The Business of Sneakers: It’s Probably Bigger Than You Think

The Business of Sneakers: It’s Probably Bigger Than You Think

With the recent merger of two prominent sneaker sellers, Flight Club and GOAT, we look at the business of sneakers from the first Nike Air Jordan to today.

Bergen County New Jersey, USA - September 8, 2013: A Nike Air Jordan III in a black and red colorway. The Air Jordan 3 was a pivotal release in the Air Jordan sneaker legacy. Said to be Michael Jordan's favorite shoe, this design was the first to feature the "Jumpman" logo.

It’s been 31 years since Michael Jordan and Nike teamed up to release his signature shoe, the Air Jordan, in 1984. Much like Jordan on the court, his sneakers have reliable swept their competition for years, with no other brand of sneaker being able to hold a candle to the Air Jordan revenue for long. Even after his retirement, the sneaker continues to be an important element of Nike’s success. The sneakers brought in $2.6 billion US in 2015 alone, making them the holy grail of athleisure wear.

Though the formula has never been quite as successful as it was when Jordan and Nike pioneered it, in a world where online influence gives public figures reach like never before, the celebrity-backed sneaker is still bringing athletic brands profit. Rihanna’s Fenty x Puma collection gave the brand an enviable income jump of 92% in the quarter the shoes dropped, generating revenue to the tune of $54 million USD. The sneaker seems to be here to stay.

Index Ventures, an entrepreneurial capital firm with 3.7 billion EUR in assets, has recently funded the merger of two deeply respected sneaker retailers that occupy niche corners of the industry. The company gave New York City’s legendary consignment shop Flight Club, and digital sneaker powerhouse GOAT (Greatest of All Time) a $60 million investment to join forces. While the companies will remain separate in terms of public branding, the fusion targets the multigenerational sneaker crowd, which could be the perfect recipe for long-term financial health.

A Tale of Two Companies: Flight Club and GOAT

(Photo Credit: Flight Club)

Enter Flight Club, opened in 2006, where sneakers rich with history line the walls from floor to ceiling, feeling a bit like the world’s most hip museum. The brick-and-mortar store on Broadway Ave. edged it’s way into a niche market by giving ‘sneakerheads’ (young men and women obsessed with collecting kicks) the opportunity to bring their rare shoes to a bustling storefront to put up for sale. Flight Club CEO Damani Weir was clearly on to something since statistics show the resale market for sneakers has risen 40% since 2004, reaching about $55 billion a year.

Sneakerheads get their kicks online

But, as we now well know, a strong digital presence is imperative for resonating with Millennials and their successors, Generation Z, since both generations are digital natives. The sneaker trend has endured long enough to reach their generation, but it caught on via apps like GOAT. GOAT covers all the bases that some of the more popular resale platforms like e-Bay does not: it offers professional services like shoe cleaning and pro photography for the sneaker you’re selling, and has a system in place to guarantee authenticity to the buyer. A quick e-Bay search for any high-end streetwear brand will quickly reveal how essential the authenticity guarantee can be to someone potentially spending thousands of dollars with a perfect stranger. (Though some buyers know, and do it for sport.)

(Photo Credit: GOAT App Screenshot – Shoe Cleaning Services)

According to Recode, Flight Club and GOAT combined gross $300 million annually, with GOAT taking about 12% of shoes sold through the app, and Flight Club taking a 20% commission from their consignment business.

Historic Fashion Houses Want a Piece of the Action

(Balenciaga Triple S Trainers, approximately $1100, if you’re lucky enough to find them)

If New York Times contributor Jon Carmanica’s melodramatic recount of his 8-month search for the Balenciaga sneaker tells us anything, it’s that legacy fashion houses are smart to warm up to the idea of creating sneaker lines alongside their typical women’s stiletto. Owned by the French luxury group Kering, Balenciaga reported unprecedented growth last year, attributed largely to its ability to connect with a younger generation through its streetwear releases, spearheaded by the ubiquitous Triple S.

It’s understandable, though ironic, that fashion houses with hundred-year histories could still have some growing up to do. As time marches forward and brands look for alternatives to shopping center sales or grapple with integrating new technologies that will keep their products at the fore, sometimes something simple like testing a new, relatable product is all that’s needed to get back in the good graces of the next generation of consumers.

“Now we have an entire consumer base looking at our brand from a new standpoint that Versace didn’t have in the past,” Salehe Bembury, Versace’s head sneaker designer, told Business of Fashion.

Boxed Up

No matter what a fashion brand’s target audience is, the right sneaker could do a world of good for the company’s revenue, public profile, and attractiveness as an acquisition target. We see Puma successfully reaching a new audience by aligning something they’ve always sold with a new face to reinvigorate their public image. We also see European luxury brands known for handbags and high heels using sneakers as a launch pad into the future, allowing them to stay relevant to a new generation while raking in the millions that the public has come to expect of a company that targets wealthy buyers.

So, if you’re an investor or M&A dealmaker eyeing new opportunities in the fashion market, and/or a closet sneakerhead, who’s your money on?