Are you ready to invest in sneakers?

In December last year, Dubai witnessed the global launch of a pair of special edition sneakers: Nike SB Dunk Low Concepts Orange Lobster. Dubai was among the first cities where the coveted sneaker was launched in the world. Avid sneakerheads queued up 48 hours before the launch to grab these pairs. Today, a couple of months later, the same pair goes for over $1,000 – a sweet 400 per cent return over 60 days.

This is nothing new. In 2002, Nike collaborated with a well-known skateboarder to produce a range of sneakers called the Nike SB Dunk Low Reese Forbes Denims. Each pair was priced at $65, with only 444 available worldwide.

Fast forward two decades and the same sneakers are being sold north of $29,000 per pair on StockX, a reputable reseller.

The collector/owner of the said pair will rake in returns that defy patterns of conventional asset classes and investments. That begs the questions: What led to such a windfall? Is it the rarity of frayed denim textures on shoes? Nike’s reputation? Perhaps the induced scarcity?

The ‘economics’ answer: A bit of everything. But if the same questions were posed to any of the thousand sneakerheads congregating at sneakers’ conventions, the answers would be more culturally influenced.

For many, sneakers are an identity, a passion they picked up along the way, or just pop-culture paraphernalia. However, for some, they have metamorphosed into an alternative asset class to invest in. The traction of sneakers as an investment instrument is such that the likes of Sotheby’s auction them with pomp and promotions. So, what’s paved the way for the age of ‘sneakernomics’.

The demand-supply dynamics of sneakers

Sneakers are not like gold or silver – inherently scarce bullion assets. So, the majority of them in existence today are mass-marketed and worn by people merely as shoes.

Conversely, an investment-grade sneaker is characterised by robust demand-supply dynamics. The lower the supply or rarer the range of sneakers, the higher the demand, and vice-versa.

However, short-supply sneakers from a relatively unknown brand with no celebrity affiliation cannot generate demand.

So, brand reputation and induced scarcity are prerequisites for any sneakers to find investment value and appreciation with time. Unlike induced-scarcity asset classes such as cryptocurrencies, sneakers are tangible, because of which their value will appreciate with inflation and supply-chain disruptions.

That said, the meteoric rise of Nike’s Denim range is not as prevalent as investors would hope. In fact, a valuation of a sneakers range could nosedive after supply outstrips demand – which was exemplified by Adidas Yeezy sneakers after collaborator Kanye West decided to ramp up production to enhance access.

Likewise, certain sneakers from reputable brands have witnessed skyrocketing prices because of a fan frenzy for months leading up to the launches. As often as not, brands perpetuate the ‘hype’ on social media and in sneakerhead communities to orchestrate pent-up demand.

As a result, it is not uncommon to see fans queue before the stores on launch days. Brands also strategise for the new sneakers’ long-term demand, ensuring a cap on how many pairs a single buyer can procure.

While the same rule sets apply online, the demand tends to be relatively higher due to more access, leading to server crashes. It is a win-win situation because, for brands, they translate to more frenzy and a long-term outlook for the launched sneakers and, for buyers, the value of their investments appreciates instantly.

As the word is out and the frenzy is documented online, the said sneakers will be in demand for a long time.

Sneakers, like stocks, are sensitive to many factors

While investment-grade sneakers have provided good returns over the years, the asset class continues to be a niche and possibly will never become mainstream. Therein lies its charm because, unlike stocks, sneakers’ prospects hinge on “perceived value” – investors’ own perceptions of a sneaker’s merit or desirability to them.

Typically, a limited-edition product from a reputable brand must be in unused condition to retain value. An exception is if it is worn by a celebrity.

In fact, it is safe to say that sneakers’ evolution into an asset class was initially fuelled by celebrity endorsements, particularly from larger-than-life basketballers such as Michael Jordan. The ‘sneakers culture’ emanated during Jordan’s zenith in 1985, with the launch of Air Jordan 1, coinciding with the rapid rise of hip-hop.

Artists such as RunDMC collaborated with Adidas Superclub to tap into the burgeoning trend. While ‘Jordans’ have been popular through the decades, they witnessed an upswing following the release of Michael Jordan’s Netflix documentary, The Last Dance, two years ago.

Likewise, the unfortunate demise of star Louis Vuitton designer Virgil Abloh saw an immediate spike in all his sneaker creations.

Today, some sneakers also follow art market dynamics. When Kanye West switched sides from Nike to Adidas, the Nike Red October from the original Yeezy line became a coveted piece of art – a good dead stock (unused, untried) pair can fetch over $20,000. That is to say, sneakers – like stocks – are driven by consumer sentiments.

So, it is advisable to read and time the market well before splurging on sneakers, which, as often as not, tend to be expensive. Like any investment instrument, sneaker reselling requires a strong understanding of the brands, authenticity, and appraisal mechanisms.

The lexicon alone – PADS (passed as dead stock), DSWT (dead stock with tag), etc – will take time to get acquainted with, whereas actual transactions could run into further complexities.

Yet, by 2030, the sneakers resale market is projected to grow to $30bn from the current $10bn.

The primary rationale behind such bold projections is that sneakers do not follow conventional market economics; they are driven rather by a community spirit ­– an unconditional desire among sneakerheads to own, associate with, and promote a thing as simple and utilitarian as shoes. And if such a passion is known to lead somewhere, it is a success.

Atul Hegde is the founder of YAAP