Collecting sneakers has evolved from a niche hobby into a multi-million-dollar business. Sports shoe enthusiasts, known as sneakerheads, are demanding more from the trading platforms they frequent. Service providers are increasingly adopting new technologies like blockchain to keep them happy.

28-year-old Shan Jichao became a budding sneakerhead as a high school student over a decade ago when sports shoe collecting was just a subculture popular among a small group of hardcore basketball fans. The phenomenon is now going mainstream. Snapping up the latest pair of Air Jordans or Yeezys is no longer just a concern for high-schoolers or sports fans. The sector is also garnering attention from celebrities, cryptocurrency traders, and even China’s older generation, who are more accustomed to trading in stocks than shoes.

“I was surprised one day when a discussion started in one of my WeChat groups, mainly made up of middle-aged doctors, about how they liked a particular sneaker after someone sent out a photo,” Shan told TechNode.

“That’s when it really hit me: sneaker culture has expanded outside of the circle (出圈 in Chinese),” he recalled, using an internet slang term to describe a trend or interest is no longer confined to its original niche community.

With boxes neatly piled up in his apartment, Shan has amassed over 70 pairs to date, and he has traded more than 200 pairs since his high school days.

“My love for sneakers is rooted in my pure passion for basketball, and also streetwear culture later on,” he said.

Interest in the footwear is no longer the only driver behind the sector’s growing popularity. Sports brands and trading platforms have jumped on board and it has become a big-money business.

Shan’s sneaker collection (Image credit: Shan Jichao)

Online platforms

China’s sports shoe market is worth $10 billion, second only to the US globally. While the secondhand trading market is already worth $1 billion, rapid growth is expected as China’s younger generations grow as a powerful force in the consumer market. The rising popularity of streetwear, as well as the country’s robust e-commerce infrastructure, are expected to boost expansion.

Like other retail verticals, the sneaker sector once relied heavily on offline sales, but its online presence is also growing.

Shan recalled that he would typically get up early on weekends during his college days to line up at sportswear stores for the latest limited-edition kicks. There are now plenty of online channels for customers to use, including Alibaba’s Tmall, in addition to the brands’ official websites.

The chances of picking up a pair from the primary market that is directly buying from brands or via official channels remain relatively slim as they use a lottery system coupled with artificially limited supply to push up demand.

The scarcity has led to the rise of third-party reselling platforms that act as middlemen for sellers and buyers.

Sneaker services

Startups are forging out new areas to add value within the sneaker ecosystem. Leading the charge is Shanghai-based Poizon, which started life as a sneakerhead channel on China’s sports news and community website Hupu. It went independent in 2015, providing sneaker authentication services free of charge.

The firm’s app uses a consumer-to-business-to-consumer model, which basically means that instead of selling directly to each other, users complete their transactions by working with the platform, which in turn, acts as both broker and appraiser. Sellers pay commission fees that typically range between 7.5% and 9.5%.

Positioned as a trustworthy middleman, Poizon quickly built up a loyal user base in a market where credibility is paramount. Monthly active users reached 1.4 million as of March this year, while annual gross merchandise volume is slated to hit $1.5 billion for 2019, according to data from Analysys Qianfan.

The sudden influx of startups into the sector has been primarily attributed to the emergence of the “He economy” as the sneakerhead community is still male-dominated in contrast to other e-commerce platforms that typically cater to female buyers. There is even talk of a male version of social shopping app Xiaohongshu arising for this growing segment.

Despite the imbalance, Liang Chao, founder and CEO of streetwear retailer Yoho!, known as the China mainland version of Hong Kong’s Hypebeast, casts aside the old stereotypes that the sneaker market is mainly for men. “Street fashion crosses genders, our goal is to address the different and personalized demands of each and every user,” he told TechNode.

He agreed that compared with two decades ago Chinese men, especially the younger group, are adopting their own ideas and attitudes when choosing what to wear. But he noted that female streetwear customers are also on the rise.

Poizon’s success has drawn a slew of followers and investors to the sector. The company reportedly received A-round funding from Russian venture capitalist DST Global in April bringing its valuation to more than $1 billion. This deal came just two months after a US$50m pre-A round.

A steady stream of sneaker-focused startups have secured financing of late. Nice, originally a photo app, has expanded into the space and picked up tens of millions of dollars in D-round funds in June.

Tech heavyweights have also taken notice of the market’s potential. Zhihu, the Q&A platform, has rolled out a male-focused platform called Chao, while Alibaba is also present thanks to its Xianyu second-hand retail platform. US startup GOAT has also just announced plans to enter the market in China.

Sneakers are the new crypto

From the dozens of interviews conducted by TechNode, there are clear generational differences in the types of money-making activities that gain traction in China. It is said that those from the post-70s generation prefer flipping stocks to strike it rich while the post-80s generation flip houses. In contrast, the post-90s are flipping bitcoins, and the post-00s are flipping sneakers.

Sneaker trading is a lucrative yet volatile business, so much so that in China it is being referred to as the new cryptocurrency. A few weeks ago, local media reported that a pair of Air Jordans had shot up nine-fold in value in just four days (in Chinese). According to data from Poizon, the hottest sneakers on the market trade above market price on the platform on average.

However, the sudden commercialization of sneaker-collecting has received some pushback from sneaker enthusiasts like Shan. “The influx of people looking to make a quick buck out of sneaker trading is pushing prices to irrational highs. And this is preventing real lovers of sneaker culture from buying the shoes.

College student Dareen Qi explicitly expresses his disapproval. “It’s quite similar to reselling tickets or flipping houses… The government should regulate such behavior,” he said.

Fighting fakes with blockchain

As is the case when buying almost anything online in China, the risk of rogue sellers peddling fake products is high and this rings true for the sneaker market. Counterfeit kicks are one of the biggest pain points in the high-value market and the lack of a comprehensive appraisal system is stunting growth.

Online marketplaces are increasingly turning to blockchain to better protect shoppers from fake products. For the sneakerhead business, the technology is being used to bolster traceability. Yoho! rolled out a blockchain-based traceability solution for its sneaker trading platform UFO earlier this year.

With a registered user base of 20 million, there is a lot on the line for the Nanjing-based company. Revenue derived from sneaker trading makes up more than one-fifth of Yoho!’s turnover. Ensuring that only authentic products are on the platform is crucial for maintaining a strong reputation.

The company works with Ultrain, a domestic public blockchain startup that develops solutions for retail and e-commerce verticals.

“The core issue now is counterfeit products,”  Ultrain cofounder Emma Liao told TechNode. “For platforms that don’t have the layer of protection enabled by technology, it is extremely difficult to spot fakes and be responsibly in the interests of customers.”

Ultrain’s blockchain-based solution for sneaker trading. (Image credit: Emma Liao)

The company is working with Yoho! to use blockchain to track each pair traded at each stage—from order to appraisal to delivery.

In the appraisal stage, each pair is sent for authentication. Footage of the process is uploaded and stored on the Ultrain’s blockchain along with other information such as origin, authenticity certificate, and the paper trail of the sneakers’ ownership. Parties can scan the anti-counterfeiting NFC tag attached to the shoe to view the details.

While Liao is mostly focused on using blockchain to track authenticity, as well as store merchandise data for now, she envisions that other applications will emerge, including social e-commerce.

“Imagine in the future, sneakerheads with the NFC chips are able to spot each other in the crowd. This could be a new way of social networking,” said Liao. The thinking behind this is connecting people through things, she added.

With contributions from Nicole Jao.

Emma Lee

Emma Lee is Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general. We are looking for stories related to tech and China. Reach her at lixin@technode.com.

Nicole Jao

Nicole Jao is a reporter based in Beijing. She’s passionate about emerging trends, news, and stories of human interest within the world of technology. Connect with her on Twitter or via email: nicole.jao.iting@gmail.com.

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