Friday, June 24

‘Sneakers’: Sneakers become an investment asset for many young people | Business

A boy walks past a sneaker store in Berlin last December
A boy walks past a sneaker store in Berlin last DecemberODD ANDERSEN / getty

Gonzalo G. keeps a treasure somewhere in Madrid that he does not want to reveal, “for security reasons.” It does not give details of its value or its size, it only tells that it is a product that accumulates out of passion in a four-digit number. “A passion that, if I need it tomorrow, I can turn into money,” he says. His small fortune comes in pairs and brings laces: sneakers, the new alternative asset in which more and more people invest in the hope that they will appreciate and bring profits in the secondary market.

Shoe reselling is not new, but it has exploded with the pandemic. According to the Cowen consultancy, it grows at an annual rate of 20% and moves about 1,680 million euros per year in North America, with a potential to reach 25,200 million euros globally in 2030. But the most interesting thing is that Cowen classifies in a report the sneakers, as its fans call it, as an “emerging alternative asset” that can be purchased for collecting or investment purposes. In the opinion of this firm, these assets offer “premiums for illiquidity, provide diversification and have a positive profitability-risk relationship.”

Gonzalo G. started buying sneakers in 2015. “When I was a child my father used to say that sneakers were only for sports … I would have liked to have more.” At 44 years old, his collection is so large that he has not gotten to 60% of what he has. “I bring home 8 or 10 pairs to wear that month.” His hobby is shared by so many people that it has given rise to a secondary and speculative market that attracts young people from all over the world. In Ohio, 22-year-old Christian Baum was doing graphic design a couple of years ago, until one day he decided to get rid of a pair of sneakers he no longer wore. “I sold them for a lot more money than they had cost me,” he recalls. Now he is dedicated full time to “buy low and sell high” limited edition models.

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The fever of the sneakers It has been driven by collaborations, products that brands such as Nike or Adidas bring to the market by the hands of celebrities such as rappers Kanye West or Travis Scott, and, of course, models linked to the legendary basketball player Michael Jordan. Baum claims to earn “a couple thousand dollars” a month by reselling. In his personal collection he only has 70 pairs, but among them there are a Jordan 1 Royal from 1985. They were worth less than 2,000 euros when they arrived in his hands and now they are listed at 15,000. He does not rule out selling them in the future, but, for now, he is a retailer that buys shoes for $ 200 to resell them for between 500 and 1,200. With a few transactions a month you are satisfied. His clients are other young people between the ages of 16 and 30 who would not have to go to him if it weren’t for the fact that getting limited-edition sneakers in the primary market has become quite a feat.

Bots, raffles and speculation

The long lines in the stores have been replaced by virtual raffles, where you compete for the opportunity to buy a pair of sneakers the day of its launch. Nike, which has not wanted to participate in this report, has an exclusive application for this: SNKRS. The digitization of the sale of sportswear has been taken advantage of by resellers, who resort to tools such as bots or cook groups to sabotage the raffles and hoard the sneakers. “I’ve been using it for years and it has never touched me,” laments a user in a review of the application on Google Play. “Lots of bots, impossible to get a pair of sneakers,” complains another. The cook groups They are a kind of club where you pay a monthly fee to access links that allow you to skip queues, taking you directly to the basket to make the payment. They offer assistance in multiple languages, 24 hours a day, seven days a week. Bots are robots that help multiply the speed and number of purchase attempts, facilitating the possibility of gaining a place in the raffles.

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But Nike is not the only company affected by this phenomenon. “Bots cause a multitude of problems in our digital commerce. We have to set up a real technological infrastructure to stop them, ”Diego Martínez and Nacho Bermúdez, founders of the Footdistrict stores, state in an email. “We live the problem in each launch. We are talking about tens of thousands of simultaneous attempts to purchase a product, it is a challenge ”. Their biggest concern is that their “real consumer” will lose their shoes.

However, it is precisely this consumer and their willingness to pay inflated prices that makes this secondary market possible, admits Christian Baum: “Collectors get angry, but they pay, and that is what allows this to continue.” Yves-Alain Ach, finance professor at the Leonardo da Vinci School of Management, based in Paris, agrees: “People know they are overpaying and accept it … and the last one to buy that item will be the one to bear the loss” . For him, it is a “generation problem”, with people between 15 and 35 years old wearing “sports shoes all day and looking for ways to differentiate themselves”. In his opinion, that has made the market grow enormously and there is immense enthusiasm in each launch, which is already weekly. “This makes me think that, one day, this enthusiasm will die out and that the risk of losses will be very important for people who speculate and for those who have created activities around the resale of sneakers”Adds Ach.

Among the latter is StockX, a sneaker auction platform. Last year was its best year since it began operating in 2016, and Spain has not been immune to this trend: “The number of people selling from Spain has increased by almost 300% in 2020,” says Jesse Einhorn, senior economist of the company. Valued at more than 2.3 billion euros, StockX recorded 7.5 million transactions last year. A “growing number” of its users are investors, says Einhorn.

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Javi Lluch, director of the sports magazine Backseries, believes that the sneaker culture is being distorted. “In Spain, what encourages buying and reselling is that there is no dollar here and that people have no money … There are very young people and they buy models from which they can make a profit of 10 or 20 euros,” he says. “That is what is saturating the resale market.”

The big shoe brands don’t benefit from the secondary market. At least not directly. “When the offer is artificially limited, which some seem to be doing, the biggest beneficiary is the brand itself, because it generates a feeling of scarcity that has two effects,” explains Franc Carreras, professor of Digital Marketing at Esade. “On the one hand, that the client gets used to not letting the purchase opportunity pass when he has it, knowing that it may end very soon. And second, generating an aura of desire and interest for those limited products that are no longer available ”. Another beneficiary is, clearly, the intermediary. “And when this is another more savvy consumer, the brand exempts itself from responsibility and attributes it to the market.”

“Brands know that artificially limiting supply is going to create difficulties in accessing the product,” agrees Einhorn. “We have made the experience easier, without queues or bots … StockX has solved these problems, it has not created them,” he concludes.

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