The resale game for brands such as Nike, Adidas, Supreme and Bape started as a hobby for most, but has grown into a full-time career for others, Joyita Sengupta writes.

The Shops at Aura is a sleepy, underground mall in the heart of Toronto where the halls are eerily quiet. That is, until you get to Essential Toronto, the brightly-lit shop packed with customers on any given afternoon, perusing the floor-to-ceiling sneaker display and the racks of hoodies and T-shirts carefully covered in clear plastic. Kids line up to try their luck at a Keymaster arcade game where the prizes are sneakers worth hundreds of dollars. Lambo, a french bulldog named after one of the owner’s cars, looks on while tethered to a bench in front of the register. Every single piece in the store was purchased or acquired through a licensed retailer and is being resold for profit.

Alex Zhang, Sean Matthew Hanes and Jarel Liao resold for around seven years before they opened Essential. And now, after a decade in the sneaker resale game, they have two locations and a third one in the works.

“It wasn’t livable at first. It was more of a hobby than anything. Maybe $15,000 or $20,000 a year at best,” said Mr. Hanes.

Things have changed for Mr. Hanes and his colleagues since. He said Essential brought in $100,000 in July alone. They hire people to line up in front of local shops before hot releases and fly out of town for ones not available in Canada.

Resellers contribute to a sneaker aftermarket that has been estimated by analysts to be worth somewhere between $500-million to $1-billion. (U.S.) While no one can say with any certainty which pair sparked the reselling business, sneaker collecting started early as the late 1970s with the rise of b-boy culture. Sneakers became a status symbol for the wearer and those around them. Capitalizing on dedicated enthusiasts or “sneakerheads”, the arbitrage of limited-edition shoes started on the streets, out of backs of trucks and eventually moved to online forums and marketplaces. What has happened over the last five years or so has been seen as a maturing of the industry as there are more resellers out there than ever before.

“This marketplace really grew out of people who are collectors and are really passionate about the product,” said Matt Powell, an analyst and “Sneakernomics” columnist for [market research group] NPD Group. “With the advent of resale marketplaces on the Internet, there are lots more people coming in that are solely profiteers. They don’t care about the products except for how they can make money.”

What started off as a hobby or a side hustle for most has grown into a full-time career for others. Brick-and-mortar sneaker consignment shops like Essential exist in almost every major city in North America.

A reseller’s success comes down to the most simple business principle: supply and demand. They need to be able to identify which shoes are going to be released in limited quantities, and get their hands on them before the average consumer does. With the most popular sneakers, aftermarket values can be staggering, particularly when compared to original retail prices. Kanye West’s Adidas Yeezy Boost 350 Turtle Dove retailed for $200 (U.S.) and now fetches around $1,700 if resold in new or “deadstock” quality. The Jordan 5 Retro Tokyo T23s were released in 2011 for $205, but if you missed out, Essential carries a pair and the going rate was $5,000 (Canadian). Prices are typically dictated by demand and scarcity, but like anything else, it’s up to the individual buyer and seller how much something will be sold for.

Most resellers and buyers track other sales of a particular pair of shoes to determine what the resale value should be. StockX, a U.S.-based online marketplace for sneakers, high-end watches and handbags, acts as a stock market with real-time updates, portfolios and indexes. By collecting data from sales on its own sites and others like it, StockX is another sign of how sophisticated sneaker reselling has become. But with that maturation and growth, there have been fears that the bubble may have burst on sneaker reselling.

“There’s still an unbelievable amount of profit to be made. To truly win is simply to be able to buy a pair of sneakers at retail and achieve instant arbitrage,” said Josh Luber, CEO of StockX. “The problem is that’s what everyone wants to do.”

Brands such as Nike and Air Jordan have historically dominated the secondary market by making more products than any other brands that have reached incredible resale values.

Now Adidas has become a major resale market mover after its partnership with Kanye West on the Yeezy line, the popularity of its NMD shoes and the overwhelmingly positive response to their new BOOST sole technology. While a growing brand awareness is something that Adidas has benefited from, the company has been careful to distance itself from what’s happening with the resale of its products.

“We appreciate the great demand for Adidas products, it is proof to us that our strategy ‘creating the new’ is working,” said Claudia Lange, head of global media relations at Adidas, in an e-mail. “Our goal is to create the best consumer experience possible, [and the company tries not] to sell its products to any person who we believe intends to resell merchandise.”

Claire Rankine, senior communications director at Nike Canada, echoed Ms. Lange in the company’s desire to keep their products out the hands of resellers. “We apply considerable resources to make sure Nike products are sold in authorized channels, both online and at brick-and-mortar retail. While not all such unauthorized sales can be stopped, our strong distribution network and channels in both brick-and-mortar retail and in digital are resonating well in the marketplace,” Ms. Rankine said.

But if Nike or Adidas want to prevent resellers from taking advantage of high demand, why not just release more of the sneakers that people want?

“Unrequited demand keeps the customer coming back for more,” said NPD’s Mr. Powell. “If brands meet demand, the customer loses interest.”

The cachet an exclusive shoe comes with often gives a boost to the whole brand, and leads to buyers turning to other models when if they can’t get the coveted pair they wanted.

The U.S. is still by far the largest sneaker resale market in the world, but Canada’s has been growing steadily. According to data collected by StockX, Canada is the largest market for sneaker resale outside of the U.S. and accounts for 26 per cent of the international market. An average of 4.34 per cent of the trades on StockX involve Canadians. Despite Canada’s proximity to American sneaker culture, retailers on this side of the border get far fewer pairs of a limited sneaker run. This, along with exchange rates and duties, drives up the retail cost for buyers and in turn, the resale value.

“We as Canadians pay a premium to get the stock in the first place and then there’s the risk of them not being legitimate. People would rather come into the store and see it themselves,” Mr. Hanes said, explaining why the Essential’s customers trust their shop over online sellers who may have lower prices, out of fear of unwittingly buying knock-offs.

Dalton Jackson started Sole Exchange, a Toronto-based sneaker convention, three years ago as a way for sneaker collectors and resellers to meet and do business in a safe environment. He took the convention on the road this year and discovered that outside of the usual hubs in Toronto, Montreal and Vancouver lies a customer base that is largely untapped.

“I think there are tons of sleeper cities where [demand] is on par with Toronto or even higher because it’s even harder to get,” said Mr. Jackson. “A lot of the consignment stores in Winnipeg or Halifax will depend on people from Toronto to supply the stock.”
Many of those who started off reselling sneakers have begun reselling street wear: casual clothing that combines active wear with hip hop, skate and youth culture. With a niche, but rabid fan base, brands like Supreme and Bathing Ape (Bape) put out T-shirts and hoodies that resell for around five times their original retail value. For example, a Supreme hoodie with its simple box logo on the front retails for $148 (U.S.), but resales for anywhere from $400 to $1,600 according to listings on online marketplace,

“It’s easier to make a profit with street wear because it’s way more limited than sneakers as a whole. The ways to get it are way more limited, too,” said Mr. Luber.

“Backdooring” is a term used for when someone is able to buy up stock outside of the general release, either through an agreement with a particular retailer or even someone at the manufacturing level. Those not able to make those kinds of connections can invest in bots for an e-commerce release to help make multiple purchases in a fraction of the time it takes most buyers.

Liam Cassidy, a Ryerson business student, started reselling sneakers when he was 14 years old. After earning around $30,000 a year in high school, the now 19-year-old opened Rerun a year ago, a small resale shop inside Toronto’s Chinatown Centre. While he originally planned on just selling sneakers, he developed international connections that help him bring in Supreme and Bape pieces and now carries far more clothes. He said the decision has earned him a comfortable living.

“It was a complete transition just because the market demanded more clothing than sneakers,” said Mr. Cassidy. “The market changes; what celebrities wear changes.”

The bot disruption

Resellers are notorious for cornering the sneaker and streetwear market by buying up stock before anyone else, and in huge volumes. But as more releases move online, how do they beat out every shopper with an Internet connection and fast reflexes? Enter bots.

Much like the ticket-buying bots the Ontario government is looking to outlaw, sneaker and streetwear-buying bots allow users to automate e-commerce purchases, bypass security checks and scoop up multiple items the very second they go on sale. And they do it all in a fraction of the time it takes for an shopper to manually make one purchase.

Alex Kabbara is the vice-president of AIY Expert Solutions, the company that developed the All-In-One sneaker bot, with offices in Lebanon and Australia. The AIO bot is one of the leading bots on the market and Mr. Kabbara says the number of worldwide orders has entered the five-digit range, with thousands of them coming from Canada. While most sneaker buyers lament the advent of bots, Mr. Kabbara says they’re going to need them to stand a chance at making purchases.

“People eventually have to start being better prepared; they’ll be pushed out if they’re using purely natural methods. It’s the nature of evolution,” he said.

But not everyone is buying into the bot craze. Sean Matthew Hanes of Essential Toronto, a sneaker and streetwear resale shop, says he hasn’t felt the need to invest in them yet.

“Bots do work but Supreme has become quite savvy when it comes to bots [and] they require money. We don’t even use bots,” said Mr. Hanes.

But as resellers start to see products move slower and less returns due to an oversaturation of the market, the future of sneaker bots and the companies that develop them remains uncertain.

“It’s something that’s brought up in every quarterly meeting. There is a drop in resale price [of sneakers] but it’s not a bubble bursting,” said Mr. Kabbara. “With that market, like any market, there’s lots of speculation.”

But he remains optimistic and believes that as the demand for sneakers and streetwear will continues, so will the demand for his software by those looking to have the upperhand.

“You can’t kill culture, you can’t kill what people love,” Mr. Kabbara said.

While Mr. Cassidy holds his cards close to his chest, he admits that he has his own suppliers for Supreme and Bape products that allow him to stock the shop without having to worry about going through official channels such as lining up or purchasing from producers’ websites. He says 40 per cent of his inventory is clothes and shoes he bought himself. Essential says 70 per cent of their stock are things they’ve sourced themselves. This is despite both stores technically being consignment shops where collectors are welcome to bring in their own stuff. These supply chains, as challenging as they are to develop, often hold they key to resellers looking to dominate a particular market the way Rerun and Essential have in Toronto.

When Mr. Hanes’s suppliers got to know him as a fellow business person and not just a costumer, they began providing him more goods at a steadier pace. “It became a matter of developing a rapport with the suppliers. It was no longer a seller-to-customer relationship. Then it was buyer-to-buyer,” said Mr. Hanes.

With the global supply of these particular sneakers and clothes being choked by resellers, many average consumers see them as a sort of villain. “I think on one level, the true collectors are being hurt by the resale market by having to pay a higher price,” said Mr. Powell. “The brands also feel like these profiteers are taking money out of their pockets.”

However, Mr. Cassidy believes the hype resellers generate around certain products is what drives up the demand, setting the tone for what is considered valuable.

“I’m sure there are people who would want to buy it at retail but there are some who wouldn’t want it in the first place if it wasn’t up for resale,” said Mr. Cassidy.

The Globe and Mail, September 4, 2017