Proof of provenance could help to secure trust and prices of ‘second-hand’ sneakers
Believe it or not, just in the USA this year, the market size for second-hand training shoes (or as the Americans call them, ‘sneakers’) is $2 billion and expected to grow to $6 billion by 2025 according The New York Times. For investors who want to ‘keep a foot in both camps’ (sorry I could not resist that), sneakers are becoming an alternative asset class, with the FT reporting people earning up to £4,000 per month trading in sneakers. This has led to a number of platforms/exchanges being established where one can trade sneakers, which includes Stadium Goods (which was bought in 2018 for $250 million) Grailed, raised $15 million. Goat had $100 million invested into it from Foot Locker and earlier this year, StockX had $110 million investment , which increased its valuation to over $1 billion. Even more importantly, how do sneaker manufacturers stand out from their rivals, as the global market in 2018 was $55billion and expected to grow to $88 billion by 2024, so competition is ferocious? However, if you are going to buy a pair of sneakers for $1milllion, yes $1million, you had better be certain that you are not buying a fake pair!
Nike, the biggest seller of sneakers and with sales of over $22billion p.a., is constantly on the lookout for new ways in which to attract customers and sell high-margin products (and ensure that the second-hand market is strong) enabling Nike to sell expensive sneakers in the first place. This helps to explain why Nike has just filed for a patent in the USA to issue ‘Cryptokick’ tokens which can be ‘unlocked’ once the sneakers are bought. The tokens are stored on a Blockchain so buyers will be able to track the provenance of the sneakers and so help to minimise the potential of fraud. However, Cryptokick tokens are not just about recording when the sneakers were bought, and by whom (as this is hardly novel), as such information could simply be held in a secure spread sheet. The Cryptokick’s patent implies owners will be provided with an added element of control over their sneakers, i.e. owners can set restrict the number of clones or copies that could be produced. They can also grant rights to third parties, who will be able to mix and blend shoe designs.
Similar to CryptoKitties, owners will also be able to ‘breed’ shoes, where ownership rights in every successive generation will be linked to the original shoe. The patent reads: “Using the digital asset, the buyer is enabled to securely trade or sell the tangible pair of shoes, trade or sell the digital shoe, store the digital shoe in a cryptocurrency wallet or other digital blockchain locker, intermingle or “breed” the digital shoe with another digital shoe to create “shoe offspring,” and, based on rules of acceptable shoe manufacturability, have the newly bred shoe offspring custom made as a new, tangible pair of shoes.” The ability for Nike to know who owns which Cryptokick token, and potentially have an on-going relationship to manufacture more or variants of the original sneakers, means that Nike begins to become a bespoke manufacturer of high value, niche products.
This is a real differentiator in a crowded market and also keeps Nike in contact with its high-value customers, so making it easier to sell future products (whilst also having much greater knowledge of second-hand sneaker sales for which, historically, it has had little engagement in). The question is, will Nike expand the use of the Cryptokicks token concept and use it as a reward program, giving tokens based on repeat purchases or even via the use of Internet of Things (IoT) devices, and offering tokens based on the amount of time certain the sneakers are worn in certain venues e.g. sporting stadiums, high streets etc?
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