Money, It's Gotta Be the Shoes
Bloomberg Businessweek|March 01, 2021
Young resellers are wringing profits out of everything from the latest Yeezys to outlet-store leftovers—and turning sneakers into a bona fide asset class
By Joshua Hunt

Last July 30, Joe Hebert woke up early and drove to a small warehouse he’d leased in Eugene, Ore., the track-obsessed college town where Nike Inc. was born. He was expecting an important delivery: 600 pairs of Yeezy Boost 350 Zyon sneakers. Released by Adidas 12 days earlier, they’d sold out within hours and now commanded more than $100 above retail on the secondary market. Many sneakerheads would have felt lucky to snag a single pair of one of the world’s most sought-after styles. Adidas AG produces just 40,000 pairs of each Yeezy release, which are priced at $220 retail and sold through its Yeezy Supply website using a digital lottery.

When his shoes arrived, the 19-year old, who’s known to his customers as West Coast Joe, stacked the hundreds of boxes like poker chips on the sun-drenched pavement outside the warehouse. “It’s easy to get a lot of this style, and they pretty much always sell,” he said, in one of a series of conversations we had last year about his business.

What Hebert meant by “easy” was this: The day these Yeezys were released, he’d awoken at 3 a.m., signed on to the messaging platform Discord, and rousted 15 members of his “cook group,” a term sneaker resellers use to describe their allies in arbitrage. When the shoes went on sale an hour later, Hebert’s team swarmed the Yeezy Supply website using specialized computer programs such as Cybersole, GaneshBot, and Kodai, each prepped with Hebert’s credit card information and capable of gaming a system meant to limit purchases to one pair per customer. By 6 a.m. the shoes were sold out, and Hebert’s bots had rung up $132,000 on his American Express. His company, West Coast Streetwear, resold the shoes in almost as little time as it had taken to buy them, clearing $20,000 in profit. “Anything that’s releasing that I know I can make a guaranteed buck on, I’m gonna go full into,” Hebert said. “That’s just my style.”

Flipping sneakers has been a viable business proposition for decades. The demand side emerged as far back as 1985 when Nike dropped the Air Jordan 1, a culture-shifting sneaker that sold faster than the company could manufacture it. The supply-side followed soon after when some retailers began selling the few pairs they could get for more than Nike’s $64.95 suggested retail price. A year later, the company doubled down, limiting the initial release of the Air Jordan 2 to just 30 stores in 19 cities and adding $40 to the price. The Air Jordan 3, which marked the debut of Tinker Hatfield’s iconic “Jumpman” logo, was so popular that Nike has reissued it countless times without ever really satisfying demand. The advent of eBay in the mid-1990s brought nonretail sellers into the game, and the market only grew from there. EBay’s annual sneaker trade reached $388 million in 2014, and analysts pegged the broader resale market at $1 billion. Last July, Cowen Inc. estimated the latter figure had grown to $2 billion in North America alone.

The sneaker boom has created opportunities for a new generation of speculators. Hebert and other young resellers are the first to treat footwear as a bona fide asset class, products as worthy of informed valuation and investment as any other commodity. The sneaker market, for them, is a lot like playing the stock market. In the hours after siphoning up shoes from retailers, they essentially sell short-term futures based on street sentiment. By the time prices plateau, ultra-rare shoes such as the Air Jordan 1OG Dior—a collaboration between Nike and the Parisian fashion house that was limited to 8,500 pairs—have become “grails” worth $10,000 or more, while the more attainable stock has been bundled into tranches and sold on to other resellers at a bulk discount. Like their new fellow travelers, the day traders of Reddit, sneaker resellers have used community and technology to exploit a system that wasn’t quite ready for them. But unlike the GameStop crowd, they aren’t really making a point along the way; they’re just making a profit.

For these traders, the pandemic offered yet another opportunity. Cowen’s report pointed out that some of the fastest growth in the secondary market came in the months after the Covid-19 crisis began, driven in part by a steep discounts from shoe companies that faced double-digit sales declines. “Foot Locker was panicking, and a lot of smaller boutiques were panicking, doing like 50%-off sales,” Hebert said. “Just trying to dump all that stuff.”

Shoppers were avoiding stores and flocking instead to e-commerce platforms such as StockX, where young entrepreneurs like him were offering “deadstock.” The term, once used by retailers to describe unsold, discontinued items gathering dust on store shelves, has been adopted by resellers, who emphasize that the styles are no longer made and the items are still in their original packaging. Jesse Einhorn, the senior economist at StockX, says that May and June were the platform’s two biggest months since its February 2016 launch. It likely got a bump, too, he notes, from ESPN and Netflix’s airing, starting in mid-April, of The Last Dance, a 10-part chronicle of Michael Jordan’s final season with the Chicago Bulls, which drew many older buyers into the market for the first time.

That was also a breakout time for West Coast Streetwear. “I remember the night the stimulus checks hit. My sales tripled,” Hebert said. “In May we did $600,000.” This would have vaulted him into the upper echelons of sneaker resellers at StockX, according to a company spokesperson, who says those are the numbers of “a top-tier power seller.” An opportunity was clearly presenting itself. The teenager had a problem, though: Supply chain issues were starting to translate into fewer shipments to wholesalers. The shoes he needed were still out there in stores, their prices slashed, but if he wanted to buy the dip, he’d have to get creative.

Adidas Yeezy Boost 350 V2 Zyon $203-$800 (retail $220)

A quintessential example from last July of the collaboration between Adidas and Kanye West

Nike Air VaporMax 2019 Cactus Plant Flea Market $410-$1,787 (retail $250)

This collaboration with CPFM, founded by Cynthia Lu and backed by Pharrell Williams, features a “wobbly” swoosh made with garden wiring

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