Sneakonomic Growth: What Makes a Sneaker Valuable?

Last month, the Altan Insights team covered the performance of the fractional sneaker space to date. Today, we’re zooming out to provide greater context on what makes a sneaker valuable to begin with. How does a sneaker that retailed for less than $200 find its way to a $20,000 valuation and the land of fractional ownership? Or to the Sotheby’s auction block? Read on to find out.

 

Sneakerheads are a committed group. For them, most Saturday mornings are devoted to hopelessly opening Nike’s SNKRS app, frantically searching retailers from Foot Locker to boutiques, and completing CAPTCHAs (where are the traffic lights?!), all in hopes of securing the latest drop. Often, the only things secured are “Ls”, and from that frustrating rite-of-passage sprouts the growing sneaker resale phenomenon. Due to the significant imbalance between supply and demand, secondary market sneaker prices are frequently multiples of a given pair’s retail price. What was theoretically a $160 sneaker at 10:00am, when the possibility of acquiring them still lingered, is a $480 sneaker by 10:05.

Much to sneaker purists’ chagrin, this dynamic has attracted fervent profiteering, bolstered by sophisticated bots and carefully cultivated connections, which enable the most successful resellers to acquire hot pairs in heavy volume. The headline-grabbing practice of acquiring for retail and selling immediately at elevated prices on the secondary market is flipping, not altogether the same as embracing sneakers as a collectible asset class.

But what’s the difference really?

In flipping, appreciation for what makes a sneaker culturally valuable is not required to provide an edge. In fact, in today’s sneaker market, many would argue that hype has rendered that appreciation almost entirely irrelevant. If social media hype surrounds a sneaker, flippers will flip it – not because of anything particularly special about the sneaker itself, but because they know Nike will release a quantity dramatically lower than the demand built by the social media hype cycle. It’s more a matter of access, less a matter of acumen. Such a practice is common in any market where supply is insufficient to meet demand, and the retail price is therefore artificially stifled somewhere below where supply and demand intersect in reality. It’s analogous to the way in which many card flippers aren’t necessarily staking out retailers due to a long-term, bullish thesis on a given underlying card, but instead for the possibility of instant profit on offer.

The practice of flipping bricks (or discounted, ubiquitous sneakers) is somewhat of an "asset" play, though it's more akin to arbitrage resulting from market inefficiency. Due to the fragmentation of the sneaker markets, a brick-flipper can spot excess supply at a discount in one channel, unsatiated demand at a higher price in another channel, and bridge that chasm. Interesting, but potentially unsustainable, and best executed at high volumes.

Alternatively though, just as with other collectible assets, it is possible to devise a capital appreciation thesis for a given pair of sneakers, based on various criteria. Such criteria aren’t exclusive to the below, but these stand out among the most influential.

Richness of the sneaker's backstory

Was it the debut of a successful model? A landmark collaboration? The signature sneaker of an athlete worn in a decisive moment?

Without rich associated stories, sneakers very infrequently command high values. It would be a misconception to believe that a sneaker becomes valuable solely on the basis of “looking cool”; that matters, yes, but it’s rarely enough on its own. Before we go any further, let’s debunk the idea that cool-looking sneakers are analogous to valuable sneakers. We see it all the time – two pairs of sneakers appear virtually identical, but due to one small tweak, there’s a $1000+ differential in market value.

We mentioned the Air Jordan 1 “Colette” in our recent blog – a special pair of Jordans made in limited quantities to commemorate the closing of the French boutique. These sold for over $23k with Sotheby’s. Meanwhile, the “Storm Blue” Jordan 1, essentially identical to the Colette, but missing the “1992” and “2017” printed on each pair and the “Bonjour” and “Au Revoir” on the outsole, sells for approximately $600. Minor differences in appearance, huge differences in value owing to story & scarcity.

Take for another example, the Jordan 3 in “Fire Red” and “Varsity Royal” colorways. These are roughly $250 sneakers on the secondary market. Now take their very similar looking counterparts made in collaboration with DJ Khaled in very limited quantities. These are $5,000 sneakers, give or take a grand. Both were released in promotion of one of the artist’s new albums, and whether you’re a fan or not, it’s clear that the combination of his promotional capacity (24mm Instagram followers) and extreme scarcity (more on that next) can make all the difference in market values.

The main takeaway from these examples: aesthetic alone is not enough.

And what about backstory? Consider two Jordan 1 retro releases from 2016, one in a black and red colorway, the other white and metallic navy blue. Both were colorways back way in 1985. But the black and red colorway sells for 3-4x the metallic navy. Why? Well, that black and red colorway is better known as the “Banned” colorway, and it epitomizes the mythology of the Jordan 1. Nike expertly marketed the Jordan 1 in that colorway as the sneaker banned by the NBA; Jordan had, in actuality, worn a black and red Nike Air Ship in garnering a reprimand from the league, as black was not a primary uniform color for the Bulls.  Still, the marketing worked wonders, and the “Banned” Air Jordan 1 remains among the most sought after today.

Collaborations can also enhance the richness of a sneaker’s storytelling. Whether it’s a brand collaboration with a retailer, an artist, a designer, a celebrity, or another brand, the sneakers are usually developed to fit a certain theme or concept. Speaking of concepts, let’s use the sneaker retailer, Concepts, as an example. They’re considered a master collaborator, having worked with several brands on countless well-regarded sneakers for over a decade. Concepts, which hails from Boston, is perhaps best known for their Lobster Nike Dunk SBs. The first of those pairs, the Red Lobster, was released in 2008, and was designed to evoke imagery of the New England lobster bake. That first pair has inspired several other “Lobster” colorways, and has become an icon. The Red Lobster frequently sells for over $2,000, while the Yellow Lobster, which debuted a year later in lower quantities, now costs more than many cars. The collaborator, the theme, the sneaker model, and the reputational success that followed all contribute to a rich story here.

Scarcity & the pace of deadstock supply digestion

Were the sneakers released in limited or large quantities? Are they making their way to feet, thereby reducing the supply of deadstock pairs? Or is there still a huge volume on StockX and GOAT?

All else equal (aesthetic included), scarcity is often the difference between the next four figure flip on StockX and the bricks sitting in the sale section. This is a familiar factor for connoisseurs of any collectible. People want what not everyone can get. And while it’s just one piece of the puzzle, limited quantity releases can do a strong favor for secondary market prices, so long as the other pieces of the puzzle are sufficient to generate demand well in excess of that reduced supply.

But the scarcity story doesn’t end at release. In the immediate aftermath, it bears watching if a given drop was devoured by resellers without strong underlying collector demand. This means fewer pairs ending up on feet. If that’s the case, the deadstock supply available on the market will remain elevated, and prices will drop to meet that weaker than expected demand. Conversely, satiated end-user demand in the immediate aftermath of release will reduce deadstock supply quickly, potentially yielding larger future price increases.

A recent example would be the Air Max 90 “Infrared” release from late 2020. Despite being a high-volume release with muted flip potential, pairs found their way to StockX and GOAT in droves. As it was not a particularly difficult pair to find, the price fell from the mid to high $100s towards $130 a few months after release, a $10 discount to retail. With some of the deadstock supply being thinned out of the market, the sneaker has rebounded back towards $180. The 2015 release of the same sneaker eventually worked its way in to the $300s before news of this 2020 drop broke.

Cultural relevance and significance

Does the sneaker resonate past the realm of the sneakerhead niche for myriad reasons?

Jordan sneakers aren’t popular solely because Michael Jordan was really good at basketball or because they’re cool-looking. They’re popular because he was really good at basketball, he’s a global icon that transcended sports, he made Nike into a global phenomenon wearing their shoes, the sneakers are a bedrock piece of street fashion, and their must-have, sometimes unattainable nature fueled further must-have, unattainableness. Those are merely a few reasons, but a run-on sentence can’t run on forever.

This is where Rares is really placing a major bet with their $1.8mm acquisition of the Yeezy prototype. It’s a sneaker that sits uniquely and historically at the intersection of music, culture, fashion, business, and sport, both because of Kanye himself and because of everything that followed for Yeezy sneakers with Nike and Adidas. The platform’s 1990 Apple sneakers are similar in their ability to broadly traverse pop culture.

Photo: Rares

Or consider the Dior Jordans that released in 2020. Sure, sneakerheads alone would have made this release a smash-hit, but it was the notable intersection of sneaker and streetwear culture with high-fashion, two worlds growing ever closer in recent years, that attracted interest beyond sneaker-centric blogs and IG pages.

The likelihood and implications of re-release

Is Nike going to re-release this sneaker frequently, or is it permanently one for the archives? Will are-release tank value due to the new supply, or draw attention to the OG?

Considerations here can be a bit tricky, particularly in an era when “retros”, re-releases of old models, comprise such a large portion of key drops. So, collectors are left to ask, as they purchase an “OG” release of a model, whether future retros will be a detriment to their asset’s value, or conversely, if those future retros serve to amplify the importance of the OG. The latter is best evidenced by the massive values of good-condition, 1985 Air Jordan 1s. Those originals command tens of thousands of dollars, even though the Jordan 1 is one of the most longstanding, consistently released sneakers on the market. In this case, the OG’s value is boosted by the reverence for its standing as a foundational piece of sneaker culture, in addition to the rarity of examples in good condition given the passage of time.

On the flip side, a Jordan 11, which is among the very most beloved Jordan models, in its OG form from the 1995 release doesn’t fetch much more than double what a retro released in 2019 or 2020 commands on the secondary market.

Renowned collaborations aren’t immune to re-releases either. The original Animal Pack Air Max 1 release from Atmos and Nike in 2006 garnered prices over $2,000 on a fairly consistent basis….until 2018, when the sneaker was retroed (retro’d?). While sales of the original are infrequent fifteen years on, they’re certainly no longer consistently in excess of $2,000. Meanwhile, the 2018 release goes for just short of $500. Not to pick on Atmos, but the 2007 release of the Atmos Elephant Air Max 1 effectively halved in value from $1,500 when the sneaker re-released in 2017. That’s not to say that the OG maintained in good condition can’t one day sell for multiples of the more common re-release, but that’s not a certainty today.

Certain sneakers have become part of borderline folklore, and therefore its hard to see how a re-release would be anything but detrimental. For example, Nike Yeezy releases have attained a premium of sorts due to the low likelihood of Kanye ever coming back into the fold with the Swoosh (despite recent appearances in Nike sneakers). The Staple Pigeon Dunk is one of the most memorable sneaker releases of all time, due to the ensuing riots and the portrayal of said riots on the cover of the New York Post (talk about a rich story). While variations and approximations have released, the luster of that historic sneaker moment would be tainted by another release. And so, the sneaker is worth close to $50k. It’s also part of the Otis x Staple collection.

The Staple Pigeon Dunk (center) as featured in the Otis x Staple collection. Photo: Otis.

While not an unmitigated death-knell to sneaker values, the likelihood, implication, and timeline of a potential re-release must be considered in relation to the intended holding period.

Potential to draw previously disinterested demand - Are trends, whether fashion, cultural, or otherwise, going to drive new demand to previously disregarded models?

The case study here is a simple one. If you believed that Nike Dunk SBs were going to come back into vogue before 2020, or better yet 2019, you stood to make a lot of money. As part of a years long strategy to make the Dunk highly coveted, Nike brought the frenzy to a crescendo in 2020, delivering millions of Ls on the SNKRS app to a mainstream public suddenly rabid for the sneaker. Whether it was the Ben & Jerry’s Chunky Dunky, the Grateful Dead pairs, or Travis Scotts among many others, nary a week went by in the sneaker world without a Dunk dropping to great acclaim.

What’s important for this discussion, though, is that the rising tide of the Dunk frenzy also lifted the boats of Dunks released in years past. The Newcastle Brown Ale Dunk, released in 2008 for $90 and a $300 sneaker as recently as 2018, tripled to over $900. The Heineken Dunk, released for $65 in 2003, traded for around $900 in 2018. Now? It’s a $4,000 sneaker. The Purple Lobster Dunk SB by Concepts is an even more recent example. Released in late 2018 for $130, the Purple Lobsters spent the first half of 2019 below $400, breaching $600 by the end of that year. Today, sales are often above $1,500. If you managed to get this pair at retail (it wasn’t the hardest drop of all time), kept them on ice, and sold today, you would have achieved a return of over 1000% in under three years. Even if you missed at retail and felt the Dunk wave building at the end of 2019, you’d still be looking at 2.5x.

The 2020 Dunk wave is an extreme example, but still, the sneaker market abounds with tales of well-theorized bets on future demand growth for certain pairs.

These factors, when examined as applicable, can inform theories for the future balance of supply and demand. The practice of devising such a thesis requires no bots, no connections, and no backdooring – just research, experience. foresight, and a keen sense for market trends.

At the high end of the market, comprised of those pairs most analogous to works of art- museum-grade sneakers – something else is required: capital, and lots of it. Those sneakers that have scored well across all criteria are the ones that can command five or six figure sums.

That, of course, is where fractional investing comes into play.

Consider some examples and how they perform against our framework.

The Nike Air Mag, trading on Otis, was released in 2016. The sneaker has a rich backstory, featuring in Back to the Future 2 when self-lacing sneakers were just a zany, futuristic idea. They were released in limited quantity, with just 89 pairs made.  They’re highly relevant beyond the sneaker world, given the global popularity of the Back to the Future franchise across various age brackets and demographics. They have re-released – 2011 saw a release of 1,510 pairs (they didn’t lace automatically), while the 2016 release did in fact sport the auto-lacing technology. Though the technology has arrived, large-scale re-releases are unlikely given the unwieldy and detailed nature of the sneaker’s construction. Instead, Nike often opts to release different models in a “Mag” colorway.  Finally, as more high-end collectors emerge, as has been the case in the sneaker space over the last several years, these are often among their target grails for all of the aforementioned reasons – Travis Kelce notably splurged for a pair after signing a contract with the Chiefs.

Photo: Otis

The framework holds up for more memorabilia-centric sneakers as well. Rally’s Kobe 2 sneakers, game-worn by LeBron in high-school, recently launched on the platform. Back stories don’t get much richer. Kobe, a budding NBA superstar near the beginning of a long reign, gifted the sneakers to LeBron, a high school phenom and likely the single most hyped high-school athlete of all time. The Kobe 2 is one of the most iconic ugly sneakers ever created, but this particular pair sports an American flag colorway, created in tribute following the events of 9/11. As Kobe would soon move on to Nike and LeBron would himself become a Nike athlete, an Adidas sneaker tied to both legends is potentially impossible to replicate, ticking the scarcity box. Given the global popularity of both men, as well as the memorable nature of LeBron’s high school career, the asset’s relevance extends well beyond the sneaker niche. Re-release has little bearing here, as the likelihood of another LeBron game-worn copy is negligible.

Similar things can be said of Collectable’s Kobe Game-Worn Reebok Question. The sneaker free agency story behind the sneakers is fascinating, and since Kobe was only a sneaker free agent for one season, pairs of Allen Iverson’s signature sneaker in Lakers colorways, game-worn and signed by Kobe, aren’t going to be easy to come by.

Photo: Collectable

Obviously, there are some really cool and fascinating sneaker offerings across the fractional space, but the question is how does a broader audience of sneakerheads take notice? The challenge for the fractional platforms, and it’s one that Rares is already dealing with, is reassuring sneakerheads that this practice isn’t a pollution of the culture, that it’s distinct from the flipping and the botting, and that it’s actually an outlet for the sneaker-as-an-asset urge that doesn’t gobble up pairs at retail. This is an opportunity to participate in the ownership of pairs that, for the most part, most of us would have no shot at owning outright. The mythological sneakers: rare PEs (player editions), auction block favorites, friends & family editions.

Sitting as we are in the early innings of this entire fractional landscape, it’s clear that greater participation and greater efficiency take time to cultivate. With Rares launching, the likes of Otis and Rally continuing to offer access to the grailest of grails, and Collectable starting to bring memorabilia to the space, there’s reason to believe a broader sneaker population can find their way to the fractional arena. And that population is large, active. and passionate. Resellers. Brick Flippers. Sneaker purists. All might find common ground in appreciation for previously unattainable icons.

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