The Sneaker Resale Market: Should Nike Maximize Its Profit?
We are all aware that Nike releases smaller quantities of limited production sneakers that are sold at pretty typical retail prices then resold for big markups. The interesting question is why Nike doesn’t price them higher and take at least some of that retail profit for themselves.
The guy profiled in this article called You See Sneakers, These Guys See Hundreds of Millions in Resale Profit , along with the woman who wrote it, offer a pretty good description of this market and some insight into why Nike manages it the way they do.
When you read the article, you’ll see that even for Nike, there’s a bunch of money being potentially left on the table. They are apparently thinking about how to capture some of it.
With revenues approaching $30 billion, Nike is hardly under distributed. Yet somehow, the brand still has some credibility even in our little corner of the retail world- though perhaps not as much as it did.
I’ve been writing that distribution has become hard- that is, each decision to widen distribution has to be taken individually after some consideration. It’s no longer just a matter of core or noncore like it was those many years ago. I’ve also suggested that perhaps distribution is not as important as it used to be, that merchandising matters more.
At some level, those two ideas might be construed as contradictory. But in this mad, mad, mad, market we’ve got today I’d suggest they are both correct and Nike’s management of its limited distribution sneakers may be an example of that. Perhaps Nike’s strategy of limited distribution for certain products reinforces the brand cache in broader distribution. They must believe that, or they wouldn’t be doing it.
Granted, you probably don’t have contracts with Michael Jordan, Kobe Bryant, Kevin Durant or LeBron James. Still, I wonder if there aren’t some lessons here about where distribution and merchandising intersect. Go read the article.
This is a marketing tool that Nike uses to keep their cool factor up. They sell these “Limited Edition” sneakers to “Sneaker Head” shops and they intern mark them up to stupid levels as they watch the sneaker fans line up outside their stores. 100 sneakers can sell out in minutes. That keeps the brands cool quotient up which is the win for the Nike Marketing guys. That’s all this is. By keeping the brand cool, they can maintain and further grow their mass market products to the rest of the planet. That’s all this is. This isn’t like when they introduced everyone to the Nike SB collection and lied to the skate and specialty dealers by assuring them that this product would be unique to their stores and not available to the main stream retail customers. Fast forward and the SB is now prominently distributed through Tilly’s, Pac Sun and Zumies. Nike used the specialty retail community to penetrate a market they had never been successful at and the dealers willingly lined up. Today, the rest of the “skate shoe” market is decimated. Nike has moved on to a larger retail channel and the specialty is now left with nothing that you can’t by at any mall in America. Game over! Nike Wins! .
Hi YKW,
Well, of course it’s a marketing tool. If it wasn’t they’d just sell those shoes for all they could get for them and let it go at that. As I said, it just feels like a way to distribute broadly but stay cool. Merchandising, at some level, making up for over distribution, whatever that means these days. Definitely different from the Nike SB collection. But as far as the retailers who believed the product would stay exclusive to them, well, when has that ever happened? I doubt the retailers believed Nike, but they were sure as hell not going to miss out on the sales however long they lasted. Any chance I might see you at Agenda?
J.
Oh, not sure if I’m going yet. Let’s touch base as it gets closer.
hope all is well.
Planet Money did an interesting podcast on the sneakerhead phenomenon last year that’s definitely worth checking out:
http://www.npr.org/blogs/money/2014/11/19/365010888/episode-584-what-the-lebron
Thanks!
J.