Shirod Ince sat at the front of a line of more than 100 people, mostly guys in their early 20s, on a Friday evening last month. For two days, he and his friends had been taking turns waiting outside a Foot Locker in Harlem to buy the new LeBron sneaker. Through the long, restless hours, they had sustained themselves on Popeye’s, McDonald’s and a belief that it would all pay off in the end.
Ince had no plans to wear the new Nikes. No, for the past two years, the 22-year-old basketball coach has been reselling the sneakers he waits for. And he thought he could double, triple, possibly even quadruple his money for this particular pair, getting anywhere between $500 and $900 for a sneaker that was selling for $250 retail.
“I’ve been here since Wednesday. I have to get it,” he said. “It’s going to be crazy in the morning.”
Ince thinks of himself as a small-time entrepreneur, but in reality he’s part of a complex, rubber-soled mini economy — one with “buyers, sellers, brokers, market-makers and third-party valuation services,” said Josh Luber, who founded Campless, a blog about sneaker data.
Luber, 36, understands this market better than anyone. Since 2012, he has compiled data on more than 13 million eBay auctions and posted his analysis on Campless, creating a price guide he calls the Kelley Blue Book of sneakers. The site tracks the prices of more than 1,100 pairs of collectible sneakers — that is, sneakers that sell on the secondary market above their primary market, or retail, price.
The markup can be astonishing. The average eBay price of the LeBron 10 What the MVP sneaker? $2,086. The Nike Air MAG Back to the Future? $5,718. How about the Air Yeezy 2 Red October, designed by Kanye West and released by Nike this year for $250 retail? It sold on eBay for an average price of $2,958, with almost two dozen people paying at least $8,000, Luber said.1
Luber — a fanatical sneaker collector himself, with 178 pairs on display in his home — says eBay’s sneaker business totaled $338 million in the last year, up 31 percent from the year before. Sneakers, he says, have become “boxes of cash” for many people. As soon as Foot Lockers across the country open each Saturday, thousands of pairs are on eBay.
None of this happens, of course, without the complicity of Nike, which is on track to hit $30 billion in sales this year. By inventing the concept of a limited sneaker, the company helped spawn a secondary market that puts money in the pockets of Ince and other investors.
It’s puzzling behavior for a money-making behemoth. So lately Luber has been fixated on a complicated question: Is Nike leaving money on the table — and giving up profits to the secondary market — by limiting the supply of certain lines of its sneakers? And if so, why?
When I visited Luber at his Philadelphia apartment in July, he came to the front door unshaven, wearing sweatpants and a Nike shirt — and no shoes. He prefers to go barefoot around the house.
And yet shoes are his obsession. They’re displayed on custom-built shelves in his basement, which also happens to be the guest bedroom, his daughter’s playroom and his wife’s office. “Basically anywhere we’ve lived there’s been a shoe wall,” said his wife, Patricia Luber.2 In Atlanta, the sneakers lined glass shelves and were lit up by rope lighting. And they found space in their small New York City apartment for a “mini shoe wall.” But the current display “is the grandest showcasing to date,” she said.
Josh — who actually wears his shoes and has never resold a pair — also keeps an assortment of brand-new sneakers near his desk at home, and slips them on as he works. (They migrate to the shoe wall only after he’s worn them outdoors for the first time.)
None of Patricia’s shoes (Nike or otherwise) has ever been allowed on the wall — there really isn’t room, Josh says — but he’s made an exception for their 2-year-old daughter’s.
“I bought my daughter a couple of pairs of Jordans till my wife found out how much they cost,” said Luber, who spent between $60 and $75 on each pair.
Luber grew up in the ‘80s and ‘90s, dreaming of basketball greatness. He played high school ball and plastered the walls of his bedroom with posters and Sports Illustrated covers of his favorite players. It was the Michael Jordan era, and all Luber wanted to do was wear Air Jordans.
But the sneakers were expensive — $100 at the time — so it wasn’t until after he graduated from college and was working that he bought his first pair, the Air Jordan 11 Concord.
He pulled them off his shoe wall to show me. The sneaker is mostly white, with black patent leather wrapping around the bottom half. Luber’s pair is in surprisingly good shape.
“When I first bought these sneakers in 2000, I literally walked into Foot Locker a couple of weeks after they were released and bought them, because back then, sneakers used to sit on shelves for a while. … We didn’t have the resale market,” he said. “The last time they were released in 2011, there were riots.”
Capitalizing on the power of the Jordan brand, Nike has been re-releasing the classic Air Jordans (models 1 through 14) over and over again. The Air Jordan 11, for example, has been released some 40 times over nearly 20 years — in different colors. Take all those classic models and colors, release them dozens of times in limited quantities, and you’ve got lines outside Foot Locker and other Nike retailers every Saturday morning. (The original 1995 pair, if unworn, sells on eBay for an average price of $479. Luber’s 2000 version sells for $351.)
“Michael Jordan is, without a doubt, the father of the sneakerhead culture, and still even today,” Luber said.
The lord of the Concord is 51 now and hasn’t played professionally in more than a decade, but his brand continues to be a huge part of Nike’s business. Jordan footwear makes up nearly a quarter of the company’s shoe revenue. It makes up an even bigger part of the secondary market. Luber estimates that about half of all money spent on sneakers on eBay is for the Jordan brand.
Luber’s obsession is what compels him to stay up until 3 a.m. most nights — outside his full-time job as a strategy consultant at IBM — collecting data on sneakers. Using eBay’s public API, he can crunch the sales numbers in spreadsheets and learn all sorts of things about the secondary sneaker market. With sneakerheads on Instagram stoking consumer desire, Luber says it’s the perfect moment for him. “So the timing worked out really well,” he said. “My obsession with sneakers and obsession with data were growing at the same time.”
Luber tried to think of everything when he created his price guide. To get a sneaker’s true value, you have to make sure you’re looking only at eBay auctions that end in a sale — about half don’t — and auctions of authentic, name-brand sneakers. Lots of fakes are sold on eBay — accounting for about 10 percent of sales, Luber estimates — and their prices would corrupt the price guide.
Luber has created some rules for eliminating fakes from his calculations: First, he sets a floor and a ceiling on the price of a sneaker3; second, he throws out any outliers, i.e. prices that are more than two standard deviations from the mean; and third, he excludes auctions that have words like “replica,” “fake,” “AAA” and “variant” in the title. (The market has grown so big that some sellers specialize in good-quality fakes.4)
Another challenge is figuring out which sneaker — which model, size, color and release year — is actually for sale in a given auction. “An eBay auction has a lot of noise in it,” Luber said. Sellers throw in keywords just to get their auction to pop up in search results. Luber has to have faith in his system, because with 13 million auctions and counting, there’s no way he can check every one.
Using data from eBay and other sources, Luber also tries to answer all sorts of questions about the secondary market: Do sneakers behave more like stocks or drugs? What’s the most expensive sneaker size? Who’s the typical sneakerhead?
A lot of resellers take orders from customers before shoes are even released. Luber has noticed that prices tend to be high before the release date, when the hype is loudest. They generally fall when the shoe comes out, then rise steadily after that.
“There’s only so much to talk about with sneakers — when it’s coming out, how much does it cost, how do I get a pair,” Luber said. “This expands that. It adds a layer of content to the community that didn’t exist before.”
Luber has a dozen people who help him on Campless — his younger brother, a handful of data nerds and entrepreneur types like him, and several sneakerheads he has met through the site. All volunteer their time. Often, Luber says, they have “philosophical debates,” such as whether to include shipping in the price people pay for shoes. Say the sneaker sells for $100 but the seller is charging $70 for shipping. Is the sneaker’s true value $100 or $170? In the end, Luber’s team decided to include shipping.
You hear of lucrative secondary markets in stocks, bonds and options, but rarely do you hear of them in material things.5 That’s because companies normally price their goods and supply the market to meet consumer demand, as a way of maximizing profit.
The existence of a secondary market in sneakers raises questions for economists and people like Luber: Is it rational to sell a sneaker for $250 and let the buyer resell it for $8,000, earning a 3,000 percent return on his or her money? Could Nike capture any of that money?
“This is kind of the holy grail of sneakerhead questions,” Luber said. It’s the central question of all his research — it comes up, in some form, every time he analyzes any aspect of the secondary market. “It’s a really complicated question,” he said.
To start answering it, you first have to know this: How much money, exactly, is Nike letting the resellers walk away with?
Luber has a good handle on how much eBay resellers in particular are earning over and above sneakers’ retail price: In 2013, they made about $60 million in combined profits.6 But to arrive at a figure representing profits of the entire secondary market in sneakers, Luber has to make a big assumption about the size of eBay’s role. People also buy and sell sneakers at consignment shops such as Flight Club, blogs such as Sole Collector, forums such as NikeTalk, and of course, on Craigslist, Instagram, Twitter, Facebook, and in face-to-face deals at sneaker shows or on the street.
Based on interviews with people knowledgeable about the industry, and on sales data from some of these outlets, Luber believes eBay’s collectible sneaker market represents a quarter of the secondary market — an estimate he calls conservative.7 This suggests that resellers made $240 million last year, all but $10 million of it on Nike products. That $230 million is equivalent to 8.5 percent of Nike’s earnings in fiscal 2014. Knowing how difficult it is for a large company like Nike to add even 1 percentage point to its bottom line, Luber said, this isn’t a number to ignore.
To know whether Nike could capture any of the millions of dollars consumers spend in the secondary market, it helps to understand why people want these sneakers in the first place.
While the Jordan brand continues to dominate, Nike makes sure it cultivates deals with other fan favorites: LeBron James, Kobe Bryant and Kevin Durant all have their own sneaker lines. Last year, Nike spent $3 billion on what it calls “demand creation” — marketing — which is more than the total revenue of Under Armour, a competitor that started offering basketball footwear four years ago.
By restricting the supply of its popular brands, Luber says, Nike is tapping into another consumer desire: to have something no one else has.
On that Friday night at the Harlem Foot Locker, I met several sneakerheads who confirmed this sentiment. But they also went much deeper into the psychology of consumers like them.
Frank Taylor, who is 23 and lives in the Bronx, had already been waiting several hours when I caught up with him. He had come with his friends and had a spot somewhere in the front third of the line. He wore a white hoodie and, standing well over six feet, he towered over the crowd. He said he owns about 150 pairs of sneakers, having collected them over a dozen years.
These days, a lot of people use bots to buy shoes online as soon as they’re released. Others exploit an inside connection; Foot Locker employees are kings in the secondary marketplace. Taylor is old school and only buys retail. Sneakerheads take pride in having bought new shoes from the store, because camping out in long lines shows commitment.
“You get respect from the sneaker community,” Taylor said. “People are like, wow, how’d you get those?”
After I did the math on Taylor’s collection — 150 sneakers at about $250 a pair — I asked him whether it was possible he’d spent nearly $40,000 on shoes. “Easy, easy,” he said.
“Some people spend that money on weed,” he said. “I decide to spend mine on sneakers.”
Farther back in the line, I met 23-year-old Quay Johnson, who told me he has more than 200 pairs — half of which he hasn’t worn — and that he’s been collecting sneakers since he was 8 years old.
“My grandmother always says when I die, she’s going to bury me, going to put my sneakers in the ground with me,” he said.
Like most of the people in this line, Johnson, who works at a drugstore and in construction, wasn’t interested in reselling his pair.
“I just want it for me,” he said.
So owning a scarce resource taps into a basic desire to hoard things of value. It gets you respect. But it does something else, too. Nike’s strategy of limiting supply creates a gap — sometime a significant one — between what a shoe costs (at retail) and what it’s worth.
That differential allows people to buy something on the cheap but feel like they’re wearing a luxury item.
“So even if you paid $100, you’ve got $800 on your feet. It’s like having Gucci,” Taylor said.
As he explained this, he realized that wearing a limited-edition LeBron sneaker may in fact be better. The moment you walk out the door wearing a pair of Gucci shoes, it’s worth less. “You can’t sell it for what you paid,” Taylor said. But with certain Nike sneakers, you can buy them, wear them all day, and still sell them for a profit.
That’s because within hours (sometimes minutes) of Nike’s release of a limited-edition sneaker, the shoe is gone — totally sold out at retail outlets. It lives only in the secondary market. And so, Taylor said, people who want the shoe have no choice but to buy what’s already been obtained by someone else.
Why isn’t Taylor selling his shoes, if he could make such huge premiums on them? “If you talk down a car and you get it for a good deal, you’re not going to sell it. You’re going to drive it,” he said.
Sneakers have become like art for a lot of these men. Some want to buy low and sell high, to make a profit, but most just want to hold and admire — and sometimes show off.
Nike may be leaving money on the table, but the company certainly isn’t suffering. In fiscal 2014, it did $27.8 billion in sales — an increase of about 10 percent from the previous year, not easy for a big company. Western Europe accounts for a lot of that growth, but North America, Nike’s largest market, also saw 10 percent growth.
“How much bigger can Nike get in the United States?” asked Sam Poser, an equity analyst at the brokerage firm Sterne, Agee & Leach. “They can get bigger.”
When you ask Wall Street analysts why Nike allows resellers to pocket the profits from shoes, many say it’s great marketing: It fuels excitement about the brand, and it rewards the company’s most loyal customers. “They’re exceptionally good at keeping people hungry,” Poser, who has been following Nike for more than a decade, said. “They understand the cool factor, and they know how to stay cool. And if they don’t stay cool they know this business dries up, because this is fashion.”
Cool — especially to sneakerheads — often refers to something that’s hard to get. Nike has also made basketball shoes cool through its pricing. Air Jordans and LeBrons typically retail between $150 and $275.
“Because it’s expensive, it makes [Nike] a lot of money. And because it sells out in a heartbeat, it makes everybody a lot of money,” said Poser, who used to work as a footwear buyer for Bloomingdale’s, Champs Sports and The Sports Authority. “If you talk to the retailers, they always want more [pairs]. They’re never satisfied but they also understand that if they got too much, it could kill the golden goose.”
Another benefit to keeping supply tight is that Nike doesn’t have to discount sneakers to move inventory, said Paul Swinand, an analyst with Morningstar. Doing so could cheapen the brand’s perceived value.
And yet I wondered whether there was such a thing as keeping supply too tight, and giving up too much money to resellers. The retail market operates almost inversely to the secondary market. Think about it this way: If Nike produced only a single pair of sneakers every year — call it the Air Only — the retail price would be, say, $300. But whoever bought the pair for $300 could probably resell it for some astronomical amount. That was pretty much the case with the Air Yeezy 2 Red October, the Kanye West sneakers, which had an average resale markup of 1,083 percent.
When I asked whether there’s a point at which Nike gives up too much profit to resellers, Poser paused and said, “I don’t know the answer to that question.”
He saw only the benefits of a robust secondary market. Resellers are essentially doing PR for Nike; they’re curators. And Nike, he said, understands that to sell stuff it needs strong curators — whether that’s Foot Locker, Michael Jordan or some of the guys waiting in line in Harlem.
Of course, most people in the Saturday morning lines at Foot Locker just want to wear the shoes. Luber says that underscores one of the challenges Nike would face if it tried to stifle the secondary market by raising prices or increasing supply.
Luber says only 1 percent of Air Jordans sold at retail end up on eBay, based on his analysis of retail and eBay sales data. Again, assuming eBay makes up a quarter of the secondary market, then presumably 4 percent of Air Jordans sold at retail end up on the secondary market. That suggests 96 percent of consumers buying Air Jordans are paying the average retail price of $170, instead of the average secondary-market price, which Luber says is $265.
So, how many of those customers would Nike lose if it raised the retail price or increased supply?
The answer depends on several things. First, how much do the retail customers care about price? The more price-sensitive they are, the more Nike risks losing them if it charges more. Second, how much do these customers care about that gap between what the sneakers cost and what they’re worth? The more they care, the better the chance Nike would scare them away with higher prices or more supply.
And the third but perhaps most important issue: How critical are these intensely loyal retail customers to Nike’s business? Could Nike stand to lose some of them, but potentially gain a lot of other customers — perhaps a much bigger group of people — who aren’t willing to wait in line?
Nike presumably knows these answers, but a spokesman said by email that the company didn’t want to comment for this article.
In Luber’s mind, it’s not worth it for Nike to lose the serious sneakerheads in favor of other customers who will buy sneakers only once or twice a year. Nike captures that second group anyway — with its ubiquitous Nike Air Monarchs, which retail for as little as $50.
“They would rather err on the side of leaving money on the table than risk disrupting the secondary market and all the marketing, brand cachet, PR and hype that comes with having a really vibrant secondary market,” Luber said.
And yet, there are some recent signs that Nike executives are curious about the secondary market. In June, the company announced that eBay’s CEO, John Donahoe, had joined Nike’s board. Nike has also been tinkering with its level of production and pricing, with second rounds of sales of limited-release sneakers (what it calls restocking), as well as more frequent re-releases of Air Jordans. Also, starting next year, Nike is expected to raise the price of some of its Air Jordans 10 percent to 15 percent, because it says it’s using higher-quality material to make the sneakers more like their original versions. This increase far exceeds typical price increases for Air Jordans, which have tracked closely with inflation.
When the Foot Locker in Harlem opened a little after 8 a.m. that Saturday, clerks lifted a metal gate just high enough that people had to crouch down to get inside. At one point, guys were yelling and pushing each other against the gate, and within minutes eight police cars showed up to calm everybody down.
After days of waiting, Shirod Ince needed only a couple of minutes to buy his sneakers. He walked out with the LeBron 11 What the LeBron, in a size 12. Within an hour of the store opening, all shoes under size 10 were sold out.
Some of the speculators worried that the lines for this release were shorter than usual, suggesting the demand for this shoe might not be as strong as expected. Josh Luber saw this coming. He had been watching eBay’s average price for pre-orders of the sneaker, and it had fallen rapidly. In April, people were pre-ordering the LeBron shoe for $1,006. By early September, the price had dropped to $430.
It was expected to be an extremely limited sneaker, but as it became clear that more retailers were carrying it — two weeks before any release, stores start to advertise that they’ll be selling a sneaker — the market started to wise up.
I called Ince later to see how things had gone for him. He told me he’d sold the shoe to a South Carolina buyer who had seen his post on Instagram. His sale price was $500 — almost double the retail price, but at the bottom of the range he had expected.
“My priority was to get a buyer. I wasn’t trying to be greedy or anything,” he said.
Given how much time he had spent in line, however, I wondered how he felt about earning the equivalent of minimum wage.
No problem, he said. He’s hoping to start his own consignment shop and sees the long waits as practice toward delivering on his promises.
“For me, I think it’s worth it.”
CORRECTION (October 17, 10:30 a.m.): A label on an earlier version of a chart in this article misstated the percentage of sneakerheads who sell their sneakers for strategic purposes. It is 25 percent, not 33 percent.