How Sneakerheads Are Changing the Way Nike and Adidas Do Business

What was once a fringe group is now dictating how the footwear giants operate.

Jun 18, 2014 at 10:04AM

What was once a fringe group of fanatics is now changing the way sportswear giants Nike (NYSE:NKE) and Adidas (NASDAQOTH:ADDYY) do business, and in the process they're redefining the sneaker business.

Athletic footwear manufacturers acknowledge the rise of "sneakerheads" and are reacting to their devotion to the culture of athletic footwear by eschewing the age-old practice of replacing older sneaker models with new ones on a simple yearly cycle. The result is a growing populace of consumers following these companies' every move like a tabloid photographer follows the latest celebrity train-wreck. That level of brand awareness is driving sales and even creating new markets.

What is a sneakerhead?

For the uninitiated, a sneakerhead is a devotee of athletic footwear. At one time an underground community of fanatics, sneakerheards are now a semi-mainstream collection of enthusiasts whose demographics run the gamut from suburban teens to celebrities like Mark Wahlberg, Jason Sudekis, and Jerry Seinfeld. Forbes recently estimated that sneakerheads represent about 5% of the $22 billion retail sneaker market in the U.S. That's good for roughly $1.1 billion.  

How has big sneaker responded?

In what can only be described as an acknowledgement of the buying power of sneakerheads, companies are taking a page out of Hollywood's playbook and providing fans with a lot of information regarding upcoming releases. The two footwear makers routinely announce dates for particular models months in advance, as do retailers like Foot Locker (NYSE:FL) and Finish Line (NASDAQ:FINL). This drives up demand among sneakerheads who famously camp out in advance of a release to get a pair.

It is not uncommon for a particularly coveted or limited model release to sell out in minutes. 

The big sneaker companies are also adjusting their business models in other ways in an effort to court sneakerheads. Back in the day Converse was the king of athletic footwear and the company would release a single new shoe model every year. 

As recently as the late 1980s players like Magic Johnson and Larry Bird wore the same Converse Weapons from the first game of the season until the last. That changed when Michael Jordan entered the NBA and ascended to the top of the sporting world (in many ways he's still on top). 

Nike released several models of his eponymous shoe, the Air Jordan, every year, each in a different color scheme. The arrival of sneakerheads is taking that concept to the next level -- players like LeBron James now sport as many as 10 versions of their signature shoe during the regular season, followed by a completely different model in various color schemes for the post season. Each time a new color scheme or model is debuted on the hardwood, the sneakerheads begin their quest to add them to their collections. Given that a pair of signature shoes can range in cost from $140 to $275, that's no small investment.

Using social media

This type of devotion to footwear has even led Nike to use social media to offer sneakerheads the ability to purchase shoes that had previously sold out. Because a particularly coveted model will likely sell out within minutes of release online, Nike will sometimes, and without warning, issue what is called a restock. 

Most times the only way to know about a restock is to follow Nike's official Twitter feed, which will offer a surprise link to its online store where the previously sold-out models are waiting for buyers. There are those among the ranks of the sneakerheads who cry foul at the surprise nature of the restocks, but the bottom line here is that a restock, surprise or not, offers those who lost out during the initial release a second chance to get a pair and that isn't a bad thing. 

Not content with playing second-fiddle to Nike, Adidas is also leveraging social media to attract the attention of sneakerheads, albeit it in a more covert way. One of the company's latest sneaker innovations didn't make its debut in a press release or TV spot, instead it randomly appeared in the Twitter feed of spokesman Robert Griffin III. 

Springblade technology, which features a sole comprised of a series of plastic blades that propel a runner forward, was featured in a photograph taken by the quarterback as he held the pair he'd just received. Sneakerheads immediately began flooding Adidas' site to find out more about the shoe.

Creating new markets

In addition to driving sales of new releases to the retail market, the sneakerhead community is creating an entirely new market for athletic footwear, the second-hand market. There was a time when wearing a used piece of apparel was a serious faux pas among the fashionable, but when it comes to sneakers that are not available in stores, a sneakerhead will do what he or she has to in order to acquire them. 

Due to the limited inventory released into the retail market and the increasingly high demand for models from the likes of Adidas, Nike, and its high-profile subsidiary Jordan Brand, the only way the vast majority of people who want a particular pair of sneakers is to buy on the secondary market ... at a price that is often two to three times the cost of retail. That's where Internet start-up Campless is changing the game.

According to Campless there are roughly 11 million sneaker auctions taking place at eBay (NASDAQ:EBAY), the most popular secondary sneaker marketplace, each day. Those auctions are analyzed and tracked by Campless, then reported to provide buyers with information like average price per model, how many pairs are in the market, and pricing trends. All of this arms those in search of the perfect pair of sneakers with knowledge to make an informed buying decision. 

Currently the only information a buyer has regarding a particular pair of sneakers on the secondary market is the feedback provided by others who have done business with that seller and all the other listings for the model. The buyer doesn't really know if the price is artificially inflated, on a downward swing, or if the model is "in-demand."

Recently Campless examined sales growth in the secondary sneaker market and what it found was impressive. Between May of 2013 and April of 2014 the market generated $309 million in sales, which was an increase of 42% from the previous year. Campless is predicting that the secondary sneaker market will grow by 50% between May of 2014 and April of 2015. If accurate, that increase will result in $465 million in sales, and that's only from one (albeit, the most popular) secondary market.

Will the change continue?

There is no denying that sneakerheads are changing the way companies like Nike and Adidas do business, and these changes are here to stay. And we can expect future changes to the way sneakers are marketed and sold. It won't be long before every 10-year-old is following Nike on Twitter to get release dates, checking out LeBron James' Instagram to see what sneakers he's wearing, and then texting their parents to ask for the latest pair before tapping a "buy now" button embedded in the James photograph.

That also means we can prepare ourselves for a flood of new signature sneaker models. They won't be any easier to acquire mind you. In fact, as the current sneaker climate indicates, scarcity drives desire. Instead we'll be treated to "limited runs" of "special" colors that only a "select few" will be able to get their hands on. Until they end up on eBay.

Lastly, as the rise of the sneakerhead culture continues, there will be more pressure on companies to produce new technologies to keep the public satiated. The only thing that keeps a sneakerhead happy is getting the latest pair before everybody else, which creates a natural threshold. Once you have all the sneakers on your list you stop buying ... until the latest innovation from Nike. Sneakerhead alert: the company has been hinting at a concept called "Power Laces." Check your Twitter feed early and often.

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Jason Tomaszewski has no position in any stocks mentioned. The Motley Fool recommends eBay and Nike. The Motley Fool owns shares of eBay and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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