When most people plan for their retirement, they put cash in savings accounts and invest in stocks and bonds.
What they don’t do is buy a rare pair of Adidas Yeezys or Nike Air Jordans — at least not yet.
“In some sneakers and in some portfolios we’re outperforming the market,” Scott Cutler told Yahoo Finance UK. “I know my own portfolio is outperforming the S&P 500 dramatically.”
Cutler is the CEO of StockX, a US startup founded on the idea that sneakers are worth investing in.
Dubbed a “stock market for things”, StockX’s website lets people buy and sell trainers, handbags, watches, collectables, and streetwear.
Founded in 2015, StockX is on track to process around $1bn of orders this year. Unlike eBay, each product has a single live price and quality is guaranteed. Trainers also tend to trade multiple times on the platform, more like a commodity than a piece of clothing.
An example ‘hot’ shoe on the platform right now is Adidas Yeezy Boost 350 V2. It currently sells for $258 — above its $220 retail price. It has been sold over 2,700 times on the platform, despite only being officially released last week.
What began as a site for “sneaker head” obsessives is fast becoming an e-commerce giant. Cutler’s next ambition is to attract investors more familiar with combing over boardroom minutes than sizing up basketball shoes.
‘It’s very much like the stock market’
Three things set StockX apart from other marketplaces like eBay or Depop.
First, the company authenticates all products sold on its platform at its own warehouses to make sure there are no fakes.
Second, StockX only accepts unworn and unused goods, encouraging collectors rather than fashionistas.
And third, perhaps most importantly, the platform offers stock market-like functions.
“Conceptually it’s very much like the stock market,” Cutler said. “People who’ve bought on our platform know the price at which these things trade, will collect a portfolio of items that they own, be able to see the value of that portfolio fluctuate over time.”
Each trainer has its own price chart and trading history information. A ticker runs along the website showing recent price fluctuations. When investors do sell, the price is determined through a ‘bid/ask’ system similar to the one you’d find on the London Stock Exchange or NASDAQ.
StockX takes a cut of 9% to 9.5% on each sale on the platform. Cutler wouldn’t comment on profitability.
The company was valued at over $1bn earlier this year when it raised $110m in June. Cutler came in as CEO at the same time, taking over from co-founder Josh Luber.
“The original press release that [cofounders] Josh Luber, Dan Gilbert, Greg Schwartz put out essentially said it was creating a stock exchange of things based on the New York Stock Exchange, StubHub, and eBay – all places where I had been in senior management,” Cutler said.
“Day two of the company being founded, I sent Josh Luber a LinkedIn message to say, I’m the CEO of StubHub, I spent 10 years at the New York Stock Exchange, I’m on the executive board of eBay. I think this is a really big idea that you’re going after.”
StockX plans to use the cash it raised in June to expand across the globe. The platform currently ships to 170 countries around the world but, until last year, had to authenticate all shoes in the US. StockX opened up its first international authentication centre in London last year and a Dutch facility followed in September 2019.
“Ultimately our objective is to be able to create a marketplace that has supply and demand in local markets because, since we deal in physical goods, it’s much better if we can have that seller and buyer closer to each other,” Cutler said.
StockX began with trainers and this remains by far its biggest market. The sneaker re-sale market is estimated to be worth around $6bn, according to investment bank Piper Jaffray. China accounts for somewhere between 25-30% of demand. StockX already ships to the country but faces competition from local rivals such as Poizon.
Cutler was circumspect on StockX’s plans for China.
“I think is going to continue to be an important source of demand for the market, but we also recognise that China is just one of many markets around the world,” he said.
Perhaps the Chinese market is too hot. So insatiable is the appetite for rare kicks over there, the People’s Bank of China recently warned of a possible bubble in sneaker prices.
“It’s really interesting that it’s caught the eye of those regulators,” Cutler said. “Not every pair of sneakers is going to trade to the moon. It’s true that we have sneakers that trade for thousands and thousands of dollars but it’s also true that we have sneakers that trade for $20 or $30.”
A cursory browse of StockX demonstrates the risks. Nike Dunk Low Viotech were selling for $275 on StockX at the start of the month but are now changing hands nearer $120.
“There are upcycles and downcycles for particular pairs of shoes and if you’re an investor in that you have to be prepared for the volatility of that as a market,” Cutler said.
ETFs, indexes, and maybe even blockchain
As well as international expansion, Cutler is eyeing ways to make StockX more like the stock market.
The startup recently held its first ever “initial product offering”. Adidas debuted a shoe exclusively on StockX and the price was determined by market demand. Cutler said the experiment was “very successful.”
“We expect to have more relationships with brands that list directly on our platform, largely because we have a very, very active consumer,” he said.
There’s also the prospect of synthetic investment products based on the price of sneakers trading on StockX. Derivatives like this — where the underlying assets don’t change hands — are common in the public markets world.
“We don’t currently have derivatives or ETFs or indexes that are currently traded, although we could overtime,” Cutler said. “We’re contemplating it.”
Even blockchain technology is “on our roadmap as we think about it,” Cutler said.
“We’re fairly sophisticated in our thinking about what the potential is for sophisticated financial instruments around our market.”
All of this could help broaden out the appeal of StockX, which has historically attracted a young and male crowd.
“It started like that, the core sneaker head enthusiasts, although that demographic is changing as fashion has become more a part of that, which means more and more of a female buyer,” Cutler said.
He added: “I actually got an email from an older gentleman who’s a retired financial services executive who just bought a huge collection of sneakers from a traditional auction house. He would not be in the core demographic that would be a typical sneaker head but he’s looking at this market for its value as a collection.”
As for Cutler, who was sporting a pair of fluorescent orange Off White Nikes when we met, he won’t comment on what’s in his portfolio.
“I don’t disclose but it’s too many,” he said.