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Sneaker-O-Nomics

Gone are the days when sneakers were worn only for sports, gone are the days when people refrained from spending extravagantly on footwear and gone are the days when exclusive limited-edition kicks were flaunted by only celebrities. If there’s a trend that has taken the world by storm in the last 4 years, then it would be the rise of the sneakerhead subculture across the globe. Sneakers have become an essential in every closet, the Indian sneaker retail market is anticipated to grow annually by 11.58%. Gen Zs and millennials look at the sneaker industry as a mode of self-expression with freedom of choice and opinion. Recently, on an episode of Shark Tank India, ‘Find Your Kicks India’-a sneaker retail startup garnered investment from all 5 sharks which is a rare occurrence. This article aims to take a sneak-peak into the sneaker-retail market In India. Forbes defines a “sneakerhead” as a person who is actively involved in the acquisition and trading of sneakers as a hobby. The sneaker culture finds its roots in the 1980's United States, with the emerging popularity of basketball and hip-hop. By 2010, it had branched out to the United Kingdom and the Czech Republic. With the “athleisure” segment gaining popularity in both the higher-end and lower-end fashion world, 2020 witnessed the global rise of the sneaker culture. There are four basic instincts behind human consumption of luxury goods which include ostentatiousness, camouflage, possession and competition.

Indian society is inherently very status-driven and thus the hype for sneakers played right into the mix. The growing popularity of sneakers, rise of consumerism, pop and celebrity culture has gradually led to sneakers becoming a luxury good, a collectible and has even given rise to a new profession of Sneaker reselling. More and more people are buying and selling sneakers now. However, fewer people are buying to wear, while there is a huge market for the ones who are buying to sell. Professional sneaker resellers spend egregious amounts of money to purchase limited-edition sneakers right after their release, as a result, they own all the stock and can manipulate the price in the resale market. Let's dive deep into how the sneaker resale market In India works. It all begins with the acquisition phase, Sneaker giants like Nike, Adidas release their shoes through “Drops” where a limited number of pairs are made available at a retail price only for a short period. Resellers find access to these exclusive kicks using connections with people working at official Nike and Adidas stores in countries like Dubai/USA.

Most retailers rely on their family/friends flying abroad to avoid paying hefty custom duties. Approximately 90% of the limited-edition kicks are nowadays available in India, however surprisingly not for the general public. The probability of the end-user getting their hands on them is as low as 0.1%. Resellers also strategically invest in systems like Bots, which is an automated conversational tool that alerts them regarding their release date and increases their chances of scoring shoes at retail prices. Many smaller re-sellers also regularly take part in raffles, where older resellers or sneakerheads hold a bingo-style event and each participant buys a ticket for a fraction of the shoe’s sum. The next step after the acquisition is profit maximization on resale. The growth of sneaker resellers brought with it the rise of applications like StockX, Goat and POIZON. These are platforms through which the reselling takes place and they also provide the resellers with linear graphs that indicate the change in the price of every single sneaker since the day it was released. By analyzing the graph, they purchase and sell sneakers to seek the greatest profit.

If you are wondering whether the sneaker resale market works in a similar way to the stock market then you are not wrong, except for the fact that it provides people with more market reach and much more profit! For sneaker resellers, each shoe is a stock, but the only difference is that once sold, they get consumed, and at each rotation, there is a depletion of the stock which rapidly drives up the rate. Anchit Kapil, 34, a co-founder of sneaker and streetwear marketplace Crep Dog Crew explains the price fluctuations through an example, he says “If 200 pairs are sold today, 180 might come back into the market, but 10 per cent is gone off the table. So the inventory has gone down and the prices, up.” The New York Times recently published an article that stated “Sneakers increasingly seem like the Dutch tulips of today.” Is it the case, let's figure it out. Before understanding how the sneaker resale market resembles the dutch tulip, it is pivotal to understand the Dutch Tulip bubble. It all dates back to the late 15th century, Tulips were first imported to the Netherlands from Turkey. It took more than 15 years for tulips to grow and thus it was a scarce commodity. Amongst the tulip family there was a special type of tulip which was known as “Broken Bulbs”which had a peculiar striped pattern on them.

Due to prevailing folklore about the broken bulbs, their demand went up exponentially and gradually the price. Tulips were now seen as a luxury good as people began spending more and more on it for self -satisfaction. Due to the consequent rise in demand, a year later, the price of tulips showed a dramatic increase. This change drew people's attention to the tulip market: nearly every person, rich and poor, participated in the tulip market. Trading tulips became the best way to earn quick money. People began to buy tulips with leverage, using margined derivative contracts to buy more than they could afford. As the price of tulips went up higher, the economic pressure on sellers went up as well. At the same time, fewer and fewer people were willing to buy them: consequently, the demand became less than the supply. Finally, someone determined to break the price floor and leave the free competitive market, selling the tulip at a relatively lower price.

This action triggered the domino effect: sellers scrambled to reduce the price of a tulip to be competitive. As a consequence, In 1637 the tulip market crashed. Although the resemblance between the sneaker resale industry and the Dutch tulip mania is uncanny since both display over-hyped profiteering trends that eventually fail after a brief period of glory, experts believe that a breakdown of such massive extent is unlikely for the sneaker industry because contrary to the tulip market where the main intent of investors was profit maximization solely, the proportion of such pure investors in the sneaker community is relatively smaller. The majority of resellers hold a personal interest in the products they exchange, helping to keep demand afloat. Thus . Furthermore, the Dutch tulip bubble was driven by opportunist cultivators who constantly kept increasing the tulip supply to gain more profits. Such risk is less in the sneaker market because the very business of sneaker resale relies on the absurd high-demand to supply ratios. Most hyped releases are extremely limited in quantity, and often do not see a return after their initial drop. As of today the sneaker resale market in India is thriving and is anticipated to grow exponentially in the next 5 years. Sneakers are the next big thing and investment in sneakers is just like investing in any other asset.

Risha Saini
First Year Undergraduate Student, SRCC

References

https://www.mrporter.com/en-us/journal/fashion/is-the-sneaker-bubble-about-to-burst-381624 2. https://www.researchgate.net/publication/350461101_Analysis_on_the_Current_Situation_and_Future_Development_of_Sneaker_Resale_Market 3. https://www.vice.com/en/article/g5g4aq/india-genz-sneakerheads-sneaker-resellers-hype

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