The aftermarket for high-end fashion has been booming in the last years. Ever heard of the Nike Dunk SB Low Yellow Lobster? As of the 24th of Semptember 2020, the highest bid on this shoe is $16 thousand and the lowest ask is a whopping $40 thousand. To bring that into perspective, the 2020 Mercedes-Benz CLA 250 starts at $36,650! So why would anyone pay this much for a pair of shoes that don’t really offer anything more than a pair of 100$ shoes? Can this be considered an investment?
The Resale Fashion Industry
The market for alternative investments has been a really exciting field in recent years as investors are actively searching for high returns outside the “boring old” stock market. Remember Bitcoin?
As pointed out by Forbes, the resale fashion market is probably bigger and more disruptive than you think. The $24 billion industry is expected to reach $51 billion by 2023. This means that it represents as much as 10% of the total retail industry sales. The sneakers resale market alone now accounts for more than $2 billion in annual sales and is expected to reach $6 billion by 2025, according to the same report by Forbes.
Too Much doesn’t sell
High-end fashion retailers maintain a tight grip over their supply. Most of them tend to claim that the reason that their stock is limited is to maintain quality as there are only a limited amount of qualified workers out there. Although this might be true for extremely high-end luxury products such as Patek Philippe, it is difficult to imagine that Nike is unable to find workers to increase its production of the Nike Dunk SB Low Yellow Lobster. It is claimed that Nike only produced only 34 pairs of the Yellow Lobster Dunk were made and given to Nike SB friends and family, as well as the crew at Concepts.
But that still doesn’t explain why Louis Vuitton burns all its unsold bags each year? Or why Burberry destroyed unsold clothes, accessories and perfume worth tens of millions of dollars? And it’s not just Louis Vuitton or Burberry. Turns out this is a widespread industry practice. Luxury fashion retailers control the supply so heavily -even if that literally means burning unsold cloths- because thy need to control the price throughout the entire lifetime of the product.
“The biggest existential threat to luxury brands today is the second-hand market,”Cameron Silver, founder of LA-based Decades
A veblen good is a good for which demand rises as the price rises. This is because of its exclusive nature and appeal as a status symbol. Luxury brands take advantage of this phenomenon to further drive the prices of their products and to make sure that if you buy an Omega watch, you’ve probably paid a huge amount for it even if you bought it second-hand.
Notable resale sites
- The RealReal
- What Comes Around Goes Around
- Vestiare Collective
So can sneakers be considered an investment?
If you take a look at StockX for example, you’ll find bid and ask prices, latest sale information, charts and basically anything you’ll find in a normal stock trading platform. Is it just a bubble?
It’s too early to tell. By definition, you can’t see a bubble when you’re in one. And it is worth noting that some people have made fortunes buying exclusive sneakers and other luxury goods, holding on to them and then reselling them. These speculators are bet on a future price increase to turn a hefty profit. Till today, demand seems to be outpacing supply and is expected to increase further in the coming years. This doesn’t mean that you should buy a pair of $16 thousand dollar sneakers, it just shows how diverse, fascinating and confusing the world of investing can be!