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Consumer
Powered by Battery  |  September 13, 2018
The Hype Around a New Model for Trust—in Sneakers

“Hip hop used to be a niche music market—now it’s pop music. The same is happening with sneakers and streetwear.” – Alex Benik, Battery Ventures Partner

It’s not every day that our Battery consumer-tech investment team receives truth bombs on consumer markets from our resident enterprise-IT expert, Alex Benik, who made his name investing in networking and other back-end IT companies. But Alex is no ordinary, fleece-wearing venture capitalist: As evidenced in the photo below, he favors cool streetwear in the office, including gear sold on online marketplace StockX* (he’s wearing a StockX pin here).

Alex isn’t the only one who’s noticed this cultural and fashion shift. Over the last few years, we’ve been seeing more Yeezys and Jordans than loafers, and more cool T-shirts than button-ups in the office. Tabloid-like articles are being written about Silicon Valley CEOs and their sneakers. Last year, famed streetwear brand Supreme sold a controlling stake to Carlyle, valuing the company at $1 billion.

The consumer demand for these hip products isn’t limited to the U.S. market. It’s a global phenomenon, but one plagued by artificially low supply, which helps buoy a fast-growing resale market for sneakers and streetwear. This also introduces the risk of fraud, as some nefarious resale merchants attempt to take advantage of naïve and eager consumers with counterfeit products. In an online market that is lacking in trust, some new marketplaces have introduced an innovation: explicit trust.

Explicit Trust

EBay was founded in 1995 and, for more than 20 years, there has been little innovation in how most online marketplaces establish trust between third parties transacting on these sites. Buyers and sellers build trust by taking risks, transacting in the marketplaces and collecting reviews from counterparties who have had positive experiences. The trust in the future delivery of the product or service is implied by past performance.

Companies like StockX and others have recently introduced a new marketplace model built on explicit trust. Instead of trusting a review system, and simply hoping that a seller will ship authentic goods after a transaction, the products on these marketplaces are shipped to a central location where the companies use a team of experts to actually authenticate the goods. Sellers therefore have an incentive to send authentic goods, and counterfeits get confiscated by the companies.

These models have helped facilitate a fast-growing resale market for popular sneakers and streetwear. The U.S. sneaker resale market alone is growing ~50% YoY to an estimated $1.5bn in 2017. Within four to five years, StockX and a handful of competitors have morphed from small startups into larger companies making up a majority of the sneaker resale market.

StockX has a stock-market like auction system in which both buyers and sellers can post bids and asks. Sellers can accept a bid from a buyer at any time, and buyers can accept an asking price from a seller. StockX offers sneakers as well as authenticated streetwear from brands like Supreme, Kith, Off-White, Bape, Palace and many others. The company also sells handbags and watches.

As active consumer marketplace investors, we get excited when we see the convergence of new, innovative e-commerce models with a violent shift in consumer preferences. We think the convergence of explicit-trust e-commerce models for considered purchases, combined with the growing demand for streetwear brands, will help companies like StockX create durable franchises over the coming decade. We’re excited to announce our $44 million Series B investment in StockX, which we co-led with GV.

Today, we are calling it “streetwear” but tomorrow we will just call it “fashion.”

 

This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity. 

The information and data are as of the publication date unless otherwise noted.

Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.

The information above may contain projections or other forward-looking statements regarding future events or expectations. Predictions, opinions and other information discussed in this video are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Battery Ventures assumes no duty to and does not undertake to update forward-looking statements.

*Denotes a Battery portfolio company. For a full list of all Battery investments, please click here.

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