How the sneaker industry is defying retail trends and winning investors
Adidas’s Yeezy Boost 350 had “sneakerheads” camping out for days ahead of their release.
When Danny Rimer learned that an online sneaker marketplace called GOAT was looking for investors to help expand its business selling must-have Nike Air Jordans and Adidas Yeezy, he suggested that his firm, Index Ventures, lead a $US60 million ($76.4 million) round.
“It had become quite clear the sneaker market was really taking off and these guys had come up with a way to make it easy to browse and buy and sell sneakers,” says Rimer, whose firm closed the fundraising round Tuesday. “It very quickly became a phenomenon.”
Index is just the latest firm to develop a fetish for the $US65 billion footwear industry.
While apparel sales are struggling overall, the sneaker market is thriving thanks to robust and enduring demand for limited-edition kicks and fashion sneakers. Plus it’s a category Amazon hasn’t devoured yet.
In the last three years, venture capitalists have thrown $US300 million-plus at more than 20 footwear start-ups, which promise to make shopping for shoes online easier-and to root out fakes in a category long plagued by counterfeiting.
The money pushing these products into Facebook feeds and on Pinterest boards comes from storied Silicon Valley firms like Kleiner Perkins Caufield & Byers and celebrities Mark Wahlberg and Will Smith. From Hollywood to Sand Hill Road, everyone is betting on feet.
Rothy’s in San Francisco sells $US125 flats made from discarded plastic water bottles, offering comfort to the eco-conscious. Luxury-craving layabouts can opt for $US140 suede slippers with leopard print tassels from Birdies.
Techies who want a hint of style that won’t overwhelm the casual workplace are snatching up wool sneakers from Allbirds. Stance is targeting “punks and poets” who consider socks the latest vehicles for hipster self-expression.
Men, growing as fashion-obsessed as their female counterparts, are the main target.
Neckties are languishing in closets due to casual creep in the workplace; smartphones have made watches unnecessary.
Socks and shoes are the final frontier for dudes itching to accessorise. US sport leisure shoe sales, a category that includes comfy, work-appropriate sneakers, surged 17 per cent in 2017 to $US9.6 billion, according to NPD Group.
GOAT, which stands for Greatest of All Time, is a marketplace selling new and used sneakers, mostly must-haves from Nike and Adidas. All shoes are inspected at facilities in Culver City, California, and Seacaucus, New Jersey. GOAT takes a 12.4 per cent commission on each sale, with the average order about $US300.
The site has 7 million members who have filled out profiles including their tastes and shoe size.
In addition to raising $US30 million, GOAT announced it is acquiring sneaker consignment shop Flight Club, which has physical stores in New York and Los Angeles. Combined annual sales are in the hundreds of millions, Chief Executive Officer Eddy Lu says.
Amazon sells a lot of shoes – $US3.7 billion worth last year alone, according to One Click Retail – but Lu and his investors believe there’s plenty of room for niche sites that focus on fresh and unique inventory.
“Amazon is great for toilet paper and dog biscuits,” Lu says. “There’s no soul when you buy on Amazon. The next generation of shoppers really values style and curation and buying something that isn’t a commodity.”
Sneaker makers limit inventory and have frequent releases to maintain the allure of their brands, which creates a secondary market for enthusiasts that GOAT estimates is worth $US2 billion.
Lines outside sneaker stores when new Air Jordans are released highlight the need for a specialised marketplace that takes a hands-on approach to fighting fakes, says Greg Bettinelli, a partner with Upfront Ventures, a GOAT investor. Amazon and EBay rely largely on complaints to find counterfeits.
Bettinelli, who worked at EBay when it purchased ticket marketplace StubHub in 2007, thinks the sneaker marketplace will grow to rival secondary ticket sales.
Forrester Research analyst Sucharita Kodali is more measured.
“It’s a trend that could be the next athleisure or it could go bust,” she says.
“There’s a chance you could be investing in the next Lululemon or Under Armour. It’s a lifestyle play.”