This week, a status check on the sneaker industry as traditional players including Nike and Adidas slow down. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.
With both Nike and Adidas seeing dips in third-quarter sales, of 5% and 6.4% year-over-year, respectively, there is a growing white space of underserved areas of the sneaker industry. Just this week, it was reported that Nike will lay off 1,600 staff members across the company, and last year, a Vietnamese Adidas manufacturer cut over 6,000 jobs.
According to the July 2023 report on the sneaker market by research company Allied Market Research, the global sneaker industry generated $131.1 billion in 2021 and was expected to generate $215.6 billion annually by 2031. The industry was boosted from 2010-2020 by the resale market, which alone was worth $6 billion in 2019. However, an analysis of over 100 popular sneaker releases on StockX revealed a shift in the resale market’s profitability. In 2022, the average price return on these sneakers was negative 7%, a stark contrast to the 23% average increase seen in 2021, as reported by Axios.
One of those areas was spotlighted on February 18, when presidential candidate Donald Trump launched a $399 gold sneaker at the annual sneaker conference Sneaker Con in Philadelphia. The style was produced by sneaker lab 45Footwear LLC, which licensed the Trump name and image from CIC Ventures LLC. Inclusive of 45Footwear LLC, there’s a growing industry of “sneaker labs” and “incubators” that are redefining sneaker ideation, production and distribution. This comes at a time when the sneaker market has become fragmented, with big brands partnering with cooler names to create demand.
Some of these incubators have been launched by founders with more traditional sneaker backgrounds. For example, Omar Bailey, the founder of the L.A.-based sneaker creation lab FCTRY Lab, previously worked at New Balance, K Swiss and Adidas. His 2-year-old company has raised $6 million in venture funding to date. The company declined to disclose revenues. FCTRY Lab was founded after Bailey left Yeezy, for which Bailey created the first U.S. facility dedicated to sneaker ideation, he said.
“Kanye West wanted a domestic facility not too far from his home in Calabasas where prototypes could be developed, he could spit out his ideas and we could create shoes very quickly,” said Bailey. “Then he could give feedback on them, participate in the creative process and make final decisions before they go to market.”
Bailey spent three years working as Yeezy’s innovation lab head, taking it from $800 million to $3 billion in revenue. “I saw the writing on the wall, if I’m being honest,” said Bailey, talking about the inevitable downfall of Kanye and Yeezy. “Things weren’t looking too good internally.”
So Bailey took the sneaker production setup he started for Yeezy and opened it to the wider market. This came about when influencer culture was growing and Nike had already launched multiple celebrity sneaker partnerships. However, according to Bailey, there was not a company catering to rising athletes, celebrities or influencers looking to launch sneakers.
“We’re at this interesting intersection now; there’s this shift happening in the shoe space,” he said. “Thirty years ago, if you wanted to get into the shoe business, you had to have a relationship with Foot Locker or another big retailer and place orders for 20,000-40,000 pairs of shoes,” Bailey said. That’s no longer required.
FCTRY Lab leverages a revenue-split model to create sneaker brands representative of the characteristics and personalities of its partners. “Everyone has a tequila brand, their own wine, a T-shirt collection or a line of hats,” said Bailey. “There’s a massive gap of opportunity for sneakers, with a lot of people wanting their own shoes. They just haven’t had the opportunity to do it with the bigger brands, because those brands are thinking about KPIs. With them, only the big stars are getting the big deals.”
FCTRY Lab worked with the San Francisco 49ers offensive tackle Trent Williams in February this year and Miami Dolphins cornerback Jalen Ramsey in December last year to create custom shoes. The players approached the company. The company took care of everything from the shoes’ concept to their distribution in small, limited runs — the shoes were sold on the FCTRY Lab’s e-commerce site. Ramsey has 1.6 million Instagram followers, while Green has 450,000.
“This isn’t just some shoe that I sketch and that [celebrities] approve. They’re actually coming into my lab,” said Bailey. “We sit down and have in-depth, creative conversations where I show them prototypes. Then we 3D print — and if they’re bold enough, they can get on the sewing machine and mess around with it themselves.” Production happens in the L.A. studio and in China.
The fan communities of FCTRY Lab’s celebrity partners often want to see the behind-the-scenes of how the products are made in addition to getting the product, Bailey said. An Instagram posts on how a shoe’s foam is made, for example, has 15,000 views.
For FCTRY Lab, prototyping a product can happen in two months, while production, shipping and delivery take a combined one-and-a-half to three months. Costs vary depending on whether the items are 3D printed or made through composite parts like traditional sneakers.
In April, FCTRY Lab will release a women’s sneaker at Coachella with design partner Fred Segal. As for future sneaker partnerships, the company is in talks with global athletes preparing for the 2028 Olympics and the 2026 World Cup in the U.S.
While celebrity partnerships are the most obvious partnership model for the new sneaker labs, others are springing up, too. That includes companies focused on collaborations with digital fashion designers.
In December, the Chalhoub Group launched its inaugural phygital footwear label, Sirocco. That came after the Group spent nearly seven decades working exclusively as a luxury retailer and distributor for over 200 brands, including LVMH brands, in the Middle East. The phygital shoe brand launch was centered on a collaboration involving its 1-year-old web3-native sneaker company, Sol3mates, and French designer Kacimi Latamène. Latamène started posting rendered concept sneaker ideas on Instagram in 2020 and has grown his niche community to 100,000 followers.
For the project, the designer created a 3D-molded physical shoe combining his signature alien aesthetic with the qualities of a lifestyle shoe. It was available to pre-order through a sale of the digital shoe, in the form of an NFT, that Sol3mates launched on April 2023. More than 2,200 Sol3mates NFTs were minted during the launch at 0.03 eth, or $58, making over $128,000.
Consumers investing in the NFTs were granted lifetime pre-access to Sol3mates drops, plus lifetime discounts and free shipping, and they can now enter monthly hype sneaker giveaways. In the future, the company will also reward customers based on their loyalty and their purchases based on the tokens they can claim through the near-field communication tag inside the sneakers.
The 500 physical sneakers became available to NFT holders for $340 in December, with 400 sold, driving $136,000 in revenue for the company. A small quantity of the physical sneakers were also sold on the company’s e-commerce site, no NFT required.
Nick Vinckier, the Group’s corporate innovation director, said Sirocco aims to highlight and support emerging footwear designers operating within the Sol3mates framework. He declined to share the company’s revenue.
“After a couple of conversations [with designers and innovators], it became clear that, if we merge the power of web3 with the potential of designer sneakers, we can create a new movement in footwear,” he said. “We started Sol3mates as a sneaker label, similar to what a music label is to music artists.”
Sol3mates works by helping select digital designers create brands, which are co-owned by Chalhoub Group. “We help them with production, legal, marketing, admin, community building, and wholesale, so they only have to focus on their craft and making sure that their community is growing,” said Vinckier.
The Chalhoub Group and Sol3mates own a majority stake, while the designer owns a minority stake of up to 14% in these ventures. As with most web3 projects, the sneakers are offered at various, randomized levels of rarity. Sneakers with higher rarity levels give customers experiences and voting rights on what the Sol3mates project should work on next.
“The community is very outspoken, especially the people on Discord and Twitter,” Vinckier said. “If it’s rubbish, they will tell us straight away.” Sol3mates has 6,900 followers on X, formerly Twitter.
“We want to avoid overproduction with drops, so we’re not launching huge collections every season,” said Vinckier. “We want to be seasonless, with as many made-to-order [products] as possible.”
The Chalhoub Group sees future opportunity in selling its sneaker lines through department stores like Atmos Japan, Level Shoes in the UAE, Tryano in Abu Dhabi and Galleries Lafayette in Doha. The Group has two more collaborations by designers that it recruited in the pipeline for 2024. They’ll be launched in September and November.
According to Vinckier and Bailey, the growth of digital designers, athletes and influencers offers a big market for sneaker labs to tap into.
“It’s going to be a lot harder for bigger brands to try and figure out how to satisfy all those markets,” said Bailey. “Twenty years ago, it was much easier to cast a very wide net over multiple groups and plug in the same products, but now you have to be so much more intentional about what it is you want to sell.”
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