StockX and the Sneaker Business | How StockX Works

The Evolution of Sneaker Resale: From Forums to StockX

Prior to the emergence of StockX, individuals seeking to purchase sought-after sneakers relied on platforms like eBay, physical queues outside retail locations, and online forums to connect with fellow collectors and locate desired footwear.

Within five years, StockX’s data-driven secondary marketplace has exerted a widespread influence across numerous sectors.

StockX's Broad Impact

• Tech: The platform’s technological approach has set new standards.
• Secondary Marketplaces: It redefined how resale markets operate.
• Sneaker Business: StockX fundamentally altered the dynamics of the sneaker industry.
• Entrepreneurship: It created new opportunities for individuals involved in the resale ecosystem.
• Hype Culture: The platform amplified and shaped trends within hype culture.
• Retail: Traditional retail stores have been compelled to adapt to the changing landscape.

The company’s launch was strategically timed, capitalizing on the growing influence of Instagram and providing a structured marketplace for the escalating demand within the sneaker category.

Competition and Market Dynamics

However, StockX doesn’t operate in a vacuum; numerous e-commerce startups and technology companies have entered the connected cultural consumer space.

Maintaining its position as a market leader requires StockX to continually innovate and enhance its offerings.

External factors, such as broader economic trends, can significantly impact sneaker pricing.

Furthermore, Generation Z is playing an increasingly pivotal role in shaping the future trajectory of this market.

A Rapidly Changing Landscape

The sneaker resale business is characterized by its rapid pace of change.

Understanding StockX’s strategies for leadership and competition is therefore essential for predicting its future success and the evolution of the broader resale market.

The Influence of Instagram on Sneaker Culture

Sneaker culture thrived for years, but its accessibility was limited. The rise of Instagram and other social media platforms provided global access to this subculture, propelling sneakers and streetwear into the mainstream consciousness.

Previously, discussions and communities centered around online forums such as NikeTalk, Reddit, and Kicks On Fire’s Twitter. Around 2013, as Instagram’s user base expanded, these conversations began migrating to the platform.

A New Window into the World of Sneakers

Russ Bengtson, a prominent sneaker journalist, observes that a simple Instagram scroll can reveal current trends. He notes that even without reading captions, users gain insight into the global sneaker community, a community Instagram both unified and, in a way, originated.

Bengtson further explains how Instagram amplified the reach of local sneaker stores. Before the platform, awareness of a store or its products was limited to those who physically visited or worked there.

Now, individuals can virtually explore shops worldwide, view their inventory, and connect with staff and designers—all without leaving their homes. This fosters a greater sense of community participation.

StockX and the Democratization of Access

Instagram’s popularization of sneaker culture proved fortuitous for StockX, which launched in 2015. The company focused on hype footwear precisely as it gained mainstream traction.

StockX provided an accessible entry point for newcomers with its bid/ask system, streamlined buying and selling process, and robust authentication protocols. Each transaction brought individuals closer to participating in a culture previously defined by significant barriers.

Demand, Data, and Cultural Reflection

StockX functions as a barometer for hype trends, mirroring Instagram’s role in driving popularity. The platform demonstrates that the most sought-after products aren’t always the most expensive.

Instead, they represent the highest level of demand among consumers. StockX also provides valuable data illustrating how this hype translates into financial value.

Scott Cutler, CEO of StockX, emphasizes the role of platforms like Instagram in generating demand. He states that StockX accurately reflects current cultural trends and highlights items that signify brand heat and influence within the industry.

• Instagram broadened access to sneaker culture.
• StockX simplified the process of buying and selling hyped sneakers.
• Both platforms reflect and amplify current cultural trends.

Where StockX Occupies a Niche in the Sneaker Industry

The confluence of sneaker popularity and hype-driven trends has fostered a substantial economic landscape. In 2014, Josh Luber, StockX’s co-founder and former CEO, noted that eBay’s sneaker sales reached $338 million, representing a 31% increase from the previous year. By spring 2015, the resale sneaker market was estimated to be valued at $1 billion. The U.S. athletic footwear industry totaled $17.2 billion in 2015 and $17.5 billion in 2016, expanding to $19.6 billion by 2017. Clearly, the sneaker community was investing significantly within a market characterized by considerable risk, rapid expansion, and limited price controls.

Given the substantial financial stakes involved, numerous companies have targeted this specific sector. eBay, a long-standing marketplace for diverse goods, has consistently featured sneakers, though they represent only a portion of its overall transactions. Success on the platform requires education, as barriers to entry are significant; sellers must establish a strong reputation, and buyers need expertise to identify counterfeit products, scams, and appropriate pricing.

Several entrepreneurs identified a need for a specialized solution addressing the unique challenges of online sneaker sales. Grailed, a marketplace for men’s fashion, debuted in 2014, and by 2016, shortly after StockX’s launch, it had already amassed 350,000 users within the key 18-35 age demographic. Grailed provided an accessible entry point for casual shoppers interested in high fashion and sought-after items.

Like eBay, seller feedback and account standing are crucial on Grailed. The platform also employs a digital authentication process, “utilizing a combination of human and machine moderation,” as stated on their website. In 2018, the company secured $15 million in funding led by Thrive Capital.

Concurrently, GOAT, launched in the summer of 2015, operated with a similar buyer-seller model to StockX, but without the same level of data and allowance for pre-owned shoes, and began to gain prominence. The company merged with Flight Club, a New York City sneaker consignment store, in 2018, simultaneously raising $60 million in funding. Foot Locker subsequently invested $100 million into the newly formed GOAT Group in early 2019. This followed online luxury platform Farfetch’s acquisition of sneaker retailer Stadium Goods for $250 million.

Beyond e-commerce platforms, numerous sneaker technology companies have emerged over the years. Some businesses have focused on aggregating inventory across multiple channels. Suplexed, for example, is a platform that consolidates listings from various marketplaces, allowing users to compare prices in one location. SoleSavy is a membership-based sneaker community, concentrating on content creation to bridge the gap between hype-focused sneaker media and business/tech publications that are relatively new to sneaker culture.

However, StockX distinguished itself as the first marketplace to offer a combination of in-person authentication, anonymity for both buyers and sellers, and transparent pricing and transaction history. “Prior to StockX, purchasing often involved choosing between listings from individual sellers – ‘Do I trust Katy or Rae?’ Price discrepancies were common,” explained Greg Schwartz, StockX COO. “Without transparency, pricing could be manipulated, with buyers potentially overpaying simply due to a seller’s high rating, not the actual value of the item.”

As highlighted in part two of this series, StockX has expanded its authentication capabilities from four authenticators at its Detroit headquarters to approximately 300 personnel distributed across nine authentication centers globally, along with a single drop-off location in New York City. It took eBay nearly five years to implement any authentication process for sneakers, despite the early 2014 market data and the opportunity that existed before StockX’s introduction.

In October 2020, eBay launched a third-party authentication service for new sneakers priced over $100 and used pairs exceeding $300. Authenticity is indicated by a blue checkmark, similar to those used on verified Twitter and Instagram accounts.

This service is still developing, and skepticism remains regarding authentication reliability, as demonstrated by experiences with other marketplaces. For instance, The RealReal, shortly after achieving “unicorn” status and filing for its IPO, faced accusations of utilizing untrained staff to authenticate products. A late 2019 report by The Capitol Forum alleged dishonesty in The RealReal’s authentication processes, claims the company addressed in a detailed statement. The company continues to address these concerns, and struggles with counterfeit items reaching consumers, with its stock remaining near its IPO price.

The difficulties marketplaces face in maintaining authentication standards have created opportunities for independent authentication applications. Sneaker Con launched Legit App in 2018, positioning it as a “Wikipedia of authentications,” providing guides to identify genuine sneakers, streetwear, and designer items.

CheckCheck, launched in mid-2020, offers verification services for $1 per shoe, delivering results within 30 minutes. The service utilizes advanced AI and a two-person authentication process to determine authenticity.

Cultural Impact and Sneaker Market Dynamics

StockX functions as a real-time indicator of prevailing cultural trends, translating them into quantifiable monetary values. Shirod Ince, a sneaker reseller with almost a decade of experience, generally favors direct sales through his established network. However, he consistently monitors platform activity to gauge market shifts and emerging popular items.

Ince notes the influence of prominent figures, stating, “I actively follow Twitter to observe footwear choices of NBA players.” He cites P.J. Tucker as an example, explaining that a shoe worn by Tucker often experiences a surge in demand the following day.

Jesse Einhorn, StockX’s senior economist, frequently addresses the question of whether external events influence market pricing. He observes that such impacts are relatively uncommon. For instance, “Public reactions to statements made by Kanye West often prompt inquiries about their effect on Yeezy sales. However, in approximately 90% of cases, these events have minimal impact.” This is due to the market’s substantial size, speed, and liquidity.

Despite this general trend, discernible price fluctuations do occur. Three recent instances have notably affected both website traffic and sales volumes, with lasting consequences for pricing structures.

Einhorn identifies the airing of the Michael Jordan documentary, “The Last Dance,” during the early stages of the pandemic as a prime example of real-time marketplace change within the last five years.

“The premiere and subsequent episodes triggered a significant increase in Jordan prices,” he explains. “Jordan sales rose by over 40% as a direct result of the documentary, accompanied by substantial price increases.”

Prior to the documentary’s release, Jordan 1 sales exhibited limited price volatility. “Immediately following the broadcast, we observed considerable gains across nearly all original Jordan models for several months. In some instances, prices doubled or even exceeded that level due to “The Last Dance,” a truly remarkable outcome.”

Einhorn also highlights the intriguing data surrounding the Jordan Brand’s broad appeal. “Surprisingly, half of StockX shoppers have never witnessed Michael Jordan play,” he notes, questioning whether Gen Z is the primary driver of trends. “It’s remarkable that younger consumers are leading this movement, yet simultaneously demonstrate respect for history and the preferences of previous generations. This intergenerational resonance is key to Jordan’s enduring success.”

Beyond the documentary’s impact, two other events have demonstrably influenced prices. The tragic passing of Kobe Bryant in January 2020 spurred increased demand for related merchandise following the helicopter accident. Reports indicated that Nike experienced a complete sell-out of Bryant-related products. Items previously reselling for $750 saw asking prices climb to over $12,000. Price volatility has been consistently higher since 2020.

Finally, the appearance of Dior Air Jordan 1s on Meena Harris, the niece of Vice President Kamala Harris, during the presidential inauguration on January 20, 2021, resulted in a surge of trading activity. “The Dior Jordans became our most-visited product that day. Searches for the item increased by nearly 300%, and the number of new bids doubled,” Einhorn states.

For StockX’s fifth anniversary in February 2021, Einhorn’s team analyzed data to assess how platform trends had evolved alongside the company’s growth and the expanding sneaker market. While Air Jordan 1s remain the best-selling Jordan model, the resale price of Adidas Yeezys has decreased by 50%, from $611 to $330, though still exceeding retail value.

Significantly, women’s sneaker transactions have increased by 1,500% during this period. Currently, the platform sells the same volume of women’s exclusive sneakers every four hours as it did throughout all of 2016.

The Rising Economic Influence of Generation Z and the Sneaker Market

This shift highlights evolving trends within the sneaker industry. Today’s younger sneaker enthusiasts require only an internet connection and a PayPal account to acquire highly sought-after footwear, eliminating the need for transportation or adherence to curfews for in-person purchases.

The founding of StockX was, in part, inspired by the co-founder Dan Gilbert’s sons’ involvement in the resale sneaker market. This connection underscores the platform’s focus on a new generation of consumers.

According to CEO Scott Cutler, “StockX is designed to serve this emerging consumer base, with seventy percent of our customers being under 35 years old,” and a significant majority of StockX app users being under 25.

Historically, trends originated with older demographics, with brands closely monitoring youth culture. However, Chief Marketing Officer Deena Bahri notes that Gen Z is now spearheading trends and exerting influence in a novel manner. “The dynamic has reversed, and Gen Z consumers are now the primary trendsetters, with the rest of us observing and adapting – a truly remarkable phenomenon.”

As we mark over a year since the onset of the COVID-19 pandemic in the United States and its subsequent disruption of daily life, it’s evident that StockX, much like the sneaker business itself, is poised for continued success. Despite a period of significant economic volatility, StockX has not only maintained its market position but has also experienced growth.

The platform has observed an increase in the average age of new users following the pandemic. Einhorn observes, “The assumption that all shopping occurs online wasn’t universally true, but the pandemic accelerated this trend.” This resulted in an influx of older users utilizing StockX for online purchases when physical stores were inaccessible. “We witnessed a substantial rise in users over 45 engaging in buying and selling activities,” he stated.

Given the increased necessity of alternative income streams in the wake of COVID-19, COO Schwartz acknowledges the platform’s user-friendly design, which appeals to Gen Z, is also attracting other potential seller demographics. “The entrepreneurial drive fostered by a platform enabling individuals passionate about these items to earn a living without the need for a physical store or coding expertise is truly inspiring.”

StockX CEO Cutler emphasizes that the core of their success lies in their buyer-seller matching system. “As a buyer, you are spared the task of sifting through numerous listings, seller ratings, and product details. Our dynamically priced model ensures you always receive the lowest available price from the seller offering the product globally.”

This simplicity benefits users on both sides of the transaction. Cutler adds, “This has generated significant transaction velocity for sellers, who benefit from the platform’s trending volume. It provides a frictionless, seamless, and valuable economic opportunity.” This opportunity arose from a niche subculture, but what impact does it have on the culture itself? The answer is explored in the fourth and final section of this EC-1.

StockX EC-1 Contents

• Part 1: The Beginning
• Part 2: Authenticating E-commerce
• Part 3: The Competitive and Consumer Environment
• Part 4: The Future and its Effects

Further EC-1 reports are available on Extra Crunch.

Updated on April 6, 2021: Clarification provided regarding the New York City location functioning as a drop-off point.