You can run, but you can’t hide.
Just like how the coronavirus pandemic has crashed the global economy, shockwaves stemming from the crisis have finally caught up with the sneaker resale market, which was a booming market until just a few months ago.
Cowen & Co, an investment bank, estimated that the global sneaker resale market was worth US$2 billion in July 2019, and projected that by 2025, the value of the market could triple to US$6 billion, driven by strong demand from sneakerheads willing to pay a premium for limited edition kicks and a lean supply of inventory coming from major players like Nike and Adidas.
The coronavirus pandemic however, is challenging both of these drivers.
In China, where the sneaker resale craze peaked late last year with limited edition shoes fetching up to 6,600% returns, sales have fizzled as aficionados and financial speculators alike retreated to the sidelines.
China is the world’s largest consumer market , with over $5.8 trillion in retail sales last year. However, retail sales have plunged in the first quarter of this year in the wake of the coronavirus outbreak, as China recorded its first quarterly GDP contraction, with the economy shrinking 6.8%.
Consumer sentiment has turned more cautious and local governments are giving out shopping vouchers to stimulate domestic consumption. Big brands are likely to resort to sales and promotions to move inventory and return to growth.
At the end of March, Nike reported a 7% year-on-year growth in inventory to $5.8 billion, with gross margins affected by increased rebates to wholesale partners and higher costs due to factory cancellations to manage future inventory.
Buyers of expensive sneakers are in no hurry to return to the market, marking a reversal from the recent past when it was very much a sellers’ market.
Cheng Liang, a sneaker reseller who has been active over the past decade, goes as far as to describe to local media that the market for most sellers has collapsed.
For a reseller who purchased a pair of limited-edition sneakers in the primary market, such as from brands like Nike and Adidas, they might be able to just break even if they sold the sneakers now. If they had bought it at a marked-up price from a reseller in the secondary market last year, they would most likely be looking at a loss.
Speculators are getting flushed out, and in the US, sneaker sellers have commented on online forums that they have seen some “panic selling from people who don’t have their financial house in order”.
To be sure, as with other financial instruments, such moments could be great opportunities to enter the market at a good price. However, this hinges on the recovery of the resale market, which is in turn fueled by the health of the primary sneaker market where new releases are critical.
Supply chain disruptions brought on by the pandemic may delay the release of new sneakers, such as the Air Jordan XIII Retro “Flint” that was expected to be released in mid-April but got delayed to the end of May.
A recent survey of footwear industry experts by World Footwear showed a forecasted drop in global footwear consumption by 22.5% in the current year, with most experts believing that both the price and quantity of footwear sold will decrease over the next six months.
Tracking data for the broader sneaker industry is also looking bleak, with NPD Group reporting US sneaker sales declining by 75% year-on-year for the week ending April 4. NPD noted that while they saw strong e-commerce trends for sneaker sales, the uptick was not enough to offset the losses from brick-and-mortar’s temporary closure.
Nonetheless, ardent sneakerheads are still holding onto hope that demand from Gen Z consumers may prove more resilient than the broader market. However, the risk to brands and resellers is that demand could become much more volatile, showing up only for particular launches while leaving some out in the cold.
“In any crisis, blue-chip stock market picks will always survive,” Simon ‘Woody’ Wood, the founder of Australian sneaker magazine Sneaker Freaker, told Vogue Business. “If we’re talking about the art market, classics like Picasso and Van Gogh will always be money. Hyped Air Max and Jordans have that type of timeless appeal, but it’s a buyer’s market right now. Looking ahead, there is no way sneaker prices won’t drop; it’s just a question of how far.”
Guess we will just have to wait for the other shoe to drop.