Tag Archives: Sneakerheads

Sneaker Pawn Shop

“Young kids don’t have jewelry.  They don’t have cars, but what they do have is the thousands of dollars worth of sneakers in their house,” says Troy Reed, father of young entrepreneur and founder of Sneaker Pawn, Chase Reed.

Sneaker Pawn, located in Harlem, New York, is the latest venture to capitalize on the budding sneaker culture that is prevalent within today’s younger generation.  The shop, manned by Chase and his father, offers secured loans to people with limited edition or dead-stock sneakers, which are used as collateral.  The two place a value on the sneakers by checking for odors and wear around the toe box and heel counter.  Just like any other pawn shop, if the pawner wants to retrieve their sneakers he/she must pay the original loan back plus a storing fee, almost like interest.  In the case that someone else makes an offer on the pawned shoe, the pawner is notified and has the right of first refusal, so long as they can provide the cash.  When the sneakers sell for more, the pawner keeps 80% of the profit and the rest goes to the store.  Besides lending money in exchange for kicks, Sneaker Pawn also customizes and refurbishes sneakers.

Chase and his father used to be the obsessed sneakerheads who would stand in line for hours and sometimes days for the newly minted Air Jordan and Nike limited releases.  Like all entrepreneurs though, the two saw an opportunity to capitalize on this hobby.  Chase, 16, sold his own collection of shoes (around 200 pairs) to gather the $30,000 of seed money for Sneaker Pawn.

The store is the current holder of some pretty exclusive kicks, such as the Kobe 9 Masterpiece, the Air Jordan 6 Infrared, and the Lebron X Crown Jewels, which are valued at $1,400–more than five times their retail price.  The shop has seen immediate success amongst consumers as collectors have pawned their kicks to pay for funerals, prom dresses, and even a move from the Bronx to Brooklyn.

Lebron X Crown Jewels
Lebron X Crown Jewels

Sneaker Pawn is effective because it enables young people to have access to fast cash.  Like Chase’s father said, kids do not always have jewelry or the expensive items that are normally used to borrow money against, but with so many investing in shoes that appreciate over time, their assets are much more liquidable.

Check out the New York Post’s article on Sneaker Pawn and check out some of the shoes the shop has to offer on their website.

Maxwell

 

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Y.E.S.S. #1

Welcome to the first ever Solution Session where I intend to show you the intuition behind some of my blog posts.  This first episode is regarding my three posts about the secret behind Nike’s limited releases.  Check out my YouTube Channel: Young Economics and be sure to subscribe! Let me know what you think.

Maxwell

The Secret Behind Nike: Part II

It was June 9th, 2012 when one of the most highly anticipated shoes of the year was set to release on Nike’s website, the Nike Air Yeezy II collaboration with rapper [God?], Kanye West.  The previous Air Yeezy that released in 2009 was only sold in brick-and-mortar stores, so the online release of the Air Yeezy II was a welcomed surprise by the sneakerhead community, which only drew more hype to the launch date.  It was divine intervention (perhaps by the Rap God ‘Ye himself) if you happened to cop a pair of Air Yeezy IIs, as only five hundred were available in each of the two colorways of the shoe.  Traffic was so heavy on this day that Nike’s website actually crashed.  As a result of the limited quantities, the resell price soared up to as much as $96,000 on eBay (no, that’s not a typo) and still lingers around a four-figure price in specialty shoe stores today.  This is an all too common occurrence within this phenomenon; sneaker collectors will pay obscene prices for the rarest (and sometimes the ugliest, but don’t tell them I said that) pairs of sneakers, which is beyond me because they are just shoes, they’ll be dirtied in one wear!  Why wouldn’t companies, like Nike, supply more to increase their revenue?

Nike air yeezy 2
Nike Air Yeezy II Colorways: Cop or not?

From an economic standpoint, wouldn’t it make sense to produce a product up until the point where the marginal cost of the producer (Nike and other companies) equals the marginal benefit of the consumer?  In the case of limited releases, a shortage is yielded since the quantity supplied by footwear companies is less than the quantity demanded by consumers, as you can see in my first graph below.

photo 2
Solution Session: Graph 1
photo 3
Solution Session: Graph 2

Solution Session: Graph 3
Solution Session: Graph 3

Let’s say Nike were to entertain my inquiry and increase their quantity of footwear supplied all the way to the equilibrium point where marginal cost equals marginal benefit (second graph).  This would eliminate the shortage of sneakers and all of the sneaker collectors would be happy, right? In theory, though, the quantity of footwear demanded by the sneakerheads would decrease, therefore resulting in less revenue and less producer surplus for the Nike brand(according to my final graph, you can see the producer surplus decreases a significant amount from the limited release retail price to the new accommodating equilibrium price).  The consumer surplus of the sneakerheads, however, increases as a result of this change in quantity of shoes available.  Unfortunately though, business practices are not always based off of consumer preferences, which is why the true consumer surplus of limited edition sneakers remains at the little triangle at the tippy-top of my graph.  Why does Nike do this? Well, besides the fact that it is more profitable for the company to supply in limited quantities, it is because we continue to pay these prices and demand The Swoosh at such high volume!  I wonder what Nike’s annual report has to say about this.

*The final part of my research will be released tomorrow, thank you for taking the time to check this out.

Maxwell

The Secret Behind Nike’s Limited Releases

As I mentioned in my Introduction post, one of my interests revolves around global sportswear icon, Nike Inc.  Ever since I can remember, I’ve been enamored with The Swoosh.  The passion and ingenious behind each of their creations is something to marvel, for they continue to innovate and reimagine the way we think about apparel.  Also, the entrepreneurial ability and spirit of co-founders Phil Knight and Bill Bowerman to start a company out of the trunks of their cars to only transform it into a multibillion-dollar entity is admirable and something every kid dreams about doing.  Recently though, I’ve become more in tune with this interest and curiosity.  Not to say that I am a ‘sneakerhead’ (someone who has an insatiable desire to collect sneakers), but I have begun collecting several pairs of Nike footwear…currently five kicks (sneakers) deep.  If you aren’t familiar with Nike and this phenomenon of shoe collecting, I ask that you please check out this video of one of the most absurd sneaker closets you’ll ever see:

Limited release sneakers are what fuel this sneakerhead phenomenon.  You see, on just about every Saturday morning people of all ages wake up just a couple of minutes before eight O’clock with their momma’s credit card in hand or money from their latest paycheck to hit that Twitter link Nike supplies saying, “The Air Jordan 11 Retro ‘Gamma’ is now available”, so that they may have a chance at “copping” (buying) the latest Nike shoes to hit the virtual shelves.  The fact that these releases are limited alludes to the fact that many people end up empty handed after the shoe sells out in 10 minutes, only to try again, and probably fail, the following weekend.  What I don’t understand though, is the purpose it serves to continually release limited edition sneakers when Nike could easily supply more and accommodate the demand of each shoe.  Over the next couple of days I will be publishing my findings, stay tuned for part II to be released tomorrow.

Maxwell