Kanye West May Have Finally Outsmarted the Resale Market

On Tuesday afternoon, Victor Baez joined everyone else bum-rushing the Yeezy Supply site to buy Kanye West’s new Yeezy 500 “Desert Rats.” For Baez, who runs a sneaker-focused Youtube channel and has been reselling shoes for the past five years, a new Yeezy sneaker release means he’s furiously punching in his information and praying he can cop something. But on Tuesday, he hesitated, because the new sneakers—carrying a $200 price tag—were only available if you also bought a hoodie and sweatshorts, for a total price of $760. Baez clicked around, made sure there was no other way to buy the shoes, and proceeded with the typical song and dance: clicking purchase, and then immediately listing the shoes on resale sites like Grailed and eBay. Baez was the first person to post the Yeezy 500 “Desert Rats” on either site. But what were they worth? He had just forked over $760, while Yeezy Supply had priced them at $200. Baez decided to ask for $1,899. “I set the market,” he tells me.

At first, the bundle didn’t even seem to cause a hiccup in the typical Yeezy cycle, as the shoes popped up from sellers like Baez for prices approaching $2,000 shortly after their release. But a full day later, the shoes were still sitting there. In fact, all the “Desert Rats” were sitting around on sites like Grailed and eBay. No one seemed to know how to value or how much to pay for a shoe that technically was worth $200, according to the price breakdown of the bundle on Yeezy Supply, but that you couldn’t actually get without paying almost four times that. The bundling method seemed to be an attempt for Kanye and/or Adidas to get the full value out of these shoes—to receive a chunk of the money generated on the resale market. But did it work? And did Kanye figure out how to beat the resellers in the process?

That the resellers are winning at all is an interesting bug in the sneaker world. Kanye’s Yeezys are incredibly hyped shoes that often sell out in a blink of an eye, aggravating empty-handed customers and enriching those who manage to buy them. The sneakers are made in very limited amounts—only 40,000 pairs a release, Kanye said last year—and sell for multiples of the retail price once they hit the aftermarket. This means that the Yeezy economy is patently unfair to the supplier, whether it’s Adidas or Kanye West himself: the figure resellers charge is several times larger than Adidas or Kanye can reasonably get away with in the first place, even if that’s what customers are willing to pay. But this new bundling method forces customers to buy sneakers and apparel—and theoretically captures some of that aftermarket revenue in the process.

It’s estimated by StockX that over $6 billion globally is spent annually in the secondhand sneaker market—that’s money that slips right through the hands of Kanye and adidas and into the bank accounts of the luckiest customers-turned-resellers. “All the value in the product and what things are actually worth, they don't see any of it,” Lawrence Schlossman, Grailed’s brand director, tells me, referring to the initial retailers. “I wouldn't be surprised if they were like, We need to get a bigger piece of the pie. Why should we be hung out to dry?” Schlossman notes that the same thing happens to Supreme. Whenever the streetwear brand releases a box logo hoodie, it’s enriching the collective resellers more than itself. Kanye, it seems, is simply searching for a way to get something closer to true market value for his prized sneakers. Josh Luber, the CEO of StockX, which treats sneakers like financial investments, appreciates the strategy. “I'm all about ways to create equitable distribution for everyone who's in the value chain to realize some of that value without adidas selling a Yeezy for $1200,” he says. And countless people have paid $760 for a Yeezy shoe before—someone bought a pair of black Yeezy 350s for $900 just today, according to StockX data. There seems to be no question that the sneaker market values Yeezys at more than $200 a pair. Now, West has found a way to charge that amount.

Luber also says the strategy ensures the halo effect these limited items are meant to create. “It's about, How do we leverage this to sell more products?” he says. “And this is a pretty explicit, in-your-face way to do it.” This may even inflate—or crater values if these shoes fail to fully sell out—the cost, as sellers refuse to let go of them for anything less than the $760 bundle price they had to front. “You have to look at this shoe as if it were sold at retail for whatever the cost of the bundle is,” Schlossman says. You see that reflected in the way people are pricing the shoes on resell sites—for double what the bundle costs. Baez says it definitely affected how he priced his. For what it’s worth, Flight Club, which sets a price on a sneaker rather than letting customers bid, says “our price will ultimately be determined by the way our sellers and buyers perceive market supply and demand,” according to the shop’s brand manager Steven Luna. Luna says the price will also be informed by social media sentiment.

The bundle method is only the latest retail experiment Kanye has tried. Schlossman points out that the last new silhouette, the Yeezy Waverunner 700, was priced higher than a typical Adidas shoe at $300. “I feel like you're looking at two test runs,” Schlossman says. Both are meant to answer one question: “How does Yeezy make more money and sell more shoes? Is it by marking up an Adidas sneaker to like $300, which is pretty unheard of when it comes to the major players Nike, Adidas, or Under Armour, or is it this bundle methodology?” We reached out to Adidas in hopes of learning the method behind the madness but a spokesperson was only able to confirm that I wasn’t living in some parallel universe. “The only comment/information I can provide is to confirm that the YEEZY 500 was released for pre-sale through YEEZY.SUPPLY on December 5, 2017. The shoes are expected to ship March 1, 2018. Any future adidas drops will be announced via adidas.com/YEEZY and YEEZY.SUPPLY.”

The only obvious assumption to safely take from this is that Kanye is dead set on selling shoes and apparel in equal measures. “The rest of the Yeezy products haven’t had nearly the type of market they hoped,” Luber says. “At the end of every season you see Yeezy Supply clothes go on sale and markdowns in order to sell through.” By bundling hoodies and sweatshorts with the shoes, Kanye is creating demand for his clothes—the stuff he’s agitated to make for years—where, previously, it may not have existed. It’s a smart bet: resellers like Baez buy everything, assuming they’re going to get a return on their investment either way.

Whether this is a smart long-term strategy remains to be seen. One not-so-encouraging early return: the shoes are still available as a bundle through the Yeezy Supply site. It’s unprecedented for a Kanye shoe to sit for even a couple minutes, let alone a couple days. The bundle definitely discouraged people from buying the shoes. Schlossman says he went to buy the shoes on Tuesday but ultimately opted out when he saw the $760 package was the only option. But several other factors besides the price point are probably delaying the sale. Luber points out that the dead of winter is an outrageous time to hawk $240 sweatshorts—”That almost feels insulting,” he says—and notes that none of this will even ship until March 1st.

Baez, though, doesn’t have any regrets even though he has yet to sell the shoes despite unprecedented page views on his listing. He’s marked the shoes down to $1,709, but he’s not worried. “I break even no matter what,” he says. “It’s all about patience and having that money to invest… It’s a hot commodity. When there’s demand, you supply.”

Source: GQ