Does A.R.'s sneaker play spell the end of brick and mortar?

Nike Off-White x Air VaporMax 'Part 2' (Picture: GOAT)
Nike Off-White x Air VaporMax 'Part 2' (Picture: GOAT)

Market leaders, like Goat, say the traditional model no longer works.

A seismic shift in how we shop for sneakers is rumbling beneath our Nike Air Force 1s.  

Brands are quietly engaged in a space race to be the first to harness technology -- chiefly augmented reality (A.R.) -- so consumers can virtually try on a new pair of kicks like they’re in-store.

Some are convinced this will finally release the guillotine over traditional brick-and-mortar retailers. But others argue street presence is more important than ever. Change in how sneaker shops operate, however, is necessary for survival, and the clock is ticking.

"What all the brands -- whether it be Foot Locker, Nike, you name it -- are realizing, is that the traditional model doesn’t work anymore," said Matt Cohen, vice president of business development and strategy at online sneaker marketplace Goat. "Customers are looking for an experience -- a use of technology."

Typically, the way in which consumers have shopped for sneakers is to walk into a store, see around 30 pairs on a wall and choose one by process of elimination. When Goat launched back in 2015, customers were suddenly met with an archive of 25,000 different shoes. The bulk, online offering was nothing new, but the app’s ship-to-verify model (founded on a bedrock of consumer trust by pledging to personally authenticate every pair it ships) combined with its specialization in rare sneakers, changed the game. Choice was no longer the problem. Today’s challenge is how brands can help navigate that choice.

Part of this means exploring how best to amplify consumer offerings with tailored search based on first-party information. The sexier side is A.R.

Cohen said it’s too early to disclose specifics about new tech, but hinted that all eyes at Goat fall on a technological aid to enhance the online sneaker-buying process that could be with us as soon as this year.

"Technology really is in our DNA," he explained. "We’re continuously looking at different ways in which to help the consumer journey through the use of technology, and we’re excited to launch it -- whether it’s in 2018 or 2019 -- but it’s something we’re heavily focused on."

Elaborating on how A.R. could be implemented into sneaker culture, he said: "The very nature of buying something, the first thing you do is try it on and want to feel what it looks like, so how do we bridge that gap? We’re continually focused on that experience."

Brandon Purcell, principal analyst at Forrester, stressed the importance of brands jumping on the A.R. train, stating those too slow to mark will suffer tremendously.

"It was inevitable that sneaker brands would embrace augmented reality to allow customers to try on different styles virtually," he said. "We’ve already seen this in the jewelry industry with brands like Tiffany and Blue Nile using A.R. to allow customers to try on engagement rings on their apps. And cosmetic brands, like Cover Girl, are allowing users to sample makeup with A.R.

"What we’re seeing is the first phase of A.I., and in this case A.R., disrupting the retail industry.  Customers will no longer need to go to physical stores to try on goods. The retailers with the best apps for this will drive the most traffic, and ultimately the most sales.  

"Technology companies like Tryon Guru who specialize in this capability will proliferate. Ultimately, consumers and forward-thinking brands with a willingness to adopt new technology will win. Laggards will see their market share diminish," added Purcell.

Brick and mortar "will always be necessary"

But this sneaker tech revolution isn’t enough to make street retailers hang up their Yeezys for good -- not yet, at least. Cohen spoke highly of brick and mortar necessity. His words were solidified in February when Goat merged with consignment pioneer Flight Club. The brand, which operates locations in New York City and Los Angeles, transformed the shoe landscape more than a decade ago when it became the first company to solely focus on the resale of rare sneakers.

Along with the merger, Goat and Flight Club announced a new funding round of $60 million led by Index Ventures. Other participants include existing Goat investors Accel, Matrix Partners, Upfront Ventures and Webb Investment Network. At the time, Goat's total funding reached $97.6 million.   

Cohen said there's "always going to be a need for stores" because "there’s still large opportunity for the traditional walk-in consigners" in terms of storing resale shoes and targeting tourists and fans who want the world’s biggest collection of rare sneakers at their fingertips.

Meanwhile, other brands are playing catch-up for a slice of this $1 billion industry.

Non-performance, athletic-inspired sneaker sales (known as the "athleisure" category) for adults were up 17 per cent in the U.S. in the 12 months ending April 2018 over the prior year, according to new findings from The NPD GroupThe U.S. athletic footwear industry grew by two per cent in 2017, generating $19.6 billion in sales.

The men’s market, which comprises more than 60 per cent of sales, grew 10 per cent, while the women’s market grew the fastest, up 33 per cent. Sports slides increased their sales by 34 percent, and behind sneakers it was this style that contributed the most dollars gained to the men’s market.

Foot Locker is one of the big names scrambling for a piece of the pie while adapting to the immense disruption Goat and Flight Club have spearheaded. Patrick Walsh, vice president of marketing at Foot Locker, said the brand has poured "significant investments in remodeling stores, introducing new store concepts, and employee training."

He highlighted the importance of having physical locations where consumers can interact with the product, and explained how Foot Locker is creating a curated experience by providing store associates who can steer people in the right direction.  

"We are seeing success when retailers specialize and create customized experiences for consumers that inspire them at the individual and cultural level," he said. "This means creating experiences that speak to consumers’ unique personalities and shopping preferences -- both digitally and in-store. We believe our store model showcases the strength of our entire portfolio."

Foot Locker’s biggest stumbling block, however, is being heard.

Its answer to Goat -- the ‘Launch Locator’ -- was arguably released at a sluggish pace in 2016. The function sits within Foot Locker’s mobile app and allows users to track releases and gain VIP offers. Its marketing strategy also leans heavily into brand partnerships, which are used as a tool to propel storytelling.

"One of our greatest challenges is breaking through the clutter," he continued. "We need to continue to be disruptive in the space and leverage the power of our brand and our partnerships to connect more personally and directly with our consumers.

"Our recent 'Before the Bite/After the Bite' campaign was a great example. Foot Locker worked with Nike to develop two exclusive Air Max Plus sneakers -- named 'Before the Bite' and 'After the Bite.'  With the sneakers resembling a shark, we told a parallel story about the pursuit of self-actualization. The 'Before the Bite' sneaker is white, grey, and black, representing the pursuit stage when a person is grinding for his/her first big break. The 'After the Bite' sneaker is red, grey, and black, representing a person's first taste of success," said Walsh.

New market emerges as luxury brands tap sneaker game

But the brand partnership landscape is also shifting.

As sneaker prices continue to skyrocket (with buyers no longer recoiling at $1,000-plus tags), luxury brands are looking to muscle-in. Goat was recently tapped by Versace to exclusively launch its new range of Chain Reaction shoes. Seven styles were created at a starting price of $995.00. Surprisingly, every single shoe that Goat sold was to a user who had not previously bought from a luxury brand.

"The problem is that [the luxury brands] may not actually know who their customers are," said Cohen. "But Goat does."

Goat, apparently light-years ahead of the competition, appears to have broken into an entirely new market. Expect more luxury brands to tear off a piece of the action in the near future, because "all the lines are blurring," added Cohen. 

But as the industry dynamic shifts, one thing remains the same: the vitality of storytelling. It's a top priority in a sector marketed towards emotional connections, whether that be with an athlete or consumers’ self-expression.

The backbone of good storytelling is data, and that’s where agencies come in, said Danny Nunez, group creative director at media and entertainment company Cycle, and former Nike brand manager. He believes agencies can take advantage of stretched workforces struggling to keep up with the sneakerhead demand. 

"Sneaker companies have gotten really, really big, and resources aren’t allocated evenly across multiple disciplines," he explained. "Marketing versus data and analytics probably scale their resources very differently. So as you think about what role agencies play, the idea of data and being able to help brands and get sharp on who they’re trying to connect with and talk to is one of their critical roles.

"When the agency provides a really sharp vision of who you’re trying to reach, then you can decide what is the platform we need to be on in order to reach the person we’re trying to reach. It’s all about the conversation we want to create, everything else just becomes channels, whether that’s TV, digital, experiential," he said.

Why high sneaker prices are completely justified

"I’ve been very deep in the sneaker game since the late 90s, and I never in my wildest dreams would have thought that sneakers would be selling for the prices at which they are, and the volume in which they’re selling," said Cohen.

A cultural shift in the way we dress has fueled the industry. Suits and high-heels are out -- Nike Air Max 95s and punchy shirts are in, and totally acceptable in (most) workplaces.

"The lines are completely blurring right now, and it’s all coming together," he continued. "We can argue is it the right price, is it warranted? But at the end of the day, the market’s telling us that it is warranted. No one would have argued if you paid $600 for a pair of dress shoes. Because it’s a sneaker and it’s not 100 percent Italian handmade leather, it shouldn’t be worth that? It’s what people spend for the expression."

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