Sometimes the collectible becomes the investible and sneakers are a prime example. For some, sneakers are a kind of social currency, but Cowen Equity Research believes that sneakers are actually emerging as an alternative asset class.
“We propose the idea that sneakers are now an emerging alternative asset class that 1) earns illiquidity premiums; 2) provides diversification - non-correlated with traditional asset classes; and 3) earns favorable risk reward characteristics,” Cowen analysts wrote in a recent note.
The resale market plays a major role
Cowen estimates that the U.S. sneaker market is valued at $21.2 billion, and the overall global sneaker market is nearing $100 billion. Within that “Sneakerverse,” the U.S. resale market has an estimated value of $2 billion, and the global sneaker resale market is worth around $6 billion.
Two of the forces feeding the industry’s growth are a healthy appetite from sneaker enthusiasts, aka sneakerheads, and a lean supply of inventory by some of the major players in the space like Nike (NKE) and Adidas (ADDYY). According to Cowen, Nike is a driving force for its classification of sneaks as an alternative asset class, and that should not come as a surprise.
“Nike's financials (35% ROIC, +1,380% TSR since 2000 vs. S&P 500 +214%) solidifies the company as one of the greatest investments and businesses in consumer and retail history in our view,” the analysts wrote. Indeed, the swoosh brand owns almost 20% of the global sportswear market share, according to Euromonitor International.
Online market places such as Stock X, Stadium Goods, and GOAT group have capitalized on e-commerce trends by creating and cultivating websites and apps which serves as sneakerheads’ primary vehicle to buy and sell on the secondary market. Traditional brick-and-mortar retailers are also buying into the prowess of the secondary sneaker market. In February, Foot Locker (FL) announced that it made a $100 million investment in GOAT Group, which owns New York-based sneaker consignment shop and online marketplace Flight Club.
Sneaker ownership is on the rise
According to Cowen, from Dec. 2013 to Dec. 2018, the percent of people who own four to five pairs of sneakers increased from 13.3% to 16.3%. Sneaker ownership among women, millennials and Gen Z has also increased over the years.
As with any asset class, no one knows what the future holds, but as far as the sneaker market is concerned the sky could be the limit. As StockX CEO and co-founder Josh Luber put it at the 2018 Benzinga Global Fintech Awards, "Maybe one day you can invest in the Jordan Index instead of the Dow Jones."
Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade
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