- Investors can now trade shares in sneakers, music royalties and other unique assets through apps that mimic the real stock market
- These platforms are drawing thousands of young customers seeking investments that offer greater returns and social value than conventional stocks and bonds
Brandon Taylor, 27, and Becky Oxtoby, 23, are new to investing. But they do not spend most of their time trading stocks, bonds or funds. Instead, they buy and sell sneakers.
The Southampton-based couple are two of the rapidly growing number of young customers on StockX, a website where people exchange rare footwear, watches and other fashion collectibles. In under two years, they say they have completed almost 10,000 sales, although they “have no idea” exactly how much profit they have made.
Unlike on eBay (US:EBAY) and other second-hand marketplaces, StockX users such as Taylor and Oxtoby are encouraged to buy shoes as investments, rather than wear them. The Detroit-based company, which checks all sneakers are in mint condition before they are delivered, says it is “the stock market of things”: its customers aim to snap up products cheap, then resell at a higher price.
StockX provides a unique page for every item sold through its site, from Casio (JP:6952) watches to Nike (US:NKE) trainers, which features a price history chart resembling the graph for a company’s share price. Also helping investors navigate the market are additional data on each product’s volatility, 12-month trade range and its current premium to the original retail price.
The company, which is rumoured to be pursuing an IPO next year, says there is huge potential for profits. According to its 'index' of Nike Air Max 1s, the resale price of these sneakers increased 50 per cent in the 17 months to May. The value of a pair of Air Jordan 4s more than doubled. The S&P 500, meanwhile, grew just 38 per cent over the period.
“The market is growing, growing. It’s crazy,” says Oxtoby, a former maths student who now trades sneakers full time with her boyfriend. “That is the thing at the moment: trainers. It’s very, very on trend.”
As more and more young people stake their money on shoes and other unconventional assets, StockX is just one company looking to capitalise on the demand. In recent years, trading apps that allow customers to buy everything from music royalties to famous artworks have been rising in popularity.
While these newly launched investment markets have probably passed under the radar of most seasoned stockpickers, they are emerging at a time when thousands of new investors are storming the conservative world of finance, demanding easier access to assets that promise both greater returns and social value than conventional stocks and bonds.
The people behind some of these apps say they are opening up finance for the next generation of investors, who are particularly interested in investments that are relatable as well as profitable. But by aligning their platforms with the traditional stock market, are these companies promoting new and relatively unproven assets as more stable than they really are?
The everything ‘stock markets’
Former American National Football League (NFL) player Gerome Sapp is telling me about a recent acquisition of his that he is preparing for an IPO. But he is not talking about a company listing on the New York Stock Exchange – he is talking about his one-of-a-kind pair of Nike Yeezys.
Sapp, a Harvard Business School graduate who played six seasons for the Baltimore Ravens and Indianapolis Colts, is the founder of Las Vegas-based start-up Rares. Launched last year, the company has been acquiring a small collection of extremely rare sneakers, including the Yeezys that it paid a record $1.8m (£1.3k) for in April.
After obtaining these shoes at a Sotheby’s auction, Rares will split their ownership into “shares” that the public can buy for an affordable price through its investment platform. Customers will then be able to make money by trading the shares on the app, or wait to receive a fraction of the profits when Rares resells the shoes.
It may seem like an outlandish concept, but Sapp is building his start-up on an established business model.
He points to the company Rally, which has been doing a similar thing with classic cars for about five years – over that time it says it has attracted more than 200,000 customers. Then there is the website Masterworks, which says it has been “democratising art” since 2017 by selling fractions of multi-million pound paintings as investable securities for less than £15.
Luxembourg start-up ANote Music, meanwhile, allows users to buy shares in pop songs, which entitle you to a fraction of the royalty payments every time the song is streamed on Spotify (US:SPOT).
Each of these companies offers ordinary investors access to very different types of asset. But what links them and other similar emerging platforms is their tendency to adopt the language and visuals of the traditional stock market.
On Rares, for instance, each pair of sneakers that completes an “initial public offering” is identified by a unique “stock symbol”: $HOVA for the Nike Air Force Ones designed by Jay-Z, $APPLE for some super-rare sneakers created by the tech giant in the 1990s.
Similarly, every car sold on Rally has a “market cap”, “share price” and “ticker”, while ANote Music promises “dividend-like payouts” from its music shares. Someone seeing any of these platforms for the first time could easily mistake them for a stock-trading app: the endless line charts and green arrows on StockX will be familiar to all investors.
In 2021, these companies have a particularly strong incentive to align themselves as closely as possible with the stock market: over the past year, equity investing has seen possibly its biggest resurgence in popularity in history.
According to research firm JMP Securities, downloads of the hit stock-trading app Robinhood (US:HOOD) reached 3.6m in January alone, as housebound people across the world ploughed their lockdown savings into the market. Unlike during previous investing manias, many of these new traders are young: Robinhood says the average age of its users is 31, decades younger than the typical investor during the dotcom boom.
Investing, in other words, has become cool. Now companies like StockX want to capitalise on the hype by luring investors with assets that are trendier than company shares.
Young people are interested in investments that are “culturally meaningful”, says Jesse Einhorn, StockX’s senior economist, who adds the company's user base is “overwhelming Gen-Z and millennial”. “They don’t just want to put their money in a financial vehicle that is nameless and meaningless and has no cultural relevance to them.”
‘The Warren Buffett of sneakers’
StockX may be cooler than the real stock market, but investors like Taylor and Oxtoby are not only seeking street cred: they also want to make a decent profit.
Unorthodox investment platforms such as StockX claim to offer both. According to the company, a number of its most popular product categories have outperformed the S&P 500 since the start of 2020, although there tends to be a wide spread between bid and ask prices. The appreciation of Air Max 1 and Air Jordan 4 sneakers, it added, was also less volatile than the main US stock index. ANote Music, meanwhile, advertises an average expected yield of 7.9 per cent on its homepage – an estimate CEO Marzio Schena says is based on historical data.
The promise of market-beating profits is probably particularly appealing to the new generation of investors, who face only negligible returns from many once reliable assets: in the UK, the FTSE 100 shrank 14 per cent last year, while ten-year gilts now yield just 0.6 per cent. To those starting with little financial experience, competing with the hustlers on StockX may seem less daunting than trying to beat City executives at their own game.
“What’s really interesting about Stock X is the degree to which it allows people to convert their cultural capital into actual financial capital,” says Einhorn, who joined the company after studying economics at Yale.
“The free cash flow and balance sheets and price to earnings ratios: it's certainly important for other types of investments. But for these types of investments, it’s almost more important to know: what’s Kylie Jenner wearing?”
For those able to spot a fashion trend before it goes mainstream, there is a huge market to tap into. Once mainly associated with sportswear and the hip-hop movement, in recent years sneakers have become Gen-Z’s favourite fashion item, transforming into a multibillion-dollar business: research firm Cowen estimates the global resale market will reach $30bn by 2030. That growth is being driven not just by professional investors, but by the pop stars and influencers who design and promote the latest footwear: the industry of cool has never been so profitable.
“It definitely equalises the potential to make money. You can be the Warren Buffett of the sneaker industry, and be a dumbass in the real world,” says Sapp. “This is the convergence of Wall Street and the Real Street.”
Investing or gambling?
One summer’s day in 2019, anyone walking through New York’s Times Square would have seen the convergence of Wall Street and “Real Street” in glowing lights on a 10,000 square foot billboard.
It was four years since Adam Cole had founded Football Index, the “world’s first football stock market” – an idea the former porn movie mogul said was prompted when a friend’s wife complained “the financial markets weren’t interesting to her”.
In that time more than 100,000 customers had flocked to his investment platform, through which they traded “shares” in professional footballers and received “dividend” payments based on the players’ real-life performance. During the 2018/19 season, Football Index said these payouts totalled more than £3m.
Now the company was announcing a partnership with Nasdaq (US:NDAQ), the world’s second-largest stock exchange. The US financial services giant, which was to supply its trading technology to Football Index, marked the event by displaying Cole’s face on the electric billboard outside its seven-story tower in Times Square.
But the partnership was short-lived. Less than two years later Football Index was on the brink of collapse, slashing its maximum dividend payments by 79 per cent to the fury of its users. It eventually suspended trading in March this year, leading Nasdaq to quietly remove a promotional interview with Coles from its website.
Although Nasdaq claimed in 2019 that Football Index allowed clients to “buy and sell shares in professional footballers”, the company was in reality just a gambling site. Users did not acquire any real equity in footballers, and the size of “dividend” payouts was adjusted at the company’s will. When it was hit with “substantial losses” this year, it said those payments had to be cut.
Today, customers of Football Index, some of whom claim to have lost tens of thousands of pounds, are outraged that the company was able to describe itself as a stock market. The association with Nasdaq added a particular “veneer of legitimacy to the operation”, one campaigner told the Financial Times.
For other platforms that still want to align themselves with the stock market, despite selling assets with no income stream of their own, the fallout may raise some potentially difficult questions.
None of the companies mentioned earlier in this article are gambling businesses, and some of them pushed back at the suggestion they are encouraging riskier investing. In a video on Rares’ website, Sapp points out that equity sold through his site is qualified by the Securities Exchange Commission. Assets available on Rally and Masterworks are also registered with the US markets regulator.
But despite promoting itself as the “stock market of things”, StockX is essentially an ecommerce platform, so its customers do not benefit from the same legal protections as owners of financial assets. Einhorn says the company “tries to emphasise the risks involved in treating these goods in purely investment terms”.
Like on StockX, mentions of investment risk also do not feature on the homepage of ANote Music.
Schena says music royalties are currently not covered by the UK financial regulator as they are not considered a financial product, but he thinks the industry is now “ripe for regulation”. He acknowledges that “any investment opportunities are a risk”, but argues music royalties are generally a stable asset.
These investments are “a play on the stability of music consumption habits”, says Schena. As people continue to listen to songs during periods of volatility, ANote Music offers investors protection from “black swan events in the financial markets”.
A sense of identity
Long before he paid $1.8m for a single pair of shoes, Sapp says he knew the value of sneakers.
He describes growing up in the south of Texas during the 1980s and witnessing the rise of Michael Jordan – probably the greatest basketball player of all time and the namesake of the iconic Air Jordan trainers. When Nike gave Jordan his own shoe, Sapp says, that “represented a positive identity for young black kids” in his community.
“We always had a sense of: ‘man, Jordans are something worth more than what most people think they are’. Because it struck a chord in terms of our identity.”
Four decades later, leveraging that sense of identity will be key to the success of Rares and other similar start-ups, as they encourage investors to come together and claim collective ownership of fashionable products. Sneakers, artworks and cars do not produce income streams that investors can value them on, but they appreciate value when a certain community perceives them to be more meaningful.
Sapp, who today owns about “40 or 50 pairs” of sneakers, says he has an ambition to turn Rares into a “social investing platform”, through which people can follow and interact with other sneaker fans – much like in the increasingly popular online forums where traders boast about their stock market success.
Indeed, as more young people enter the markets, identity-based investing is now also leaking into traditional assets. The sentimental connection people like Sapp have to sneakers is not dissimilar, for instance, to the nostalgia some millennials feel for GameStop (US:GME), AMC (US:AMC) and other waning brands they remember from childhood. After thousands of investors on the social media community r/WallStreetBets rallied round these and other struggling "meme stocks" in January, their market value rocketed. Shares in GameStop and AMC are now 3,916 per cent and 619 per cent higher than they were this time last year, respectively.
Taylor and Oxtoby, the StockX traders, tell me they have recently been dabbling in the stock market. Taylor, who drives an electric car, says he has also been buying “lots of shares in electric car companies”. Oxtoby adds they “have a tiny bit in Nike”, because it “relates to our interests”.
But for now, they do not plan to divert their focus from the sneaker business: Taylor cites an ambition to eventually make £1m a year in turnover.
“Everyone buys shoes whether they are expensive ones or cheap ones,” Oxtoby points out. “There is always going to be a market for shoes. It is never going to go.”