Sneakers 101

In 2019 alone, the sneaker resale market was worth 6 billion dollars, whereas it is estimated that by 2030, it will reach the 30 billion dollars mark. With such a fast growth and value of the business, an entire ecosystem has developed around the market. The main premise is that collectors try to gather sneakers in an environment where there is a clear excess supply, where resellers seeking for extraordinary rents have engineered state-of-the-art technology to beat retailers anti-resale protections, and where information flows fast, there are persuading efforts from involved parties and agents all over the board approach their decisions as if it was the stock market. 

The main overview of the market is the following. Big corporations, such as Nike, release limited quantities of retro sneakers on a regular schedule. Quantities, however, are often insufficient to satisfy the demand, especially because retail prices are kept below market-clearing prices. Naturally, resellers profit from this difference: all they have to do is to buy a sneaker at retail and find someone with a sufficiently high willingness-to-pay, to pay market price. You'd be surprised of the amount of money that can be made reselling sneakers (and other goods). 

The more profitable this rent opportunity becomes, the more resellers (and other agents) find ways to exploit it better. One channel to exploit these rents is auto-checkout software (ACO) or "bots:" in the last 3 years, there has been a boom in such a software development. Bots can run thousands of checkout attempts or "tasks," clearing the available stock in seconds. For reasons that are not entirely clear, retailers heavily invest in stopping these attempts, so a complimentary industry has emerged to help bypass anti-bot efforts: proxies to mask the IP from which attempts come from, site accounts, email farming tools to trick captcha systems, and so on. There are tens of bot companies and hundreds of related-goods companies, all competing and cooperating at the same time to beat anti-bot protections.

Parallelly, sites like eBay, GOAT and StockX have institutionalized the resale. Resellers can post asking prices for their goods, whereas consumers can post bids, and when there is a coincidence, a transaction ensues. Naturally, these platforms charge a fee for their services, which other than connecting buyers and sellers, consist of authenticity verification for the sneakers (yes, counterfeit is a constant in the sneaker market). In fact, the resale business is so solid that one of the main sneaker retailers in the USA, Footlocker group...just invested 100 million dollars in GOAT to become a reseller as well! So, Footlocker wants to be a retailer, stop resellers, and resell as well... interesting!

Finally, the bot market. The success of the bot-developing companies depends on keeping the user base limited: users compete with each other for the pairs, and often times, the code depends on a small number of users exploiting it; for instance, developing teams will find bypasses for retail sites' queue systems, which are more likely to be detected, and thus, patched, the more users exploit it. As a result, there is a limited number of licenses in the market, that are traded as stocks. Users will invest in bots depending on what they expect from them, and bot companies will provide users with information about performance and updates, to influence their behavior. To get an idea of dimensionality, a top-performing sneaker bot can be bought in secondary markets for around 7 thousand dollars, and some of the developers make around half million dollars in license sales (I am definitely in the wrong field).

A great opportunity is present to study the sneaker reselling market, as most of the information is centralized and automatized in Discord, a social network. Users create groups where they share relevant information, often filtered from retailers, and create strategies to be successful hoarding limited products. Interesting is the fact that users compete against each other. In these networks, bot companies provide estimates of their performance, and bot companies cooperate to provide comparative statistics, even though they compete. Finally, secondary market places keep close track of bot-selling transactions and the information is easily accessible and constantly updated. Perhaps, there are lessons on competition, persuasion, the stock market and technological development to be drawn from the sneaker reselling market.