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How Far Can Sneakers Take Your Wallet?

Air Jordan 1 style sneaker.
photo by Timothy Tsui

Almost 35 years after Nike’s first Air Jordans hit the shelves, sneaker culture is thriving. Some enthusiasts argue that buying and reselling sneakers is akin to investing, but this argument – like Reebok’s popular ‘90s “Pumps” – is built on air.

Sneakers (or, in some parts of the country, tennis shoes) have existed in something close to their modern form since the early 20th century. But it was Nike’s deal with Michael Jordan in the mid-1980s that arguably marks the true beginning of sneaker culture. Today, people who care about sneakers care about them a lot. “Sneaker Con” marked its 10th year this fall, and people have been waiting in long lines for the next hot shoe for decades. Those lines have increasingly, though not exclusively, gone digital. And while reselling has been around since the ‘80s, it really took off with the growth of the internet and smartphones. Now many people hope to quickly enrich themselves by serving as a middleman for sneaker enthusiasts.

If you like buying sneakers because they make you happy, they are no worse than any other discretionary purchase. But like many other collections – whether wine, watches or classic cars – the question grows more complicated if you view the shoes not only as a source of pleasure, but as part of your financial strategy. If your interest in sneakers is primarily monetary, you should bear in mind that reselling any sort of collectible item can involve serious risks.

According to the investment bank Cowen Inc., the secondary market for sneakers is currently about $2 billion, with the potential to reach $6 billion by 2025. A lot of this reselling takes place online through platforms like GOAT (short for “Greatest Of All Time”) and StockX, which facilitate the secondary market on a massive scale. These companies are bolstered not only by their users, but also by venture capital, a model that has over-inflated some companies in the past. Some entrepreneurs even make a tidy profit teaching other people how to flip sneakers.

All this is possible, in part, because manufacturers have found it profitable to artificially constrain the supply of particular types of shoes while, at the same time, encouraging hype around their release. Matt Powell, a retail analyst, told NPR in 2012 that Nike actively encourages reselling by setting retail prices lower than what the market will bear. “I think they always try to keep the supply below demand level,” Powell said. “They want their shoes to sell out in a relatively short period of time, because that creates excitement for the next one around.” Producing limited runs allows Nike and other sneaker makers to charge a premium, but not so much that prices are a barrier to entry for most resellers. Collaborations with celebrities beyond the world of professional athletes have also boosted the prestige of particular releases.

A lot of money often changes hands over a single pair of sneakers before they end up in the hands of someone who wants to actually wear them. Yet all this raises the question of whether profiting off the secondary market is sustainable for individual resellers.

Reselling sneakers involves a variety of risks. One is the simple fact of competition. As more individuals try to resell a finite number of shoes, resellers can only mark up their products so much before competitors undercut them. This leaves sellers in a precarious position as the secondary market expands. In addition, sellers cannot always anticipate when and whether manufacturers will announce plans to rerelease a popular style. News of a coming increase in supply for a particular shoe can unexpectedly drop a seller’s potential profit.

Resellers also face the risk of picking up a counterfeit product. Technology can counter the risk of fakes to an extent. For example, Sneaker Con uses a microchip-based system to authenticate a given pair of shoes. But as long as people are willing to pay top dollar for the most popular shoes, a black market for counterfeits is likely to thrive. Sellers who discover they have bought fakes may have trouble getting their money back, leaving them stuck with the counterfeit sneakers.

The biggest risk, though, is buyers who are no longer interested in your inventory. Cowen estimates that 90% of the current resale market is devoted to Nike sneakers. Nike dominates the “best of” lists for sneakers: Nearly a quarter of GQ’s top picks are Nikes, as are 10 of Complex’s top 15 sneakers of 2019. This means that if some event damaged the Nike brand abruptly and severely, the resale market could suffer a major shock. Such company-specific disasters aren’t always foreseeable, and could include faulty or dangerous products, changes to technology or misbehavior from an executive or other leader.

In the end, someone will be left holding the bag if sneaker prices climb higher than the market will bear. This is true of an individual pair of shoes, and it is true of the secondary sneaker market as a whole. Relying on sneakers to support your feet is sensible; relying on them to support your financial goals is anything but.

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