59: What Sneakers Can Tell You About How Financial Markets Work

disastrous opening to this podcast. I know. I can't believe I messed that up so much. Um, okay, Well, with that embarrassment aside, Um, we are actually going to talk about shoes today. I'm really excited because not only are we talking about shoes, we're going to be talking about sneakers and collecting sneakers in the market for sneakers, and there's someone who owns a lot of Nikes, including one or two pairs of Jordan's and dunks. I am particularly

excited about this discussion. So I know nothing about the market for sneakers. Are Jordan's better than Nikes? Well, Jordan's Nike you know, it's a it's a kind of it's a category of Nike. Oh god, I just keep embarrassing myself today. Um okay, well all right, without further ado, then why don't we bring on our guest for this episode. It is Josh Luber. He is the founder of stock x, which is basically a stock exchange for sneakers. So we're going to talk all about what it's like to make

a market in a semi unusual asset. I would say, Josh, thank you very much for joining us. Uh, tell us about your stock exchange for sneakers? What is it? Sure? Well, thanks for having me. Um. Stock x is a consumer marketplace, not unlike eBay or Amazon. It's a place where we connect buyers and sellers, and in particular right now, we connect them to buy sneakers. But the way that we do that is in the exact same format, the exact

same process that the stock exchange uses. And what that means is, first of all, it's anonymous, right, buyers and sellers, you know, transact with the market. Um. You don't have to worry about who the seller is or where they're located, or what the review is. It's totally anonymous, just like

buying the sheriff stock. Second, there is data. There is data to understand what things are worth, what things are selling for, and have a history of data, so unlike going to Amazon and saying only what something is listed for, you can see every price that it's ever sold for. But more importantly than those two things is what's called the live bid ask market, which is how the stock exchange,

how the stock market reaches a market price. Buyer's place bids how much they're willing to pay for something, and seller's place asks how much they're willing to sell it for, and when it been't, ask me, the transaction happens automatically. There's a reason why the stock exchange has been the most efficient form of commerce for hundreds of years, and this is why. And we are taking that process that the stock exchange uses and bring it to consumer goods

and we're starting with sneakers. Josh, can we step back for a second, because when I think about investable assets, UM, I have to admit I do not necessarily think about sneakers. What what is the market like for a high value sneakers? The biggest distinction between sort of h cong this the stock market versus how people traditionally think about it is that it's really about connecting buyers and sellers to exchange

a physical good. The fact that you may or may not be able to invest in sneakers and make money is almost tangential to that. But that said, the sneaker resell market within the United States is about a one point to one point three billion dollar industry. So that's people buying a pair of sneakers at say, foot locker, and then going and turning around and reselling them on stock x for a hundred dollars more two hundred dollars more than they paid for it. So let's back up.

Tell us about yourself. How did you get what made you want to create this, what's your interest in sneakers, and how did your interest in financial markets come together. My background is, uh that I'm a startup guy. I've started and run a few startups before this, and none of them have ever been within the sneaker industry. Because on a personal note, I have collected sneakers since I was,

you know, probably in middle school. Um, I am thirty eight years old, and I have the exact same story as every other thirty eight year old sneaker head, which is I grew up playing basketball when Jordan played, and I always wanted Air Jordan's, and my mother never buy me Air Jordan's. As soon as I had some money, I bought Air Jordan's, and you know, and and so

that was a personal passion. And at some point along the way, as I was doing a lot of other data work in my career, I decided to try to figure out whether we could pull in sneaker data and whether we could build a price guide. And so in early I created a company that was called camp Liss C A M p l e. S. S. And it was a price guide. It was the Kelly blue Book for sneakers, where we were pulling in data from all the other places that sneakers sold, primarily on eBay, and

figuring out what they were actually worth. And that was the genesis of this as the as the sneaker data company, as the price guide grew, as people started using it, there was a natural progression of well, if I know the price of one pair of sneakers, then I could tell you the value of your entire sneaker collection. And you could look at that data the same way you

look at a stock portfolio. And once you know the price of one pair and you know portfolio pricing, then there was this natural leap of maybe we could actually create a marketplace that operated like a stock market. So, uh, what is in your collection? What is your your single prize pair of Jordan's And give us a range for the value of your collection if you don't mind, based on the prices on your side, Can I hijack Joe's question and say, can you also explain the difference between

Nikes and Air Jordan's. Sure? So, um, there's a lot of different sneaker brands out there, and um and Nike which owns the Air Jordan brand, right, but they are separate brands have historically been the dominant part of the resale market, the secondary market for sneakers, dating back to when Air Jordan's were first released. And so um, it's just a distinction between the two brands that you know, Nikes make Nike season and uh and Jordan Brand makes

Air Jordan's. Um, but they're both, you know, make up the dominant chair of the resale market. In fact, through February, Nike including Jordan Brand, accounted for nine of the resale sneaker market, and in February, Adidas released the Yeasy, which is Kanye West shoe with Adidas, and it started a really a year and a half process of Adidas becoming

a lot more relevant on the secondary market. And today Adidas makes up about of the resale market in terms of dollars, but it is still overwhelmingly dominated by Nikes and in particular Air Jordan's all right, now, tell us about your collection a little bit. So you know, I've been collecting sneakers for probably thirty years, UM, and I have a very average collection within the sneaker head world.

I have about maybe three four hundred pairs of sneakers, which sounds crazy, but there are people with thousands of pairs of sneakers, so you know, within the sneaker universe. Uh, you know, it's a it's a pretty average collection. But UM, I do have um one pair in particular that is

is pretty special. UM so UM. We announced a couple of months ago that Eminem is an investor and partner with stock x UM and UM and through that UM I was able to become friendly with people there and I was given a pair of Air Jordan's four Eminem carhart and this is a collaboration that Eminem and the brand Carhart did with Air Jordan's and there were only ten pairs released the public. They were sold on eBay, this is before stock ex existed, and they sold for

an average price of twenty three thousand dollars. And so, UM, I have a pair of those, Um, I will not be selling mind mine is Uh, there's more sentimental value in terms of our relationship with with Eminem and the fact that it came from him. But it's certainly the most valuable and most interesting pair in my collection. That is pretty sweet, Josh. I have so many questions, um right now, I'm trying to narrow them down. UM. Okay, So first of all, I have to ask do you

wear your collection of sneakers? Everyone within this sneaker world, Um, there's a there's a spectrum from people on on the far one end where pure business people and are here just to to to make money, UM, to the sort of pure sneaker collectors who could care less about the value of the shoes and they wear them and um and aren't really trying to aren't concerned about about sort of maintaining the value or the or the condition sneakers just like anything else. Um, once they're worn, the more

they're warned, the value of them goes down. Me in particular, I wear pretty much all of my sneakers. UM. I buy sneakers for myself and I wear them. And I'm not a very big reseller trying to make money. Um. But with about four pairs of sneakers, there's certainly some pairs I haven't worn yet. UM, but I'm certainly I

certainly will at some point. All right, let's get to the subject of the you know your financial market for sneakers, because this sort of speaks to a reoccurring theme that we've discussed on the Odd Lots podcast, which is the relationship between the listing of a price, the creation of an index, the creation of transparent pricing, and then the market itself. And we've discussed this in several ways. We've had multiple episodes about the bond market and its relative

transparency or lack of transparency. We've talked about baseball cards and the Beckett magazine and Beanie Babies and the magazine that came around those in the nineties and how that led to price booms. So let's talk about what the creation of transparent pricing and consistent listing means for the

actual functioning of the sneaker market. What have you seen in terms of the back and forth, what your initial recording of eBay prices meant to the market and how it traded, and then of course your news site stock x and how that has affected the market itself. That's a phenomenal question, right Transparency of data is everything, and it is uh so rare to find true transparency of pricing information UM in any market right now besides the

actual stock market. And that's a big part of what UM drives us in and was the foundation of creating this. A phenomenal example of this go back to the camp Less days and so when we were a price guide and we were the sort of the the the index for sneakers and what they were selling for. We created a blog that was kind of like fre Economics for sneakers and doing this really high level data analysis and

putting it on the blog. And one of them was an analysis into the difference between actual price and the

perception of price on eBay. Right So, there was this perception within the sneaker community that sneakers were very sensive on eBay, and we had a hypothesis that whatever you see on eBay at any given moment is something that is overpriced because it's been sitting there for a long time, or or the inverse, right, it's been sitting there for a long time because it's over priced, and that you're more likely to see those because the good deals will

disappear immediately and someone will buy them until by having access to the the actual sales data and to be able to look through that and create transparency into what its sinkers actually sell for, what we found was there was a difference of about thirty between people's perception of price given the average number of days that we see

each auction. I mean, we can go into the details of it, but essentially between the actual price of what are you sold for versus what people would think it sold for given how often they saw it, there was a difference of thirty in the perception of what a sneaker was worth. So josh Um Joe kind of already

touched on us. But we've we've done a lot of episodes about the bond market and how difficult it is to trade bonds simply because unlike stocks, a bond will come in all sorts of flavors of maturity and coupon and things like that. And it kind of strikes me that sneakers are similar in the at the very least, you have a variety of sizes, right, So, like, how

does the size issue affect trading of sneakers? Do people only want to buy sneakers in their sizes or do they look beyond that because they're betting on future value. There's I think there's some similarity, um in this sort of lack of transparency in the sneaker market. But it's not really around UM size, right, It's really about channel UM first to mention quickly on size UM. You know, the entire sneaker recent market is just supply and demand, right,

It is econ one oh one UM. It is the difference between the supply that the brands put out and what the demand is for those particular sneakers, and the gap in that UM and how big or small that is will depend you know, how much the shoe sells for. I mean it is pretty straightforward. And in general, even on the limited and exclusive sneakers, the brands uh know

pretty well the size distribution of the population. So there may be less size fourteens in the market, but there's less people that want to buy a size fourteen in the market. So in general, UM, that doesn't have too much UM difference, too much disparity in the price based on the size. But where the majority of the sort of lack of transparency still happens is in the distinction between the channels. So unlike you know, a stock market which essentially has a monopoly on any particular UM stock,

you can buy yourself sneakers anywhere. UM. You know, eBay is is still the largest marketplace stock x. There's other mobile sneaker apps. UM. There are people buy and sell on Twitter, on Facebook, on Instagram, I mean anywhere that sneaker has come into contact with a each other, shoes are gonna be bought and sold. And the majority of those channels, just like the majority of other marketplaces, there's

just there's imperfect information. Right. The seller UM is the one who really understands the market better and the buyers left it well whatever the sellers, I can see whatever they're they're selling for, and so I bring that all in one place, right, And a really fundamental tenant of house stock X works and why It's like the stock market, is that there's one place, there's one called ticker symbol

for one shoe. Right, So if you go to eBay and you type in the Air Jordan eleven space Jam, which is the shoe that is the the most popular shoe that Air Jordan put out, and there's a rumor to be over a million pairs, but people are buying and reselling them. If you type in air Jordan eleven space and one eBay, you will get a thousand listings, maybe five thousand listings. But if you go to the New York Stock Exchange and you want to buy a

Sheriff Apple stock, there's one ticker symbol for Apple. And in the same way, there's one place there's one ticker symbol for Jordan eleven space Jam, one stock X. And by bringing every bit and every ass to one place, you can now create more transparency of what's going on in the market. There's still nineteen other channels, and you still lose that transparency if you're within any of those channels. But that's the bigger idea around using a stock market

drive transparency. It's not only historical pricing data, but it's also about what is going on right now? What do people want to buy it for and when people want

to sell it for? So I have two questions. One is, since you've had this push in sort of multiple endeavors to create transparency, a has there been an observed I guess I would say narrowing of spreads where even across multiple channels, because there is this reference the prices of a given sneaker, do they tend to cluster more as people start to four months some idea and to um, is there any sort of cross sneaker price correlation Gaussian copula is so to speak, where one sneaker trade sort

of sit milar lead to another sneaker. They're not identical, but maybe they're of the same year or of the same style, and so you start to see relationships in the pricing of slightly different sneakers. These are these are phenomenal questions, right, This is exactly what we see happening and what we UM observe and look for as we continue to build the market and make sure that that it works the way it should. Um. So the first question with regard to to spread, and it's really about

sort of narrowing of margins. The people that are most upset about stock X on today as we as were you know, ten months into this. UM are the ones who used to be able to UM sell sneakers for more money and trade on imperfect information. UM. But as you bring more buyers together, and in particularly the shoes that have high volume, where there's really a lot of bids and a lot of asks happening at the same time, and you can literally see business coming off the board,

you know, real time, you know, as as trades are happening. UM, what we see is that there's lower profit within those shoes within the market then people used to be able to get. And that's natural, right, I mean that that's natural to happen. As more buyers then come into the market, right, it'll start to to push that price back up. But on day one, all the sellers are constantly looking for as many places to sell as possible, So they're the ones that are more easily UM, were more quickly gonna

gonna utilize stock X and list there. So as you have more sellers, the price will come down. And we do see spreads really low on the very populous shoes like the Jordan eleven Space Jam. So you may see a spread of two five dollars, But on a shoe that came out maybe six seven years ago, where there's a lot less volume, that spread might be fifty dollars or a hundred dollars. And so it's really about liquidity.

And we don't have perfect liquidity the way a stock market does, where every apple stock needs to be traded through that ticker symbol, right, But the more liquidity that comes there, that the better that that becomes. Sounds like on the run and off the run bond price. Know this sounds exactly. I'm sorry, but this sounds exactly like pitches I've heard from bond trading venues for the past five or six years. It's really phenomenal. The overlap here.

The larger hypothesis is that you should be able to buy or sell any consumer good using this process, right, as long as it's not a purely commoditized product already, like say plastic water bottles or toilet paper, and it's not a complete, unique, one of a kind item like a work of art orhouse anything that has some finite quantity of supply. All we're doing is adding the demand

side of the equation. And once you do that, you can get into a place where you have a more efficient market that UM that allows people to to buy and sell leveraging you know, the piece that no one ever had, which is the demand side. So it really is in some cases or in some views almost logical. The logical step of you know, stock is stock market is about the delivery of a digital certificate for ownership of UH piece of the company. This is just a

delivery of a physical good. Everything else should be exactly the same. Josh, what is the most valuable sneaker of all time? And what would you recommend that Joe and I go by now if we were looking for something that was maybe undervalued that was going to UM pop sometime in the future. The most valuable sneaker, let's say, the most expensive sneaker that is sold recently. UM. About a month or two ago, Nike released what's called the the Nike mag which is the self lacing shoe from

Back to the Future Too. They made eighty nine pairs, right, they made eighty nine pairs. They were sold through raffles UM to raise money for Michael J. Fox Parkinson Foundation. And once they got into the market, UM with only eighty nine pairs and it being. You know, you have the nostalgia aspect of back to the future, and you

have sneaker heads, and you have power lacing. UM. There was one pair that reportedly sold for two hundred thousand dollars at an auction, and another pair that's sold for a hundred thousand dollars at a different auction. UM. We had one of those sell on stocks so far and it sold for about It sold for twenty five thousand dollars UM, and there's others that are listed right now on stock x for about fifty or sixty thousand dollars. But that shoe is so rare, with only eighty nine

pairs in the world, it essentially doesn't exist. I mean, it might as well be a unique, one of a kind item because the odds of finding any one person that's going to pay twenty five thousand dollars letter in two hundred thousand dollars, it's so you know, it's just so rare. But that's the that's what's out there right now. It's certainly the thing that UM that all sneaker heads are sort of aware of and UM, and it's a pretty cool thing because it it literally works like in

Back to the future too. You put your foot in it, and it and it laces automatically right around it and for a real quickly before you go, uh for an end shrint like me or Tracy who sort of I have a few sneakers, but I'm not really a sneaker head. Yeah, I clearly have no sneakers and I'm not a sneaker head.

Like if we wanted to sort of dip our dip our foot into the water, where might be like a fun place, what would be one sneaker that a beginner might buy, something cool, but that's available and affordable, right and and and that's the key, because you know, buying sneakers on the recall market to make money is not actually a great idea. The majority of the money is made by those who can acquire the sneakers at the retail price and then turn around and sell them on

the resell market. But you know what Adidas has done really well in the past year is they've taken a lot of shoes that um are very limited and hard to get and sell for a lot of money. And in particular, there's two models that there's the Adidas n M D and there's the Adidas ultra boost, and there's been a lot of very rare colors that are self for hundreds and thousands of dollars. But they've also put out a lot of colors that are not rare that you can talk in the store and get and boots

is very comfortable. And you have this model that you know other people wearing literally the exact team shooting a different color that might sell for two thousand dollars, and you can go in the store and buy it four a hundred, forty or a hundred and fifty dollars. So I think that would be a sort of really good intro shoe for most people, because you're not gonna be

able to get a pair of Air Jordans. You're not gonna be able to get a pair of Yeasys because they're just too rare and they sell for for too much money. All right, Josh Luber of stock X the stock Market for Sneakers. Fascinating conversation. Uh. I will hopefully have you back in the year and we can talk about how the market has, you know, evolved and gotten more liquid if it has. I really appreciate you coming on. Thank you very much for having me. The next time

we can talk. We can also talk about how we've added watches and handbags and other verticals because we're moving beyond sneakers pretty soon. Fascinating. Thank you, Thank you so Joe. I I feel like I still have so many questions and so many thoughts on sneakers that I never thought I would have. Yeah. Same, But I you know, I love all the parallels that you pointed out and that we see between how the market has evolved in liquidity

and pricing between sneakers and bonds. It really is sort of feasting that there's some sort of universal truths about market structure out there. Yeah. I mean you kind of touched on this. You could go either way, right, Like, on the one hand, markets tend to beget markets, and liquidity begets liquidity, So even if you have an esoteric asset like a air Jordan's um, you could eventually have

transparent pricing for that. But on the other hand, this kind of reminds me of the conversation we had way back in the day about the beanie Baby bubble, where there was that catalog of market participants and they all just kind of came up with prices that tended to benefit them. And like, I don't mean to imply that that's what stock X is doing, but in terms of collectibles, you can see a parallel right right. The only differences I would say is a sneakers actually have some value

because you can wear them, unlike a beanie baby. You didn't wear your beanie babies. B Sneakers have been cool forever, so they're clearly not a fad because people have been wearing sneakers forever. And three, it's interesting so much of the market dominated by Nike, which doesn't have you know, which obviously is not just going to flood the market one day and sort of destroy all interest, where so

you have like this stable brand behind it. But there clearly are you know, potentially quite a few similarities between sneakers and other collectibles that have gone crazy over time. All right, shall we leave it at that for today before I embarrass myself yet, kind you didn't embarrass yourself. No, I can't believe I messed up that joke. All right, let's let's go. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway, and I'm Joe wi Isn't all.

You can follow me on Twitter at the stalwart. Thanks for listening,