Anyone who's taken even a passing interest in the sneaker market over the last few years will have noted the rapidly increasing resale premiums paid for sneaker releases. As resale marketplaces like StockX and GOAT grew and matured, so too did the market surrounding the sneaker trade. More resellers entered the fray, armed with bots, connections (“plugs”), or both to source supply of in-demand pairs at retail prices, selling them on at a profit to the end consumer or to other resellers. The end consumer is the person crazy enough to actually do the unfathomable and - gasp - put the sneakers on his or her feet….you know…like to wear.
In recent years, resellers have acquired a greater proportion of the pairs available at retail, engaged in speculation that pushed prices higher on resale platforms. Seemingly every drop sold out instantly and resold for a hearty premium - a phenomenon many would argue was both irrational and unsustainable. Surely, this game of sneaker hot potato would be challenged or end entirely.
All it took was rampant inflation, fear of an economic recession, financial market turmoil, generational supply chain woes, unprecedented knockoff activity, and a Hollywood-worthy, alleged sneaker Ponzi scheme to finally dent the sneaker market’s armor. The word “crash” has been hurled about in relation to the sneaker trade’s demise, but that's perhaps an overly reductive and dramatic reaction that makes for catchy YouTube titles and thumbnails. Still, it's an assertion born from disbelief that this market, which has relentlessly charged higher during an elongated boom period, could actually fall.
Wait, it’s possible that not every Jordan 1 drop or Union collaboration sells out immediately? That’s a thing that can actually happen?
While there are pockets of the sneaker market and countless specific pairs where “crash” is indeed more than fitting terminology, what we’ll see as we dive into the markets is perhaps better described as a “correction”, no worse than what was seen in financial markets and certainly less dramatic in magnitude than other speculative categories like crypto.
This is a complicated question, and as noted above, there are myriad factors at play here. First, the pullback in sneaker market prices and activity largely coincided with the tumult experienced in most other asset classes in the late spring and early summer. As inflation data ran persistently red hot, concern grew over the countermeasures that would be taken by the Federal Reserve. With significant rate hikes already in place and more in the offing, the prolonged period of easy money was seemingly meeting its end. That tightened monetary policy sparked unease over economic growth, and many would argue we’re already in the throes of recession. These events caused much consternation and risk-aversion, both in traditional financial markets and in speculative arenas, with market participants eager to seek liquidity and insulate from further losses. As is often the case, the speculative music stopped abruptly.
Undoubtedly, all of these factors impacted the sneaker market. With economic growth in jeopardy, it stands to reason that many would avoid holding significant sneaker inventory, given that the type of sneakers sold at a resale premium are highly discretionary goods. After all, we only have two feet, and when times get tough economically (or when stimulus checks have long since run dry), collections aren’t likely to grow as haphazardly.
The macroeconomic environment has played a role in slowing the sneaker trade, but there are also factors unique to sneakers that have contributed to waning confidence and declining prices. First, it’s important to understand the circumstances that gave rise to this bustling market. At its core, the sneaker market is driven by the sneaker brands’ use of scarcity as a tool to drive brand heat. Put simply: when products sell out quickly, when people line up for those products, when they appear elusive and exclusive….that’s good for business. It has traditionally created what’s called a halo effect: the hype associated with those limited products will drive consumers to pursue similar, more readily available products from that brand.
Now, striking the right balance between supply and demand is an incredibly difficult feat. Managing product lifecycles requires precision and planning 12-18 months in advance. Traditionally, brands (Nike in particular) have been very, very good at it. I would go so far as to say that it’s one of the secret sauces and core competencies that makes Nike Nike.
But what happens when generational supply chain issues enter the picture? Suddenly, products that were intended to meet peak demand in May don’t arrive until September. A well-configured distribution strategy for a release across direct-to-consumer, wholesale, and key boutique channels is hamstrung by half of the supply being late, with some stores subsequently cut out entirely. A release machine that once seemed beautifully orchestrated and infallibly run is now wonky, out of sync, and unreliable.
At first, this worked in the favor of the brands in some respects. Because available inventory was limited, Nike was able to achieve some of its best results on record in terms of the number of items sold at full price. Now though, as bottlenecks clear and stuck-in-transit pairs reach their destinations, they’re arriving to a different consumer appetite than the one envisioned when the decision to manufacture the sneakers was made.
Suddenly, a key factor at the core of the sneaker market’s success is in doubt. Sneaker brands that typically had their hands so firmly on the wheel, threading the needle in adeptly understanding and projecting the delicate balance between supply and demand, are now caught flat footed. This means releases sitting on brand and retailer websites, resale premiums becoming resale discounts, and supply going undigested by demand. The likelihood is that this budding, unfavorable imbalance may take time to rectify. When the latest releases aren’t capturing the same premiums seen in months prior, that sews market-wide uncertainty, impacting the values of “off-the-run” sneakers which released months, quarters, and years prior.
But the supply chain isn’t the only factor causing uncertainty and wearing on confidence. This moment also coincides with the prevalence of the most sophisticated replicas (“reps”) ever manufactured. To the novice, the seasoned sneaker collector, and sometimes even the sneaker authenticator, differences between the real thing and a knockoff are almost entirely imperceptible. While StockX and GOAT gained great credibility in their rise to prominence via authentication, even they are not impervious to being duped by today’s fakes - a reality that was pointed out by Nike in its ongoing lawsuit against StockX. That lawsuit itself may be an additional source of unease given its potential implications for the resale space. Nonetheless, the prevalence of reps and their increasing believability have continued creeping into the mainstream sneaker consumer’s consciousness - while surely not the major factor driving a decline in values, authenticity concerns can absolutely undermine the magnitude of a consumer’s willingness to pay. In a vacuum, as the probability that you could receive an inauthentic product rises, would you still be willing to pay the same price? Doubtful.
It begs the question, though: if the differences are effectively imperceptible, what does it matter? That question is currently at the center of intense debate, with passionate advocates on either side, but it seems inarguable that, eventually, the lack of confidence in a product’s authenticity will weigh on its price. Additionally consider that the existence of reps in greater quantity means that there’s more supply of a given sneaker in circulation than the brand intended.
Speaking of things that are fake, the sneaker world was rocked by the news that Zadeh Kicks, a business known for offering pre-orders of hyped sneaker releases, would be shut down and liquidated by administrators. While speculation ran rampant, that news was taken one step further when Zadeh Kicks’ founder was indicted for allegedly running a sneaker Ponzi scheme.
Essentially, here’s how that alleged scheme worked: Zadeh Kicks would sell pre-orders for an upcoming release, often at a price lower than the expected prevailing resale price. People often wondered: how is he doing that? How is he procuring supply at a low enough price to turn a profit? Did he have God-tier connections? Were brands in on it? Plenty of conspiracy theories, but one answer was always the likeliest: he wasn’t turning a profit at all. Zadeh Kicks was notorious for not fulfilling all of its preorders, and the orders not fulfilled were reimbursed….but with Zadeh Kicks store credit. There’s been evidence to suggest that, in most cases, the fulfilled orders weren’t supplied by some incredible plug or acquisition strategy, but instead were simply bought at prevailing resale prices off of StockX using the pre-order revenue from other orders.
The scale of the scheme remains in discovery, but this was no drop in the bucket. Filings have indicated that Zadeh Kicks took over 600,000 pre-orders for the Cool Grey Jordan XI. That’s an absolutely unfathomable quantity of sneakers to be promised by anyone other than a brand or maybe a large wholesaler; at retail prices of $225, that’s $135 MILLION. The same filings indicated he fulfilled about 6,000 of those orders. While parties have experienced some success to date in recovering pre-order funds via PayPal and otherwise, a significant number of active sneaker market participants are - at least currently - bereft of considerable resources tied up in the proceedings. Not only does the fallout mean that considerable liquidity is unavailable to sneaker resale markets (including the purchasing activity of Zadek Kicks itself), but it’s also yet another blow to market confidence, raising concerns about the extent to which it’s bolstered by nefarious or illegitimate activity.
Combine all of these factors of differing origin and magnitude of impact, and you have a perfect recipe for a market to experience turmoil.
In the initial stages of 2022, sneaker markets continued to climb upward, largely unperturbed by or ignorant to all of the above factors. As a result, year-to-date price activity is actually not particularly abysmal for a significant portion of the market. Where performance is much more challenged, though, is from the end of the first quarter onward.
We took samples of the market that vary by brand, release date, model, collaborator, resale price, and more, but on average, the results were typically quite similar: since the end of March though the beginning of August, we’re seeing price declines clustering around the mid-teens percentage wise, with some oscillation higher and lower around that region (the YTD average is closer to a more mild -10%, though with considerably more variance). In some respects, that outcome is surprising: relatively tame variance among groups that would seem to cater to different tastes and are at different moments in their lifecycle.
Now, it does bear noting that the sampling does exhibit bias towards more recent releases, as the liquidity in these sneakers is higher and therefore allows us to judge price movement more reliably. For example, the 2014 Nike Air Yeezy 2 “Red October” in size 10.5 (the size used throughout our analysis) hasn’t sold since March, so its inclusion in the analysis would not be particularly useful. The samples taken are not meant to be an exhaustive measure of the broader sneaker market, but they do cover relevant and topical portions. You will notice Yeezy is conspicuously absent - Yeezy Day 2022 took place during the period in question, which meant a restock of almost every desirable pair, thus polluting the data. Still, given the lack of disparity in results from sample group to sample group, there may be some level of safety in extrapolating to the broader market.
To be sure, there is considerable variance at a sneaker-to-sneaker level. Some pairs have surged higher, while others have been absolutely throttled, losing close to 50% of their value. However, sales of a sneaker in one size can be spotty and driven heavily by the inclinations of just one buyer or just one seller, so it is wise to zoom out and remain trend focused.
There are some interesting data points to highlight. After a prolonged hype cycle in 2020 and 2021, along with the fatigue associated with “Panda” releases this year, one might have thought that Nike Dunks would be particularly susceptible to weakness. Not so. A basket of 12 of the most celebrated 2020 releases was down 9% since the end of Q1, so if anything, the Dunk actually held up better than most. This is particularly interesting, as it was widely speculated that plans to democratize Dunk access in 2021 were disrupted, but the eventual unfolding of those plans in 2022 hasn't slowed things down for the broader category.
Maybe you might have thought that the very best releases of last year would hold their ground. However, we examined the top 10 sneakers of 2021, as selected by Complex (highly subjective and a list this writer would contend with, but a popular and representative source nonetheless), and on average, those sneakers are down 16% since the end of Q1. Slightly worse than the rest of the samples.
What about The Ten? Surely one of the most memorable and iconic collaborations of the last ten years - between Nike and Virgil Abloh’s Off-White - would march higher regardless, right?! Since the end of Q1, eight of the Ten have sold on StockX in size 10.5. On average, the most recent sale was 22% lower than the last sale of Q1, and six of the eight were down. Even the “Chicago”-inspired Jordan 1, a modern grail, lost close to 40% of its value in that short period.
Now, the Ten is - or at least was - comprised entirely of four-figure sneakers. This brings us to an important note. 21 of the sneakers we tracked had a resale value over $1,000 as of the end of Q1. On average, those sneakers lost 19% - worse than the overall average.
Speaking of Chicago Jordan 1s, we have an apt illustration of what can happen to an older sneaker when that model and colorway is re-released. The OG Jordan 1 in the Chicago colorway last released in 2015. Later this year, the sneaker will release again (albeit with a slightly different spin and story). That renders the 2015 release a bit less appealing, and that’s reflected in the data, as values dropped from over $2,000 in March to lows below $1,300 in early August (before a very recent rebound).
Finally, after a tremendous 2021 that saw several New Balance releases and collaborations among the most discussed, some of the top New Balance sneakers from last year pulled back 19% on average. That’s perhaps the result of more speculative activity in the brand over the last year than has typically been the case.
On the whole though, the fairly consistent 15-20% declines from peak values are more modest numbers than sensational headlines and conclusions might imply. Taken in tandem with the fact that many of those values remain wildly above retail prices, "correction” likely presents a more appropriate characterization than "crash" for the time being, particularly given signs of stabilization, though further weakness could certainly void that assertion. But when a market has marched relentlessly higher for years, it’s easy to see why any falling prices might feel instead like a falling sky.
Sneaker skeptics beware: while this correction-verging-on-bear-market could last as the varied bearish factors persist, demand for the right pairs is still awe-inspiring. A pair of regular old Air Force 1s retails for $110. But add Virgil Abloh and Louis Vuitton to the mix, and you’ve got the Air Force 1s that retailed in July for $2,750. If you thought that was expensive, perhaps stop reading now. Many of those pairs are reselling comfortably in the five-figure range, often in the mid-to-high teens. If, on the other hand, that’s not enough to impress - a pair of the 200 Louis Vuitton Air Force 1s auctioned at Sotheby’s earlier this year returned to the auction block in June. Bidding pushed the value to $151,000 with buyer’s premium. With Sotheby’s and Christie’s committed to selling high-end sneakers, and now even Heritage Auctions establishing a sneaker department, there’s clear business belief that the high-end collector will continue to chase grails.
And off the high-end, as long as scarcity as a business strategy persists at the brand level, there’s reason to believe the sneaker economy won’t come fully untied. In the meantime, if you’re somebody buying sneakers to wear, the sneaker market may not have “crashed”, but it’s certainly on sale!
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