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Tuesday, September 22, 2020

That’s shoe business: Resale market of Michael Jordan’s sneakers a multimillion-dollar industry

When these sneakers entered the resale market, they went anywhere between $9,000 to $38,000 depending on the demand.

Written by Shashank Nair | New Delhi | Updated: July 12, 2020 8:37:48 pm
Resale market of Michael Jordan’s sneakers a multimillion-dollar industry (Illustration: Suvajit Dey)

When Dior collaborated with the Jordan brand to market, among other items, Air Dior– a version of six-time NBA champion Michael Jordan’s first ever sneaker – the low-top product was priced at $2,000 with the high-top one marked at $2,200. There were only 8,000 made available on sale a couple of weeks ago for which about five million people registered their interest on the specific microsite.

However, when these sneakers entered the resale market, they went anywhere between $9,000 to $38,000 depending on the demand, according to StockX, which effectively acts as a sneaker stock market. It proved that those spending $2,000 or more to buy the product also had an eye on making a profit by selling them to those who were prepared to pay much more.

According to Cowen Equity Research, the resale market of shoes might be worth $6 billion in 2025, a claim made in early 2019. This effectively means that it’s not the $2,000+ price of the sneaker that both Jordan and Dior decide, but the resale value of the shoe, that dictates how the market reacts to it.

StockX provides a marketplace for sellers to sell sneakers at prices they choose. Buyers can either outrightly purchase a pair of sneakers or try to outbid other buyers, comparing prices as the app/website discloses price histories. The app makes its money by charging a flat 3 per cent payment processing fee on whatever orders they have and taking a 9.5 per cent cut on a sale made by new users – the latter figure keeps dropping if the new user keeps selling in the marketplace. StockX also withholds a buyer’s payment to the seller until the product is completely verified.

StockX was born out of the idea that what people collected as a hobby had some actually monetary value to it. It preyed upon the fact that sporting icons back in the day may have had memorabilia but the fans paying for it couldn’t be sure of the authenticity or availability. “You would typically try to buy two pairs of the same shoe; the other pair would go up in value and pay for the first. It was passion-led and helped you scale your collection or validate what you were doing. But over the last decade people have realised the economic aspect,” said StockX European director Derrek Morrison in an interview with a website named Malaysia Tatler.

How is resale value determined?

When Jordan and Dior create a product that they market for $2,000 and then that product goes in the resale market at a 350 per cent profit margin, one has to question what a company like Jordan, that made $3.1 billion for Nike in 2019, is doing.

Turns out that the multibillion-dollar company knows exactly what it’s doing when it allows its customers to make a profit upwards of $7,000 in resales.

If one takes the example of the Air Dior – the Jordan and Dior collaboration, in its first ever commercial sale, only allowed 8,000 pieces of the sneakers on sale. On the one hand, it increased the desirability of an already desirable product and secondly, allowed those 8,000 buyers to make a heavy profit in a lottery of anywhere up to five million people.

The resale market also reacts to trends and actions outside its realm. Take the example of The Last Dance – the 10-part ESPN documentary on Jordan’s last season with the Chicago Bulls. Sneaker sales shot up with StockX admitting that an unsigned version of the original 1985 Air Jordan 1s – sneakers that hadn’t been sold since 2017 – were now selling for an average over $7,000 as compared to around $3,000 before The Last Dance. A signed version of that sneaker, meanwhile, was put up for auction at Sotheby’s and broke the record for the costliest sneaker in history, clocking $5,60,000.

“We saw tremendous bidding up until the moment the sale closed, with the value more than doubling in the final hour alone,” Brahm Wachter, Sotheby’s Director of eCommerce Development, told CNBC. “That, coupled with strong international bidding from six countries on four continents, shows not only the incredible appeal of Michael Jordan as one of the most recognisable and legendary athletes of all time, but also that sneaker collecting is truly a global and growing market.”

Buyers beware!

Where there is so much value, there is also the chance of counterfeits – especially in the sneaker business. According to Morrison, there are stringent measures in place to ensure that buyers don’t get duped into putting their money in fake products.

“The much bigger problem arises when collectors or customers want to buy real sneakers and fall for counterfeits. We put a lot of resources and capacity into our authentication process to guarantee that nobody can buy or sell a counterfeit product from us. We also work with some brands to bring certain sneakers to the market exclusively through us. This is how we ensure that we can track a sneaker directly from the first customer in the long term,” said Morrison in an interview to GQ.

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