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Steven D. Levitt & Stephen J. Dubner, the fathers of ‘Freakonomics’, argue that economics can serve as a vehicle to explore the hidden side of everything. They have been quite successful at using economics to explain the most random things one could think of, so when I had a look at my growing sneaker collection, I could not resist to attempt it myself. Allow me to rationalise the landscape of the vibrant sneaker market - one that is much more than mere consumerism.

Source: Freshness Mag

With an estimated global market size of around $55bn according to Matt Powell, chief retail analyst for SportsOneSource, and a $88bn projection by 2018 according to Transparency Market Research, sneakers are serious business. Historically associated with sports, sneakers are now even more prominent in casual footwear. They have become ingrained in streetwear culture to the extent of creating a self-professed urban tribe: sneakerheads.

Source: Wall Street Journal

Despite an undeniably strong demand for sneakers, it is perhaps the supply side that defines best the economic fundamentals. Industry majors tend to restrict the supply of new silhouettes, creating hype for the brand and essentially “justifying” inflated prices. In this business, exclusivity can easily be monetised. Although I will spare you (most of) the economics jargon, the concept of an oligopolistic market structure is extremely relevant to the global sneakers market. That is because the top 5 players (Nike, Adidas, Reebok, Puma and Asics) retain roughly 80% of the market share according to Transparency Market Research. With an industry dominated by a handful footwear behemoths, it is hard to believe that small brands may thrive along their cash-rich competitors which devote a massive chunk of their budget to marketing. Manufacturing costs may not deter new entrants in the industry altogether, but cost leadership certainly gives an edge to the big boys - hence why relatively few rising starts make the top ranks.

Arguably one of the most fascinating aspects of sneakernomics is its resemblance to the art market. The role of the secondary market - where sneakerheads and speculative re-sellers meet to trade rare items - is perhaps more important than actual retail launches.  The parallel between art exhibitions and sneaker conventions is not so dissimilar. The same way private collectors flood auction houses for paintings and sculptures, sneaker aficionados have marketplaces available to exchange premium shoes for sometimes obnoxious amounts of money (try googling Air Yeezy Auction). Ebay being the standard exchange vehicle, other platforms such as Klekt have emerged to cater for a growing, more refined customer base. The fear of purchasing counterfeits is shared between both types of collectors - no wonder why there are so many videos available online to spot fake sneakers.

Source: Slam x Hype

Yet independents do have room for growth. Big revenue figures overshadow smaller yet successful sneaker brands. That is the case of Gourmet Footwear, founded in 2005 by Jon T. Baucemi, Greg Lucci and Greg Johnsen. A brand with Italian-American heritage, with a style that 944 Magazine best summed up as a blend of ‘Nike Air Max crossed with Vans and Visvim’, embodies the ‘you can do it on your own’ attitude. Once an underdog in the sneaker market, Gourmet is now well established and generated revenues of approximately $5 million in 2012. For all the Jordans lovers out there, Gourmet’s 35 silhouettes certainly would be a nice addition to your collection - a fusion of traditional luxury materials and a streetwear design.

But aren’t they just shoes? Hopefully the next time you tie your shoelaces, you too will realise that, as in the art market, there is a lot of crappy material yet footwear masterpieces are coveted by savvy collectors. In a multi-billion industry dominated by a few apparel titans, there are some of us who believe that prices sometimes reflect the beauty of an outstanding design.