Group 10 by Lydia Ashton

General Industry Trends

2024-10-25 21:41:50 UTC

The sneaker resell market has grown over 600% in the last 10 years, showing the demand for luxury shoes to have increased dramatically. The biggest brands such as Air Jordan and Nike make billions of dollars annually on various sneaker models. However, the market is a lagging indicator of economic performance.

Economic Concepts

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Demand - The demand for luxury sneakers can be impacted by many things. For one, the colors on the shoe, the model of the shoe, the collaborators involved, and marketing scheme. When a prominent celebrity like Travis Scott wears a sought after shoe, it leads to more consumers wanting to emulate his style and buy them. If a shoe comes out in the iconic Bulls color-way, it will do better than a random combination of colors.

Past Scenario

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The sneaker resale market today is similar to past fads, like the Beanie Baby craze in the 1990s. Both rely on limited releases to create exclusivity, which drives up prices in resale. For Beanie Babies, when Ty Inc. would “retire” a toy, it caused demand to spike, just like when Nike or Adidas limit sneaker supply.

Demand spikes in both cases happened when people had more disposable income. For example, COVID stimulus checks gave people extra money to buy things like sneakers. Similarly, Beanie Babies saw boosts when people had extra funds from bonuses or tax returns.

New Perspective

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A big difference, though, is celebrity influence. Celebrities wearing exclusive sneakers like Yeezys keep demand strong, unlike Beanie Babies, which didn’t have cultural or fashion appeal. Plus, sneakers hold value longer, while Beanie Baby prices eventually crashed.

Conclusion (Positive Analysis)

2024-10-26 00:59:07 UTC

Benjamin found his niche and capitalized on the reselling industry by leveraging the scarcity and high demand of anticipated shoe drops when selling his shoes, especially by leveraging his social capital when selling to high profile clients and celebrities. The article highlights his reselling strategy of buying in bulk, and promoting his sales on social media. Through these strategies, Benjamin has been able to position himself as one of the top resellers in the growing and nearly $1 billion dollar industry as a primarily one man show, with a few employees that support his eneavors.

Conclusion (Normative Analysis)

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There are two main normative points highlighted or alluded to throughout the article. The first is the determination or grit that Benjamin has used to become the best in the game of reselling. It highlights how he had started at age 12 with the Galaxy drop and how he went all in on sneaker reselling after his Bar Mitsvah by using the money to buy one of his first bulk orders which started his main strategy. His continuation of effort in the industry through finding deals, making connections with high profile clients, and leveraging those respectfully to build his network. These characteristics paint Benjamin as a driven, motivated, successful, and almost trailblazer in the industry of sneaker reselling. The other main normative conclusion that can be found is the glamorization of wealth and materialism in pop culture. The whole industry is selling shoes for thousands and thousands of dollars over their original prices, and the limited supply of certain styles leads to exclusivity. Additionally, even Benjamin says one of his main motivations early on was when he used to watch Lil Wayne videos where he was wearing $100,000 chains and driving Rolls Royces and he thought that he wanted that for his kids and he became infatuated.

Reasoned Conclusion on Effectiveness

2024-10-26 00:59:53 UTC

Benjamin's strategy has proved to be very effective in his case. He built a multi-million dollar brand where he can make over a million dollars a year in sales, work with the biggest rappers and influencers in the world, and love doing it every day. His strategy of buying in bulk and then putting in the effort to find individual buyers works for him, but may not work for others. This shows that he has a lower opportunity cost that other resellers in this regard. Additionally, since he is known as the premier reseller for high profile clients and celebrities, it would be difficult for someone to build the same repertoire and track record to gain the same or a similar level of success within the field.

Article

2024-10-26 13:38:12 UTC

Introduction

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The article "Boomin! A day in the life of 16-year-old rare-sneaker dealer Benjamin Kickz" published in the New York Magazine explores the sneaker reselling industry through the lense of a day in the life of Benjamin Kickz. The article provides a peek into an average day of Benjamin, and explores how he found his niche and how he is cultivating his network and market. Benjamin's strategy developed into ordering in bulk from dealers who didn't want to put in the work of selling individual shoes, and then leaned on his network and his connections to sell shoes to celebrities and rappers. Because Benjamin was able to put in the work and the effort to build his network of high profile clients, at just 16 years old he was able to become the best in the game of sneaker reselling. The article also talks about the start of the contemporary sneaker reselling culture, and how Benjamin's big breakthrough with DJ Khaled allowed him to kick start his career.

Main Points

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Supply and Demand

While this article doesn't say it outright, the concepts of supply and demand are driving everything within the sneaker reselling economy. With the rise of specialty shoes and brand partnerships with atheletes, celebrities, and events, the supply of these types of shoes has become limited. This limited supply and special drops creates high demand and high prices in a reselling situation.

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Standard Equilibrium

2024-10-26 16:24:45 UTC

In the standard equilibrium model, the equilibrium point represents the balance where consumer demand for limited-edition sneakers meets the restricted supply set by brands. In the sneaker reselling market, this equilibrium is driven by high demand and intentionally low supply. Consumers, attracted by the exclusivity, celebrity endorsements, and unique colorways, are willing to pay premium prices for these limited sneakers. On the supply side, brands release only a small number of each model to maintain scarcity, which amplifies the sneakers' desirability and value. At this equilibrium, resellers like Ben can capitalize on both high prices and steady demand, setting a high resale value that reflects the appeal and exclusivity of his product.

Equilibrium After Demand Shock (COVID Stimulus)

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In the above image, the sneaker reselling market experiences a demand shock due to the influx of COVID-19 stimulus checks, which increases disposable income for many consumers. This additional spending power leads to a heightened demand for exclusive sneakers, represented by the rightward shift of the demand curve. As a result, the new market equilibrium forms at a higher price and quantity compared to the original equilibrium.

Equilibrium After Supply Shock (Shoe Re-Release)

2024-10-26 16:39:51 UTC

Here, the sneaker reselling market undergoes a supply shock due to the re-release of previously exclusive sneaker models by brands. This increase in available inventory shifts the supply curve to the right, resulting in a new equilibrium with a lower price and higher quantity than the original market equilibrium. The re-released sneakers reduce scarcity, which was initially a key factor driving high resale prices. As a result, prices decrease, and more consumers can afford these previously limited sneakers.

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Scarcity

Along with supply and demand, the scarcity of these shoes is the true driver of value. Extremely limited supply of very special drops drives up the value of specialty sneakers. In the article the "Foampoast One Galaxy" shoes were reselling for $70,000 with one person offering to trade his car for one pair of shoes. Scarcity of a specialty product means exclusivity for those who can afford/purchase a pair and that is a large aspect in today's pop culture. I can have this, and you can't.

External Effects On The Resale Market

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Opportunity Cost

Opportunity cost is also touched on throughout this article. The way that Benjamin made his money is by ordering in bulk off of other resellers, and then leveraging his connections and his social status to get those shoes to celebrities and other high profile people. Selling shoes in individual transactions takes time and effort, and many resellers didn't want to put that effort into a single transaction. Therefore, they had higher opportunity costs of selling shoes individually when compared to Benjamin. This is how he capitalized in his niche.

2024-10-26 17:03:42 UTC

Social Capital

Everything that Benjamin leveraged was based on his connections. His big break came when DJ Khaled started promoting him on social media to millions of followers. This started his fame as the "celebrity shoe supplier" and he continued to leverage this throughout his reselling days. Promoting on social media, having other celebrities shouting him out, and having them reference him through word of mouth continued to expand his social capital and fame, and enabled him to continuously grow his social status and capita.

Market Failure

2024-10-26 17:04:33 UTC

Fake Shoes are the biggest form of fraud in the shoe reselling industry. No one wants to find out that they paid a large sum of money for a pair of shoes that turned out to be fake. StockX verifies all their products to be real before a sale can be made.

Unintended Consequences

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Companies can choose to release more of a certain type of shoe, ultimately saturating the market. This can lower the value of a shoe, in turn taking money out of the resellers hands while also making a popular shoe more available for the normal consumer. One example of this is when Jordan brand released a large supply of Jordan's in 2016.

Information Imperfection

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Resellers tend to follow the shoe market and where to find the best information regarding a shoe release. This information gives resellers a leg up on acquiring the desired shoe for resale.

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Demand Shock - A demand shock for the sneaker industry is something that suddenly leads to a large increase in demand for a variety of reasons. The biggest example is the COVID stimulus checks, which sent an influx of money to many people across the country, leading to a large increase of people willing to spend the money to get a nice shoe.

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Supply - One of the large reasons prices are very high in certain shoes is because of there being a scarcity. With very little supply, it leads to suppliers wanting more to attain these "hyped up" shoes.

2024-10-26 17:05:45 UTC

Supply shock - When Jordan or Adidas announce a rerelease of sneakers to the public, they enact essentially a supply shock. With an influx more of a desirable sneaker being added to the market, more people can get them, which mitigates the affect of the scarcity. So when more people can get the shoe out of no-where, it leads to a decrease of price.

2024-10-26 17:06:53 UTC

When the economy is expansionary, it leads to the average consumer having more money to spend on luxury goods such as Jordans. On the contrary, when there is a recessive economy, people have to delegate more of their income to necessities. From 2009 to right before Covid, The economy was in an expansionary period. The economy was growing, and so was the sneaker market. We see that once Covid happened, the economy turned to a recessionary period. So while revenue still grew, it wasn't to the same magnitude it had been increasing at.

Challenges of The Standard Equilibrium Model

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(1) Fake shoes cause distrust and uncertainty within the market. If consumers don't trust that the shoes they are buying are real then they most likely will not purchase them. Distrust within the resale market causes a decrease in demand, this decrease could force resellers to lose out on sales.

(2) When companies release shoes, the limited availability of those shoes is a huge part of the demand. If companies decided to release a lump sum of shoes at any given moment then that would cause a large increase in supply. This increase would lead to a decrease in demand because the shoes would be less valuable do to the amount of shoes available in the market.

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(3) Resellers are experts of their trades, they know all the secrets, and some even get the scoop on a release from well known insiders. Regular consumers on the other hand do not know where to find all of this information, or simply are unable to access it. This information imperfection allows resellers to get a leg up on the normal consumer. When this happens, resellers are able to acquire enough of a shoe, when they resell it on the market, they can charge a higher price due to the increase in demand.

Why The Standard Equilibrium Model May Not Be Applicable

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The constant market failures, unintended consequences, and information imperfection are all considerable reasons for why the standard equilibrium model may not be applicable to the sneaker resale market. Even though companies like StockX and Goat do as much as they can to verify all the products sold on their sites, fake products get through from time to time. Fake shoes are sadly a constant in the resale market. Jordan is just one example of a company that saturated the market with a shoe release.

2024-10-26 17:10:24 UTC

A more recent example includes Adidas releasing a large supply of the new AE1 shoes (Anthony Edwards signature shoe). Since the shoes were regularly available in store or easily accessible online, demand on the resale market decreased. The large supply drove down the resale price of these shoes a considerable amount as well. Lastly, Information imperfection creates an advantage for certain resellers. When successful, these resellers can dominate the market, driving up demand and price all while lowering the supply of a certain shoe on the market.

Equilibrium After Demand Shock (COVID Stimulus) Continued

2024-10-26 17:43:14 UTC

Despite no change in supply, this increased demand raises the resale prices of limited-edition sneakers, as consumers are now both more willing and more able to pay those premium prices. Resellers like Ben benefit from the elevated prices, allowing them to maximize profits as consumer competition intensifies.

Equilibrium After Supply Shock (Shoe Re-Release)

2024-10-26 17:44:58 UTC

However, this increase in supply also diminishes the exclusivity and resale value, meaning resellers may earn lower profits as the market price adjusts downward due to the greater availability of these previously exclusive products.