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How StockX and Goat built billion dollar businesses by removing friction in the sneaker category

Sneakers have always been a big part of my life. My brother and I used to beg our parents to take us to Foot Locker to get the newest Jordans in the 90’s. The lengths people are willing to go for a pair of sneakers knows no bounds. Whether it’s camping in lines outside of stores for days, creating stampedes when a rare pair of shoes is released at Art Basel, or worse, people getting killed over a new pair of shoes. The frenzy around a limited release can get crazy. And the craziest part about it is that the sneaker supply is artificially limited by the brands precisely to create mass hysteria and demand.

And of course, when a product is in high demand, it’s sure to bring about counterfeit products into the marketplace to confuse the consumer into believing they are getting a great deal on a rare pair of shoes, when in fact, they are getting fakes. In 2008 I launched Superkix, the first search engine focused solely on sourcing authentic shoes from reputable online retailers. While Superkix was popular, it was within a very niche community, and at the time, I never envisioned the sneaker market could get as big as it is today. Built on the back of perceived scarcity, and a society addicted to social media and showing off the latest and greatest in fashion.

With StockX recently reaching a $1B valuation and Goat not far behind, eBay must be scratching their heads as they watch the sneaker category quickly slip away from their grasp. StockX recently reported $1B in yearly sales, with sneakers accounting for 75% of it. In only 4 years, StockX is doing $750MM and Goat is doing north of $300MM in sneaker sales a year in the secondary market.

eBay was revolutionary because it connects buyers and sellers directly, but the direct connection comes with the implied trust that you are going to receive exactly what you paid for. While eBay did many things to build trust in the platform, either through user feedback ratings or PayPal acting as an insurance policy on each transaction, it wasn’t enough to deter fraudulent sneakers from being sold on the platform or remove the hassle of dealing directly with the buyer or seller which can sour the experience for the user.

When you are as big as eBay, you have to do many things well across many verticals, and it makes it easy for a fledgling startup to hyper focus on a specific category and out execute the larger incumbent. We originally witnessed the rise of the marketplace with the likes of Craigslist, eBay, and Etsy, and now we’re starting to see startup companies attack a specific vertical to gain market share. Ultimately these startups need to grow beyond their singular vertical and begin to add new categories, becoming a multi category marketplace themselves, but one that aims to remove the friction between the buyer and seller.

One of the biggest value adds to me as a seller is the ability to list a pair of shoes for sale without having to take any photos, or write out listing descriptions, or even have to talk directly to the buyer. By inserting themselves as the middle man, StockX and Goat have removed a ton of friction for the buyer and seller. The only real friction left is the length of time for the seller to receive their payout and the time it takes to ship a pair of shoes from the seller to the warehouse for verification, and then on to the buyer. To combat the lengthy shipping time, they are increasing the amount of warehouses to aid in the verification process and provide a more direct route to the buyer. And while the rest of the retail sector continues to contract at a rapid pace, we’re now seeing these web first companies lean into brick and mortar retail to create efficiencies in their business.

Online marketplace Goat was looking to transition from web only to having physical locations, so it merged with the long established king of sneaker consignment stores, FlightClub, making it easy for sellers to drop off their shoes at a FlightClub location to receive an instant payout. And just recently Goat raised $100MM from FootLocker, further blurring the lines between the traditional retailers and the online marketplaces. Not be left out, StockX is launching two retail locations of their own. “Pull up, drop off, get paid.” Clearly both Goat and StockX realized one of the key advantages that eBay still held over them; instant payment from the buyer to seller, as there is no middle man.

While they have some major differences, at their core, they are the same business. Both companies facilitate the sale of shoes between a buyer and seller, with the package routing through StockX and Goat to ensure the authenticity of the product before being shipped to the buyer. But when it comes to their platforms, their strategies are vastly different. Goat is opaque, while StockX is transparent. It’s the difference between walking into a high end store like Neiman Marcus or Saks, versus walking onto the stock market trading floor.

StockX makes it easy to see the sales price history of every sneaker which allows the user to get a true feel for the market. Additionally, on StockX you can view all of the ask and bid prices for every pair of shoes, which gives the user an idea of how scarce an item really is, or what the true demand is. To further illustrate the comparison to a traditional stock market, StockX is looking to change the way traditional retail works by introducing products direct to consumers in an IPO, allowing the market to dictate the price of the product, not the manufacturers or retailers.

StockX Sales History of a given sneaker
StockX “Asks” = Supply
StockX “Bids” = Demand

Goat takes the opposite approach, neither showing the user sales price history or the ask and bid prices for every listed pair. Instead, Goat displays the lowest price and an expedited price which can be up to 3x the lowest price, presumably for a pair of shoes they currently have in their warehouse. As both a buyer and seller, I much prefer transparency largely for pricing reasons, but it’s also what I’ve become accustomed to having been on eBay since 2000.

Goat Product Page

When comparing StockX to Goat, the transparency of StockX doesn’t stop at just the sales price of products, but to their payouts to the sellers as well. When you sell a pair of shoes on StockX, it’s extremely clear how much money you will be paid out via PayPal. Whereas when you sell on Goat, they show you a fee schedule that leaves out an extra 2.9% fee to move your money from Goat to your bank account. It’s an unpleasant user experience finding out that you have to pay an extra 2.9% to gain access to your money, something that’s neither an issue on eBay or StockX.

Another area that the two companies behave differently is around purchases made with a fraudulent payment. With StockX, the user receives an email within seconds of the original sale confirmation alerting you not to ship your items as they have flagged the purchase as fraudulent and relisted your item. This happens in a matter of seconds. On the other hand, with Goat, they will sell your shoes and then put them into a holding pattern for over 24 hours while they determine the validity of the payment. When market pricing can be volatile, 24 hours is a long time to have your shoes tied up without a guarantee that the sale will go through. Should Goat cancel the transaction 24 hours later, it’s possible the market for the shoe has cooled considerably and your profit margins disappear.

While both services do a great job of facilitating the process, they are not immune to their own issues. The fake sneaker market is getting increasingly good, and it’s becoming harder to distinguish between a real and fake pair. Only the most discerning eye will notice the difference, and because of that, there are plenty of reports online of users receiving what they believe to be inauthentic shoes from both companies. That said, it’s reassuring to know that your shoes are being authenticated by trained professionals who are paid to spot the fakes. Goat includes a note of authentication with every pair, while StockX physically attaches a tag to the sneakers with a QR code. While I much prefer StockX’s practice of attaching an authenticity tag, you can find fake tags for sale on eBay, which goes to show that nothing is foolproof.

The sneaker and streetwear category has exploded in the last 10 years. Can the market stay this hot? I think it can. Nike (market cap = $109B), Adidas (market cap = $50B), Supreme ($1B) and the rest of the players will continue to drive demand using artificially limited supply in order to drive demand and sustain their growth, and with that, there will be plenty of opportunity for the companies operating in the secondary markets to build billion dollar businesses.

While the most important aspect to a marketplace is liquidity, matching a buyer and seller, StockX and Goat have proven that removing the friction between the buyer and seller is arguably as important. And despite the ever growing shift from brick and mortar retail to the web, for an online marketplace to remove 99% of the friction, it will require a marriage between the online and offline retail worlds.