Money is still flooding into the sneaker market from both sneaker fanatics looking for new releases and investors who see multi-billion-dollar exits for the platforms that sell them.
This week, Goat Group, the parent company of sneaker-centric online marketplace Goat, raised $195 million in a funding round that valued the company at $3.7 billion – more than double what the start-up was worth the last time it tapped investors in September.
The announcement came days after SoleSavy, a sneaker site firmly against sneaker reselling that gives users guides and community resources to buy sneakers, raised $12.5 million from investors including Bedrock Capital, Origin Ventures and Shopify president Harley Finkelstein. The site is planning to launch its own peer-to-peer market this fall and expand overseas.
With these funding rounds, investors have now poured well over $1 billion into the sneaker resale ecosystem, according to Crunchbase, and skyrocketing valuations indicate the craze for limited releases and hype cycles may have a long way to run. StockX, Goat’s chief rival, raised $195 million in April at a $3.8 billion valuation and is rumoured to be planning an IPO.
There are doubts, however. Some sneakerheads who are willing to put down four or even five figures for rare Air Jordans worry the market may have grown too big, too fast. SoleSavy’s popularity comes from users frustrated with collections that inevitably sell out within minutes. Many blame sites like StockX and Goat, where consumers can compete with professional resellers, including some who use software programmes designed to snap up rare shoes and flip them for a profit.
I have a feeling that this gravy train of sneakers is about to come to an end.
None of this has slowed the market’s momentum, as demonstrated by the recent sky-high valuations for resale platforms. Goat is seeing rapid growth in categories like apparel and accessories. StockX has also placed a larger emphasis on electronics and collectables: last year, the Sony Playstation 5 and Microsoft’s Xbox Series X were the top two ranked items in gross merchandise value, a measure of sales taking place on the platform.
Still, if the market does turn, it could happen fast, analysts say.
“I think we’re in a dangerous place with sneaker resale,” said NPD analyst Matt Powell. “I have a feeling that this gravy train of sneakers is about to come to an end.”
Battling the Bots
SoleSavy’s popularity has grown as “bots,” software programmes designed to expedite the checkout process and purchase shoes or other coveted streetwear pieces in bulk for resale, have proliferated.
“It’s very clear that the relationship between the brand and their consumers are being damaged by bots and to some extent by the platform,” said Powell. “The brands have got to figure out how to get their product to their best consumers so that they don’t feel like they’re being jerked around every time there’s a release.”
Launched in 2018, SoleSavy positions itself as a place for sneaker purists looking to buy shoes in an increasingly competitive marketplace, claiming the industry is “plagued by issues that negatively impact the consumer including bots, fraud, market manipulation, and additional unfair practices” in a press release announcing its recent funding round.
If you love shoes and don’t want to resell them you literally have no options.
In order to apply, users have to agree to a code of conduct, the first rule being that users aren’t “looking to exploit the passion of sneakers for profit.” Applications to the site take one to three days to be reviewed.
It also charges members $33 a month for access to buying guides, exclusive discounts and tips on the latest releases.
Unlike “cook groups” — a term typically used to describe users of private Discord or Slack groups trading information to best strategise buying and flipping shoes for the latest drops and limited-edition releases — SoleSavy’s 8,000 subscribers are theoretically looking to buy shoes strictly for themselves, rather than to sell.
There’s also the promise of a community for users looking to connect with other enthusiasts in the market: SoleSavy relies on Slack to drive conversations, allowing users to meet and discuss what shoes they’re interested in buying and how to purchase them.
We believe in the fundamental growth drivers we’ve been seeing.
“If you love shoes and don’t want to resell them you literally have no options,” said founder and chief executive Dejan Pralica. “Ultimately,” he adds, users, “just want to interact with each other and not deal with secondary platform because they trust us more than anyone else.”
Its members are fiercely loyal: 99 percent renew after one month, and 85 percent stick around for at least three months. The site currently counts $250,000 in recurring revenue a month along with affiliate marketing of $15,000 to $20,000 a month. It expects to count $7 million in revenue by the end of 2021.
Scaling a site based on exclusive access to limited supply may be challenging, but SoleSavy believes a marketplace for its members to buy and sell shoes may be a key for future growth. While the idea of a sneaker marketplace seems at odds with SoleSavy’s mission, the group said it plans to only allow sneakers to be listed at retail price with costs including tax and shipping.
Goat plans to grow its model globally, including opening three new fulfilment centres across the Asia-Pacific region and one in Chicago. It’s also courting customers beyond sneakers and streetwear, and even beyond resale.
The site began selling new apparel and other categories in 2019, and demand has surged recently: apparel sales are up 500 percent year-over-year in the last 12 months, with women’s apparel growing twice as fast as men’s; sneaker sales grew 100 percent year-over-year in 2020. While the site declined to share revenue figures, it reported $2 billion in gross merchandise value in the last year.
“You wouldn’t expect this level of acceleration and growth at our size, but it is further proof that our strategy is working,” said chief brand officer Sen Sugano. “We believe in the fundamental growth drivers we’ve been seeing.”
While Goat and StockX are neck-and-neck in terms of valuations and compete fiercely in the sneaker arena, they are starting to carve out their own spaces online.
I honestly believe the growth can be exponential from here.
Goat plans to build out its retail offering to dress consumers from head to toe, signing on partners like Balenciaga, Acne Studios and Alexander McQueen in the hopes that users that have come to the platform for sneakers will stick around and buy new clothes too. While StockX also offers apparel resale but has put increased focus on electronics and other collectables like trading cards.
“We’re really excited about the momentum we’re seeing in our non-sneaker categories,” Greg Schwartz, StockX co-founder and current chief operating officer, told BoF in April. “It still feels like early days with a lot of opportunity ahead.”
The divergent strategies may show the market is ready to move beyond sneaker resale and find new alternatives for growth. Some still believe the market isn’t done yet.
“I’ve asked myself the question every year like when is this bubble gonna pop and it never does,” said Pralica. “I honestly believe the growth can be exponential from here.”