Cover Story: The rise of the Malaysian sneakerhead

  • height=450
  • height=268
-A +A
This article first appeared in The Edge Malaysia Weekly, on January 16 - 22, 2017.

 

Sneakers, especially the limited edition and celebrity-endorsed ones, are now seen as a passion investment, if not a quick way to make good returns. According to Forbes magazine, this craze has fuelled a US$1 billion secondary market. The global market is now worth US$55 billion.

The boom in sneakers has been driven millennial demand and savvy marketing campaigns brands such as Nike, Adidas and Puma. This, coupled with the rise of social media platforms such as Facebook and Instagram, has positioned sneakers as objects of desire, which translates into high resale values in some cases.

While this was initially somewhat of a Western

phenomenon, driven primarily North America, which has dominated the global footwear market in terms of revenue, Malaysian investors have started to take notice. Nelson Tan, general manager of Sole What, one of the first few sneaker retailers in Malaysia, was part of the craze himself when it started.

“I have been obsessed with sneakers since I was about 14 or 15 years old. I am now in my 40s. I like sneakers that others do not wear; those that are not ordinary. At first, I just wanted to be different. But then, I started to see an increasing demand for these ‘special’ sneakers,” he says.

About 10 years ago, Tan and the owner of Sole What saw an opportunity to open a store dedicated to sneakers. “We jumped at it. There were already sneaker enthusiasts back then, but it was not as crazy as it is now.”

In fact, Tan describes Kuala Lumpur as one of the most vibrant cities in the world when it comes to the “sneaker culture”. “Now, the demand for limited or special edition sneakers have become mainstream,” he says.

Some sneakers can sell for a few thousand ringgit. Tan and his partner benchmark the prices of their sneakers against their fair value in developed countries, such as Japan.

When they started out, however, the sneakers did not fly off the shelves. “We struggled to sell 72 pairs of each model,” says Tan.

Then suddenly, the sneakers caught on. “We were able to command orders of 2,000 pairs per model. And if we took a week to sell them all, it was considered too long,” says Sole What’s e-commerce manager Kwan Pei Choong.

“In 2007, I think we sold about 200 pairs a month and maybe, 2,000 pairs for the year. Now, we can easily sell 2,000 pairs a month, and this is a conservative estimate. One time, the market went crazy and we sold 1,000 pairs a day.”

Calen Leong is an independent reseller of sneakers. His sales have grown from five figures to six in just three years. “I am not comfortable revealing the exact number, but yes, business has been brisk and revenue has grown tremendously,” he says.

Meanwhile, Tan has noticed a change in the customer demographics as the popularity of sneakers increases. “The customers are now between the ages of 12 and 45. They used to be between 15 and 35. But now, even a 12-year-old can resell sneakers for a profit and a 45-year-old could walk in and buy a pair for the first time,” he says.

While Sole What may not be the pioneer retailer of sneakers in Malaysia, it was the first to reach a certain scale, says Tan. “We now have four stores in prime shopping malls. And because of the volumes we have achieved, brands such as Nike and Adidas took notice. Thus, they have allowed us to release their limited and special edition sneakers.”

 

Primary versus secondary market

Leong explains the difference between the primary and secondary sneaker markets. “The primary market in Malaysia is an oligopoly dominated several retailers, such as Sole What, Crossover and Hoops

Station. Most of the time, they are given priority over the smaller retailers in terms of the allocation for limited edition sneakers due to their wider market exposure and the fact that they have been around longer,” he says.

“The secondary market is somewhere between perfect and monopolistic competition. Anyone can resell sneakers. The difference between an established reseller and a newcomer is that the latter relies on Facebook groups while the established ones have their own social media platforms on Facebook or Instagram.”

He adds that there are not many collectors in Malaysia today, only resellers. “Everyone is trying to make a quick buck,” he points out.

“The US has a more [pronounced] sneaker culture. The people there actually appreciate sneakers and go for brands they like and think are worth buying. In Malaysia, they only buy sneakers such as NMDs, Yeezys and Ultraboost (all Adidas), which are in trend.” This is especially important if you intend to resell the sneakers, says Leong.

In the past five years, the demand for limited edition sneakers has increased because the buyers themselves saw a business opportunity, says Tan. “Now, they have better access to these sneakers. Years ago, they would need to source the sneakers from abroad. But now, they can get them locally.

“Also, now you can make money from 90% of the sneakers available in Malaysia. Due to our [weak] currency, buyers come from abroad to look for the limited stocks.”

Malaysia’s sneaker sales are the top in the region, says Kwan. “We have buyers from the Philippines,

Singapore, Thailand, China and Indonesia. Ten years ago, they went to Singapore.”

He says social media has definitely helped increase primary market sales. “having a stable social media platform, we are able to attract 100,000 Instagram followers. This is one of the tools that sneaker brands use to gauge us in terms of market accessibility.”

As Sole What is in the primary market, its job is to keep the market vibrant, says Tan. “Consistency in business is the key. Besides this, we have to be located in prime areas, deliver good customer service and conduct more promotional or corporate social responsibility events to keep the scene vibrant.”

Kwan says, “This is because we are the source of the sneakers sold on the secondary market. If Adidas gives us 300 pairs of limited edition sneakers to sell and 1,000 buyers turn up, we will have to manage the crowd to prevent fights from breaking out.”

Although the competition is tough in the secondary market, Leong says he has some leeway as he is an established reseller. “I have more exposure because I have been reselling for a longer time. I already have a list of customers and can set certain rules and policies, such as not reselling the products — especially newly released sneakers — for two weeks or a month.”

 

The long and short of it

As Leong buys and resells sneakers on a daily basis, he is able to give some insight into which sneaker brands tend to appreciate. “That would be Adidas. For example, when the NMD was released, there was a lot of hype surrounding it as Adidas had a lot of celebrities wearing it. At one point, the resale price for the first Colorways or Primeknit NMD was as high as RM3,000. Now, you can still resell it for RM700, which is still a 40% return on investment,” he says.

“Another example would be Nike’s Air Jordan 1 ‘Bred’ Colorway, which retailed at RM629. It can be resold for RM1,500, which is a 138% return on investment (ROI). It all depends on the demand and how limited the supply of that particular model is on the secondary market.”

The best ROI he has made was for a pair of Adidas Yeezy 350 “Turtle Dove”. “I bought a pair for RM749 and sold it for RM3,000 on the same day. If I had kept it, it would have been worth a lot more today,” says Leong.

He believes that buying limited edition sneakers is a good long-term investment, but it is subject to certain conditions. “It depends on factors such as whether the sneaker model will be re-released or how limited the production is,” he says.

“For example, the first Yeezy Boost 350 ‘Turtle Dove’ Colorway retailed at RM749, if I remember correctly. It was released in June 2015. If it is still in its original condition, I think it can be sold for at least RM6,000. Limited edition sneakers are highly liquid.”

Leong says the value of the sneakers depends on their availability on the secondary market. “If the number of sneakers sold on the primary market outweighs the demand, then the value of the sneakers will be lower. It is all supply and demand.

“Also, as Malaysia is usually not allocated [certain models] of limited edition sneakers, the value of those will be higher. For example, the Adidas Primeknit NMDs can be resold for at least RM1,100 in Malaysia, whereas in certain countries in Europe, it is still available on the primary market [for a fraction of the price].

“The only website that tracks the price of sneakers is StockX — a sneaker stock market. Here, you can search for information on any pair of sneakers, including things like the last sale, lowest asking price and highest bid.”

StockX is the world’s first sneaker stock exchange. It is essentially a live bid/ask marketplace for in-demand sneakers such as Nike’s Air Jordans or Adidas’ Yeezys. It was co-founded Dan Gilbert, the founder of Rock Ventures and Quicken Loans Inc, and CEO Josh Luber, a former IBM consultant and a sneakerhead himself.

When reselling sneakers in Malaysia, the trend and style of the sneakers are a huge factor, says Leong. “For example, the current trend brand is Adidas. When it releases a sneaker with new [cushion] technology such as Ultraboost or new models such as NMDs or Yeezys, there is chaos in shopping malls or retail outlets as buyers try to score a pair to resell — just because they know they can make a profit of [at least] RM200 from reselling a pair.”

Kwan says the model of the sneakers also

determines whether it can command a high price. “As trends change frequently, buy and resell anything Kanye West (Adidas) for now as they could appreciate as much as 300%. Nikes designed Hiroshi Fujiwara have the most consistent value, although they may not sell as many as the Yeezys. They are worth 200% more than the retail price.

“Because sneakers are a fashion item, only very limited models, such as the Nike Air Force, can maintain a very high price over the years. Other than that, if you want to make money, you have to sell it within a period of time.”

Leong says lifestyle sneakers are currently in demand, compared with other types of sneakers. “I think lifestyle sneakers are easier to resell. It used to be basketball sneakers. But now, the demand has shifted to lifestyle ones as they are more comfortable.”

When should you sell? Tan says it all boils down to instinct. “You have to know your shoes very well before you can decide correctly whether to sell or keep them for the longer term.”

Sizes play a part in determining the price too, says Kwan. “US sizes 7 to 10 are the most popular. If you have bought other sizes, chances are the resale value may not be as good.”

When it comes to determining the authenticity of the sneakers, Leong says the best way is to buy from a reputable retailer or seek the opinion of other sneakerheads. “I purchase all of my sneakers from authorised retailers to ensure that they are original. If I have no choice but to purchase them from resellers, I watch a review of the sneakers on YouTube and compare them with the pair I have in hand.

“Also, there are sneaker groups on Facebook where I could post a picture of the sneakers and ask for opinions. The community is generally happy to help.”

 

Tips for starting a sneaker collection

For those interested in collecting sneakers, Tan and Leong have some tips. “Buy what you like. In the end, if you cannot sell it, at least you can wear it and be happy with your purchase,” says Tan.

Leong agrees. “You do not have to follow the trend. Just buy what you love. Many youngsters are influenced the marketing strategies of a

certain brand and fail to see what other brands have to offer.”