I was working on a creative title and a really long article about launching an eBay store with products you have purchased with the sole intent of reselling. I was going to dig into Coach, MK, or Yankee Candles, all products with resell value, but I figured I would do what I know best and explain how this market and all markets are shifting. I have a sneaker shop. I also have my own sneaker line (www.arch-usa.com). This makes me a bit unique in the sneaker biz. I have always had an attachment to sneakers from high school, through college basketball and as a head coach. Sneakers have been a part of my life every step of the way (see what I did there?). Anyway, my sneaker biz has adjusted and shifted over the last three years in a dramatic fashion. I used to wholesale shoes to more than 5 – 10 different big buyers. I now only work with 1 or 2 people on wholesale deals and this work is not as often as it once was. What has happened? Has the sneaker business lost steam? No, not at all.
These are the things that took place:
- In the last ten years I was one of the few people who sold sneakers in Memphis. In the past three years a lot of people watched and learned what to do (so they thought). In Memphis alone there are probably now more than 50 people buying and reselling shoes. As far as I’m concerned that’s cool. This means that people are starting their own businesses. You can’t complain about that.
- Memphis has a Nike Employee Store. Keyword: Employee… well the employees at Nike have a friends and family list. They can place 5 people on their list. A lot of people pay to play. They will pay upwards of 500-1500.00 dollars to get on that list. Those people are now buying shoes and reselling them. (This has had a major effect on the sneaker resell market.) Because Nike employees can’t actually start eBay stores or sell the shoes themselves, they have gotten savvy enough to have friends work with them. More important when I’m shipping I often see employees shipping shoes to Flight Club. I’m not throwing shade at Flight Club, I’m just saying these same employees are now in the market and they can compete directly with account holders for Nike. This has affected smaller chains not known as Footlocker or Jimmy Jazz.
- Memphis is the largest distribution center for Nike in the country. With any business this large there is theft. Consider this article http://bleacherreport.com/articles/2297827-man-allegedly-steals-15-million-worth-of-nike-lebron-12-shoes and then multiply this time 5 for the amount of shoes that are stolen and never reported http://sneakertalk.yuku.com/topic/172117/t/Nike-Memphis-Ring-busted.html. Well, not that many, but there are a considerable amount of stolen shoes out there and this has affected the resell market as well. Before, a particular Nike shoe might draw 100 dollars above retail for a person who was a reseller. (Which is ridiculous) These same shoes are now only drawing 25-50 above retail. Which is good for the buyer and it is as it should be. While the resell market is tanking, on some shoes, it is becoming a buyer’s market for shoes that they really want. Unfortunately when items are stolen very rarely does the person selling the shoe get retail for the shoe. They often take what they can get or take retail online. This means that more shoes are being made available and mom and pop stores are actually not selling out of the shoes that are supposed to be hot sellers. This hurts the mom and pop stores. Here is why:
- People who have Nike accounts are being affected by Nike’s aggressive futures ordering process. In the book Just Do It by Donald Katz (a must read), he discusses how Nike forces their accounts to order shoes 6 months ahead of time in order to get the shoes that will be the “hottest” shoes. The problem with this is mom and pop stores also have to take on either Nike or Jordan Brand shoes that aren’t “hot”. Those shoes sit and eat away at any profits garnered from the sale of the “hot” shoes. Take for instance a store gets to have 18 pair of Air Jordan 11 Retros. These shoes are easily the hottest shoes from Jordan Brand. That store also has to take on Air Jordan Flight or other styles that don’t sell at all and often sell at a loss. The mom and pop stores are now being affected by Nike Employee store shoes being sold as well as stolen shoes entering the market. As a matter of fact you can probably count the number of mom and pop sneaker boutiques in your city on one hand. It used to be that there were several stores that you could hit up, but those business are drying up and this is directly what Nike wants.
- Variants, Fakes, and the Chinese Mafia… Another thing that has hurt the overall market, Footlocker included, are the websites that sell variants/fake Nike shoes. In Memphis for years there was a flea market. I used to set up there on the weekends. I would go to the Nike Clearance Store and buy shoes to resell at the market. My claim to fame was that I was the only guy in the market selling real Nike and Jordan shoes. The rest of the market were fakes. When they busted the market in 2011 some of the vendors had already made 5000 bucks that day. I mean these guys were making 10,000 a weekend selling fake Nikes. It was incredible. Well with that market gone and Nike doing a better job of cracking down on fakes at flea markets, the consumer began buying direct from China. Remember I was going to get into Coach and MK? These same people buying Nike are also buying fake purses and clothing. Once again this not only affects trust in the online resell market, but it affects brands. Hell with the rise in fakes even Coach has seen a hit to their margins and is closing a lot of stores (which could be chalked up to the growth of other lux brands, but for the sake of this article it is what it is), peep: http://www.stltoday.com/business/local/coach-plans-to-close-stores-in-fiscal/article_42188f85-4737-5fa4-9ea0-d96a14d9cdfd.html
- On top of all of these issues is the fact that Nike is making a push to make their shareholders very happy. What does this mean? Remember those aggressive tactics with futures that are phasing out mom and pop stores? Well in this article we see that Nike supposedly took a hit last year. But in the small print Nike increased it’s direct to consumer sales. Their margins are stronger than ever which is really bad news for small accounts. http://www.fool.com/investing/general/2014/04/01/what-to-make-of-nikes-third-quarter.aspx Why would I say this? If I increase wholesale costs to 60%, which is what has recently happened to accounts with Nike, taking on those items that don’t sell are going to really kill you. Especially when you decide to raise your prices on all of your models. A pair of Air Jordans about 5 years ago was 160.00 retail. Those same shoes are now 190.00 retail. When you look at the costs associated with buying Nike for smaller stores, and then you add in that Nike is also making smaller stores take on more apparel which almost always sells at a break even point or a loss. If you add all of these things together you get Nike basically pushing the mom and pop stores out of the game to increase their own direct to consumer sales. Take a look at the article on fool.com and you will see how big the increase in direct to consumer sales is. Also pay attention to the growth of Nike Stores in your area. In Memphis alone there is a Nike Clearance Store, Nike Employee Store and in about a month Nike will be the anchor at a Tangiers Outlet Mall being built just about 15 minutes from the current Outlet store. This will be in Mississippi and will be in direct competition with stores like City Gear, and Finish Line in Southhaven, Mississippi as well as any mom and pop stores in North Mississippi. What better way to increase your overhead than by forcing smaller stores to close and improving the online and direct sales?
What does all of this have to do with the resell market? A lot. Resellers are having to focus on getting only the best shoes released and even this isn’t helping them anymore. Let’s look at numbers here: A reseller purchases a pair of Air Jordan 10 Retros. They cost 190.00 plus tax or 205.00. The average price of a shoe on eBay (I’m not on eBay by the way so don’t look at me sideways) is around 249.00 with free shipping. There are people who are trying to make a living reselling these shoes. eBay fees are about 12%. Take that 205 dollars and add 12% or 30 dollars. That shoe is now 235.00 dollars. Shipping costs about 15.00 dollars. Where is the profit in that? In other words, all of those buyers that used to buy shoes from me are basically dying off. The shoe market is now adjusting and to make things even better Adidas and Kanye are now making Adidas a viable product again. This means that people will no longer only have to wear Nike to be cool. Hell when you consider the “best” shooter in the NBA is wearing Under Armour it’s only a matter of time before people begin seeing UA as an option. Nike may have made a poor decision in adjusting their prices, but really did they? No. Their direct to consumer sales are increasing which will account for the loss of sales to other brands and at the end of the day they own the feet of 90% of the NBA. What’s the point of this article?
It’s a good time to be a sneaker lover. For the first time in years those who want a particular pair of shoes are getting the chance to grab something they really want and they aren’t having to pay too much to play.