Sneakonomics: Supplement

19 05 2010

To put my previous post in perspective I will provide two different examples of how sneakers are valued, and a breakdown of the investment, in today’s market.  My hope is to provide an insight on the monetary cost/benefit analysis that go into valuing a pair of sought after sneakers.

A few years back, Nike released a pair of Lebron Vs that were limited editions featuring a New York Yankees theme.  There was a marketing buzz created by local media surrounding the sneaker because of Lebron’s ties to New York although he is an Ohio native.  Further, Nike perpetuated the buzz by releasing the sneaker in certain stores and bundling the first 50 pairs with free tickets to a basketball game.  So there was high level of hype and a low supply; all elements that would have the sneaker at a high resell value.  The sneakers released and retailed for $200.00.  The initial resell value was in the thousands.  However, it only sustained the high resell value for a limited time and changed dramatically over time.  This effect is similar to “short selling”, when an investor buys low and sells high in a fixed period of time to avoid depreciation.  Understanding this phenomenon that occurs in the subculture could help consumers make an informed decision on valuing and buying sneakers in the secondary market.  Further, it shows why enthusiasts wait in line for hours to buy limited edition sneakers and pay high retail prices (compared to industry standards) to avoid higher resell inflation prices.

Highly Anticipated Lebron V Sneakers

In the other example, I examine the popular Air Jordan XI sneaker released in 1996.  Although there have been retro’s of these sneakers, I am discussing a dead stock, original pair that retailed for $124.99.  Remember, there is value added to these sneakers because of their condition leading to a secondary market value reaching $500.00 max.  With both the initial price and resell price we can set up a hypothetical equation to detail how much value has accrued over the past 14 years for an individual that possesses such grails.  First, we subtract the initial retail price from the appreciated value.  Take that value and divide by the number of years (14).  The equation gives us about $26.79.  This signals that the initial investment to buy the sneakers in 1996 yields an increase of value at the rate of about $27 per year.  These implications simply highlight the hard fact about investing in anything.  Of course, this example fails to acknowledge the fact that there are arbitrary spikes in value for sneakers.  There could be high initial resell value or it could take years before a sneaker sees a significant increase in value.  Also, the value could reach a peak and plateau regardless of the time that has passed.

Most Sought After Air Jordans

One thing I should note is that not all sneakers experience this phenomenon of an increase in value.  For the most part, the sneakers that are sought after by enthusiasts in the sneaker subculture do gain value.  Or else they would not likely be a sneaker held with a high esteem within the community. It is the desire to obtain these sneakers that create its value.  I find it paradoxical that the desire of a sneaker perpetuates its value and vice versa.  Like I have mentioned before, sneakers are simply just sneakers at the end of the day.


Air Jordan…Part II

28 04 2010

Along with the series of Air Jordan sneakers was the extreme marketing by Nike.  The sneakers were featured in new, revolutionary commercials and ads.  This impacted the demand for the sneakers and had fans interestingly awaiting them.  At times, the lines between advertising and entertainment blurred.  The Air Jordan series really changed the marketing strategies of sportswear and crossed sports with pop culture.

Here is an example of those new, revolutionary commercials mentioned.  This particular commercial features Spike Lee.  The combination of Jordan and Lee was a marketing campaign put forth by Nike.

Here is an example of how Air Jordans crossed into entertainment and pop culture.  They were featured in a film called Do The Right Thing.  I think this skit really exemplifies the iconic stature Air Jordans have.

In 1997, the Air Jordan line created another first when Nike unveiled a new marketing plan.  Jordan became a sub brand of Nike and started to feature different lines of sneakers.  From that point, Jordan Brand no longer featured the Nike name or Nike Swoosh.

Jordan Brand Logo

Air Jordan shoes have consistently been among the best selling basketball shoes since their debut in 1985.  The Jordan Brand is a household name, people of all ages and social strata line up eagerly for the release of the latest model.  Starting in the early 90s and even today, the Air Jordan sneaker became a status symbol and an icon of a flamboyant lifestyle.  Some of this success can be attributed to the fact that the shoes, from the Jordan III to the most recent model, have always started with their namesake, Michael Jordan.  The designers take his ideas, hobbies, and life into account and incorporate these elements into the shoes.  Each pair of Air Jordan sneakers has a unique design and some have even been designed after Jordan’s cars.

The series has extended to the Air Jordan XXIII, the same as Jordan’s jersey number.  For the past two and a half decades, the brand and its tradition of quality, high-fashion basketball and athletic shoes continued to be the premier sneakers.

For the complete story behind every sneaker, visit the History of Flight.

Air Jordan…Part I

24 04 2010

Michael Jordan and his sneakers completely changed the dynamics of the sneaker industry.  They literally took flight and were able to transcend the sneaker subculture into what we see today.  There were many advances with the sneakers; everything from shoe design to marketing was reinvented.  With the most influential player in basketball came the most influential sneakers for an industry.  Many say the footwear industry was knocked off its feet (pun intended) with the emergence of the Air Jordan sneaker.  In the next two posts I will attempt to highlight the story behind those influential sneakers.

By 1984, Nike was a struggling shoe company in terms of market share.  It was seen primarily as a running shoe company and had little credibility in the basketball footwear market.  Although it had numerous endorsements with professional basketball athletes, the company was still lagging behind Converse, Reebok, and Adidas in the market.  In an attempt to appeal to another market segment, Nike was looking to revitalize and reinvent themselves.  In the same year, Michael Jordan was a rookie entering the NBA.  He came in as the College Player of the Year and a promising young talent.  Nike recognized his talent and saw something special in Jordan.  They saw an opportunity and hoped that his appeal would generate sales for the company.  Nike decided to put all their eggs in one basket and offered Jordan his own line of sneakers along with matching sports apparel.  However, Jordan was reluctant to sign a sneaker endorsement with Nike and actually preferred wearing Adidas and Converse brands.  But those two companies were not very interested in endorsing the young star.  Despite his reluctance, Jordan signed a 5 year deal worth $2.5 million with Nike and the rest was history.

After the deal, a legacy was born and Nike released the Air Jordan I.  The concept of an athlete’s signature series, releasing every season, was new at the time.  This paved the way for future stars and endorsement deals, and is common nowadays.  Also, the Air Jordan I made history by becoming the first sneaker to bold black and red colors.  Prior, most basketball sneakers were primarily all white.  This caused the NBA to ban the sneaker, fining Jordan $5,000 a game for wearing them.  The controversy surrounding the sneaker and Jordan’s spectacular numbers that year kept Air Jordans in the public eye.

Air Jordan Sneakers Banned From the NBA

With the release of the Air Jordan II came another first.  The sneaker was the first to not feature the company’s logo on it; making one of the world’s most recognizable brands a non factor.  This was a very radical move by Nike at the time because reaction to the Air Jordan II hadn’t been stellar.  This would also prove to be a critical time for the company and the Air Jordan sneaker.  It was at this time that designer Tinker Hatfield stepped in and helped out.  He did something new and unheard at that time; he sat down with Jordan and asked for his input in the design of the sneaker.  At Jordan’s request, the sneaker was ¾ cut basketball shoe made out of high quality, lighter than average materials.  This non standard approach to the process of designing a sneaker led the Air Jordan III to rocket with sales and popularity.  After Jordan won the 1987 Slam Dunk contest, the Jordan logo changed to the recognizable Jumpman logo of today and was featured on the Air Jordan III.  Both Hatfield and Jordan worked on designing the Air Jordan line up until the XV.  When asked about his work with the Air Jordan series, Hatfield is quoted as saying:

Part of the strategy is in the product design, it’s in the personality of Michael Jordan, and it’s in how we design everything.  But it really also extended into the communication process.

I find it very interesting that he noted all these factors in the design process of the Air Jordan sneakers.  I think it is this basic strategy that proved to be fundamental in the sneakers becoming popular.  Ultimately, I feel like it is this idea that allows people to identify with sneakers and wear them as an extension of one’s self.  Thus, leading to the sneaker subculture we have today.

Michael Jordan Alongside Designer Tinker Hatfield