A Brief History and Prospects of the Sneaker Market

Anton Mifsud and Xunliang Huang

The sneaker has slowly diverted from being an icon for comfort to being a new branch of luxury goods. Manufacturers’ advertisement campaigns and celebrity effects has developed a loyal fan base of “sneakerheads” which has also created a new market of “shoe-flippers” who treat sneakers like stocks. In this article, we start by discussing how the market is created. We will move on to analyse whether this is a sustainable form of trade and evaluate the effectiveness of the market.


The famous pair of sneakers that marked the starting point of this shift, the function of sneakers from comfort to style, were Air Jordans, designed by Peter Moore following Michael Jordan’s signing to Nike in 1984. The combo between famous footwear manufacturer and A-list celebrity or sport star has since formed a fan-favourite combo, enticing new waves of followers with every new release each year, with the sneakers market estimated to have a global value of approximately $79 billion and the grey market for sneakers in 2019 was estimated at $US6 billion and forecasted to grow to $US30 billion. (Tambo, 2021).

Nowadays, companies such as Nike and Adidas produce two types of goods in general, one aimed at the general public, where companies make most of their revenue through traditional economic models by collecting the difference between manufacturing costs and retail price. Taking Nike as an example, their shoes normally retail from $70 to $250, whilst outsourcing production enables them to maintain a low average production threshold of $28.50 in 2014. (Investopedia, 2020). The second type of goods, that are limited edition sneakers, aimed at “sneakerheads”, bringing companies media exposure. We are mainly focusing on the latter for the purpose of this article.

The psychology behind “sneaker hype”

Comparing to other luxury designer brands, limited-edition sneakers are not typically retailed at extremely high prices. The low retailing price of campaigning gives rise to the illusion that people from all social classes have equal chance of wearing high fashion luxury goods without paying the high opportunity costs. For example, Adidas and IcedT released a pair of shoes at $0.99, which created a lot of media coverage and exposure. However, since the manufacturers deliberately produce less, it produces a gap between supply and demand, resulting in shortage of supply. As ESPN NBA feature writer Nick DePaula commented, “the rising cost of sneakers is less of a supply-side phenomenon and more of a demand-fuelled business.” However, there is no denying that the sneakerheads’ behaviour is the result of celebrity effect and heavily encouraged by manufactures.

The creation of new markets

In some instances, people recognise the value sneakerheads attribute to limited edition shoes, hence they buy at over-the-counter stores to stock shoes, in the hope of flipping them for more value. This adversely impacts the primary market between manufacturers and genuine collectors. Hence, creating external markets amongst shoe sellers and genuine collectors.

In other instances, opportunities to buy limited edition shoes are randomly assigned to people who registered on applications such as Nike mobile app. For example, a pair of Jordan 1 Retro are retailed at $65 USD, and the original shoe owner may value it at $100, whilst fanatic “sneakerheads” value them at $1000. Through shoe flipping, the resource of the shoe, which would have provided a benefit of $100 to the society, instead now provides a benefit of $490 USD as listed as the most recent transaction on StockX. The original seller makes an extra surplus of ($490-100=) $390 and the buyer gains ($1000-490=) $510. Total surplus ($390+510=) $1000 to society has been increased by the difference between the values that the buyer and the original owner place on the ticket.

One major website that emerged out of this trend is StockX. StockX is a website that encourages secondary market sneaker trading by making the authentication process accessible and the market price transparent.

What economic environment is allowing this to happen?

Interestingly, data on StockX reveals that sneakers have appreciated during the pandemic – not too dissimilar to stocks (Canton, 2019). Indeed, Cowen Equity Research classify sneakers as an emerging alternative asset class (Wade, 2020).

Accelerated by the pandemic, many central banks are undertaking quantitative easing and setting interest rates essentially at the lower bound (and in some cases, negative). This has the effect of fuelling asset prices and risk appetites for investments increasing. Asset bubbles, like in shoes, are appearing and investors simply blow more air into the bubble rather than let it burst. Having high valuations on stocks is not always bad if capital is allocated correctly and investment risks payoff. However, there is no investment in sneakers as no wealth is created after the purchase. It seems that COVID-stimulus has meant a pricing correction in sneakers has been avoided and beginning to trade as a legitimate asset class.

Is it a legitimate asset class?

Would a rational investor pay a 191% or a whopping 637% premium on a financial stock 12 months, on average, after an IPO when a company has essentially no growth potential aside from speculation? This is how sneaker ‘investing’ seems to be working. 

Anton Mifsud and Xunliang Huang are research analysts with the University Network of Investing and Trading


Data on sneakers (Ma and Treiber, 2020).

Note- the dataset on prices comes from StockX over 349,556 pairs of shoes, with 30 randomly selected at different points in time from their Most Popular tab.

Hype is measured approximately through a continuous variable incorporating the number of Tweets associated with the sneaker on Twitter. A depreciation rate of 5% signifies that approximately all of the “hype” associated with one Tweet decays through depreciation after 90 days.

In Regression 2, a log transformation on Twitter Hype is used so that we can interpret the coefficient as an elasticity of the resale price premium.

It would be a worthwhile task reading the whole paper and reading in more detail.

Disclaimer: The views expressed in this article are solely that of the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. The advice given is general in nature and does not consider an individual’s personal financial circumstance. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off of this article.

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