you’re carving out a bigger piece of the market demand for yourself.
There’s no doubt that Adidas’ collaboration with Kanye West to create the Yeezy’s has been a success. Yeezy’s have brought in hundreds of millions of dollars in revenue for Adidas and the sneaker continues to be one of the most profitable out there.
However, what’s confusing is the fact that how do people decide which collaborations are going to be a success and which are not? Why do the Travis Scott releases are hyped up so much yet the Pharrel x Adidas release barely hit break-even points for resale? Is it the marketing efforts behind a collaboration? Or is it the cultural impact that the brand/individual has had thus led to a successful profitable sneaker?
These questions will need empirical research which we are unable to provide. But this much is certain, collaborations do spike up the demand for a sneaker because of the novelty aspect. And that drives up the price.
Limited Supply – the brand model of Supreme. Companies all too well know that if they want to hype up a sneaker, the best way is to release it in short supply. But the question arises since the companies don’t benefit directly from the high resale prices, what’s the motivation behind releasing only a couple of hundred pairs for $100-$200, when they can release hundreds of thousands of pairs for the masses.
Well, the idea lies in the concept of how you perceive the company. Whenever a new hyped-up sneaker drops that are only available to let’s say 1-5% of the population, this hypes up the company behind the sneaker as well. Your brain positions the company as being “something to attain”.
Now you most likely may not be able to cop the said “hyped up” release and they know that. So what the companies do is release a mass-produced similar colorway of the hyped release in order to keep you happy.
Therefore, it’s no doubt, that the sneaker retail business needs the resale business to keep them relevant. It’s a symbiotic culture where both of these businesses feed off of each other and are therefore able to survive.
I don’t see the sneaker resale business dying down any time soon. The economics created by sneakerheads is too big to fail at the moment.
However, going further, it will be interesting to see how the business transforms. We’ve already seen “queuing up” become a thing of the past with the introduction of raffle systems, I wonder what further awaits us.
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