The secret sneaker market — and why it matters | Josh Luber

496,974 views ・ 2015-12-11

TED


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00:13
This is the Air Jordan 3 Black Cement.
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This might be the most important sneaker in history.
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First released in 1988,
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this is the shoe that started Nike marketing as we know it.
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This is the shoe that propelled the entire Air Jordan lineage,
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and perhaps saved Nike.
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The Air Jordan 3 Black Cement did for sneakers
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what the iPhone did for phones.
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It's been re-released four times.
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Every celebrity's been seen wearing it.
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There's a site about what to wear with the Black Cement.
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It's been right under your nose for decades
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and you never looked down.
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And right about now,
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most of you are probably thinking, "Sneakers?"
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(Laughter)
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Yes.
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Yes, sneakers.
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Some extraordinary things about sneakers
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and data
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and Nike
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and how they're all related, possibly, to the future of all online commerce.
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In 2011,
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the last time the Jordan 3 Black Cement was released,
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at a retail of 160 dollars,
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it sold out globally in minutes.
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And that's because people were camped outside of sneaker stores
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for days before it went on sale.
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And just minutes after that,
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thousands of those pairs were on eBay for two and three times retail.
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In fact, there's over 1,000 pairs on eBay right now, four years later.
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But here's the thing:
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this happens every single Saturday.
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Every week there's another release or two or three,
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and every shoe has a story
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as rich and compelling as the Jordan 3 Black Cement.
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This is Nike building the marketplace for sneakerheads --
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people who collect sneakers --
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and my daughter.
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(Laughter)
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That's an "I love Dad" T-shirt.
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For the brands, sneakerheads are a very important demographic.
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These are the tastemakers; these are the Apple fanboys.
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Because who else is going to buy
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a pair of $8,000 Back to the Future sneakers?
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(Laughter)
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Yeah, 8,000 dollars.
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And while that's obviously the anomaly,
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the resell sneaker market is definitely not.
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Thirty years in the making,
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what started as an underground culture
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of a few people who like sneakers just a bit too much --
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(Laughter)
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Now we have sneaker addictions.
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In a market where in the past 12 months,
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there have been over nine million pairs of shoes
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resold in the United States alone,
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at a value of 1.2 billion dollars.
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And that's a conservative estimate --
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I should know, I am a sneakerhead.
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This is my collection.
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In the pantheon of great collections, mine doesn't even register.
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I have about 250 pairs, but trust me, I am small-time.
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People have thousands.
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I'm a very typical 37-year-old sneakerhead.
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I grew up playing basketball when Michael Jordan played,
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I always wanted Air Jordans,
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my mother would never buy me Air Jordans,
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as soon as I got some money I bought Air Jordans --
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literally, we all have the exact same story.
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But here's where mine diverged.
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After starting three companies, I took a job as a strategy consultant,
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when I very quickly realized that I didn't know the first thing about data.
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But I learned, because I had to,
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and I liked it.
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So I thought, I wonder if I could get ahold of some sneaker data,
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just to play with for my own amusement.
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The goal was to develop a price guide,
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a real data-driven view of the market.
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And four years later, we're analyzing over 25 million transactions,
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providing real-time analytics on thousands of sneakers.
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Now sneakerheads check prices while camping out for releases.
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Others have used the data to validate insurance claims.
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And the top investment banks in the world
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now use resell data to analyze the retail footwear industry.
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And here's the best part:
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sneakerheads have sneaker portfolios.
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(Laughter)
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Sneakerheads can track the value of their collection over time,
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compare it to others,
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and have access to the same analytics you might
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for your online brokerage account.
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So sneakerhead Dan builds his collection and identifies which 352 are his.
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He can see it's worth 103,000 dollars --
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frankly, a modest collection.
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At the asset level, he can see gain-loss by shoe.
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Here he's made over 600 dollars on one pair.
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I have one of those.
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(Laughter)
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So an unregulated 1.2 billion dollar industry
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that thrives as much on the street as it does online,
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and has spawned fundamental financial services for sneakers?
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At some point I asked myself what's really going on in the market,
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and two comparisons started to emerge.
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Are sneakers more like stocks or drugs?
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(Laughter)
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In fact, one guy emailed to say
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he thought his 15-year-old son was selling drugs
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and later found out he was selling sneakers.
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(Laughter)
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And now they use the data to do it together.
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And that's because sneakers are an investment opportunity
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where none other exists.
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And I don't just mean the kid selling sneakers instead of drugs.
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How about all kids?
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You have to be 18 to play the stock market.
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I sold chewing gum in sixth grade,
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Blow Pops in ninth grade
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and collected baseball cards through high school.
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The cards are long dead,
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and the candy market's usually quite local.
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For a lot of people, sneakers are a legal and accessible investment opportunity --
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a democratized stock market,
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but also unregulated.
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Which is why the story you're probably most familiar with
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is people killing each other for sneakers.
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And while that definitely happens and is tragic,
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it's not nearly the epidemic some media would have you believe.
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In fact, it's a very small piece of a much bigger and better story.
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So sneakers have clear similarities
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to both the stock exchange and the illegal drug trade,
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but perhaps the most fundamental is the existence of a central actor.
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Someone is making the rules.
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In the case of sneakers, that someone is Nike.
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Let me walk you through some numbers.
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The resell market, we know, is $1.2 billion.
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Nike, including Jordan brand,
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accounts for 96 percent of all shoes sold on the secondary market.
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Just complete domination.
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Sneakerheads love Jordans.
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And profit on the secondary market is about a third.
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That means that sneakerheads made 380 million dollars
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selling Nikes last year.
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Let's jump to retail for a second.
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Skechers, earlier this year,
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became the number two footwear brand in the country,
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surpassing Adidas -- this was a big deal.
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And in the 12 months ending in June,
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Skechers's net income was 209 million dollars.
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That means that Nike's customers
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make almost twice as much profit as their closest competitor.
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That --
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(Laughter)
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How is that even possible?
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The sneaker market is just supply and demand,
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but Nike's gotten very good at using supply -- limited sneakers --
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and the distribution of those sneakers to their own benefit.
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So it's really just supply.
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Sneakerheads joke that as long as it's limited and Nike, they'll buy it.
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Shoes that sell for 8,000 dollars do so because they're very rare.
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It's no different than any other collectible market,
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only this isn't a market at all.
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It's a false construct created by Nike --
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ingeniously created by Nike, in the most positive sense -- to sell more shoes.
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And in the process,
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it provided tens of thousands of people with life-long passions,
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myself included.
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If Nike wanted to kill the resell market, they could do so tomorrow,
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all they have to do is release more shoes.
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But we certainly don't want them to, nor is it in their best interest.
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That's because unlike Apple, who will sell an iPhone to anyone who wants one,
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Nike doesn't make their money by just selling $200 sneakers.
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They sell millions of shoes to millions of people for 60 dollars.
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And sneakerheads are the ones who drive the marketing
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and the hype and the PR and the brand cachet,
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and enable Nike to sell millions of $60 sneakers.
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It's marketing.
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It's marketing the likes of which has never been seen before --
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this isn't in any textbook.
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For 15 years Nike has propped up an artificial commodities market,
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with a Facebook-level hyped IPO every single weekend.
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Drive by any Footlocker at 8am on a Saturday morning,
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and there will be a line down the street and around the block,
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and sometimes those kids have been waiting there all week.
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You know those crazy iPhone lines you see on the news every other year?
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Nike lines happen 104 times more often.
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So Nike sets the rules.
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And they do so by controlling supply and distribution.
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But once a pair leaves the retail channel, it's the Wild West.
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There are very few -- if any -- legal, unregulated markets of this size.
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So Nike is definitely not the stock exchange.
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In fact, there is no central exchange.
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By last count, there were 48 different online markets that I know of.
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Some are eBay clones, some are mobile markets,
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and then you have consignment shops and brick-and-mortar stores,
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and sneaker conventions, and reseller sites,
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and Facebook and Instagram and Twitter --
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literally, anywhere sneakerheads come into contact with each other,
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shoes will be bought and sold.
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But that means no efficiencies, no transparency,
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sometimes not even authenticity.
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Can you imagine if that's how stocks were bought?
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What if the way to buy a share of Apple stock
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was to search over 100 places online and off,
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including every time you walk down the street
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just hoping to pass someone wearing some Apple stock?
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Never knowing who had the best price,
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or even if the stock you were looking at was real.
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That would surely make you say:
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[WTF?]
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Of course that's not how we buy stock.
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But what if that's not how we need to buy sneakers either?
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What if the inverse is true,
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and what if we could buy sneakers
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exactly the same way as we buy stock?
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And what if it wasn't just sneakers, but any similar product,
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like watches and handbags and women's shoes,
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and any collectible, any seasonal item and any markdown item?
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What if there was a stock market for commerce?
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A stock market of things.
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And not only could you buy in a much more educated and efficient manner,
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but you could engage in all the sophisticated financial transactions
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you can with the stock market.
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Shorts and options and futures
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and well, maybe you see where this is going.
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Maybe you want to invest in a stock market of things.
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Because if you had invested in a pair of Air Jordan 3 Black Cement in 2011,
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you could either be wearing them onstage,
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(Laughter)
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or have earned 162 percent on your money --
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double the S&P and 20 percent more than Apple.
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(Laughter)
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And that's why we're talking about sneakers.
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Thank you.
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(Applause)
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