There is an old saying “the tail doesn’t wag the dog!” The saying, for better or worse, isn’t always true. Foot Locker, Inc. (NYSE: FL) lost almost 30% of its value on Friday, Feb. 25, 2022 due to issues with a vendor relationship. Companies that sell dozens of brands should be insulated from any single vendor, and that should make Foot Locker the dog and vendors should represent the tail. Where this falls apart is that this particular vendor happens to be the mighty NIKE, Inc. (NYSE: NKE).

It may seem to be a stretch to blame collectibles for a disastrous issue at Foot Locker. It may also seem hard to blame collectors for any issues with Nike. What is not hard to see through the tea leaves is that Foot Locker, Nike, and any players in shoe may face real exposure to collectibles, NFTs, the Metaverse and so on.

NIKE’s fiscal 2021 (May 31-end) revenues were just over $44.5 billion, up from $37.4 billion in 2020 and still up from $39.1 billion in 2019 before that pesky pandemic hurt everyone so badly. Foot Locker reported net income of $893 million (up 179.5%) and revenues of $9 billion in fiscal 2021 (ending Ja. 31, 2022) were up from $7.55 billion in 2021 (up 18.7%) and still up from $8 billion (up 10%) versus the pre-pandemic revenues. That is a lot of money and it may seem hard to imagine that collectors may be influencing these companies. The view of Collectors Dashboard is that many large companies may have a larger exposure to the collectibles markets than they ever imagined.

An issue to consider is that sneakerheads, shoe collecting, and shoe reselling is a larger market under the surface than many non-collectors would assume. It is likely that at least 9 out of 10 consumers, maybe even 99 out of 100, are buying shoes simply to wear. That may of course include being a fashion statement or as a status symbol (think endless references like Air Jordan over the years). The sub-culture buying shoes either for resale or for collecting is just much larger than most consumers would probably guess.

If you do not believe that collecting and the ultimate fashion statements are alive and well within the sneaker community, just look at this Sotheby’s auction of the LV/NIKE “Air Force 1” shoes. If the results of this auction’s 200 lots fetching nearly (or more than) $100,000 per lot does not convince you that collecting and even investing in the sneaker space than you simply need to rethink things.

This is by no means a prediction that the value of these “assets” will only rise from here. They may even lose value. Either way, collecting and investing have become quite blended and some collectors may simply want the joy of owning certain assets with a belief that they will at least get some portion of their “investment” back in the future.

FOOT LOCKER & NIKE EXPOSURE

Where everything went awry for Foot Locker was the company’s own “Update on Vendor Mix and Long-Term Strategy.” The company said:

Beginning in the fourth quarter 2022, Foot Locker, Inc. does not expect any one vendor to represent more than 55% of total supplier spend, down from 65% in the fourth quarter of 2021. As a result, no single vendor is expected to represent more than approximately 60% of total purchases for fiscal 2022, down from 70% in 2021, and 75% in 2020. This change reflects the accelerated strategic shift to DTC by one of the Company’s vendors and Foot Locker, Inc.’s ongoing brand and category diversification efforts.

Make no mistake here — that “single vendor” absolutely positively is NIKE, and we know that Nike is looking to increase its own direct-to-consumer (DTC) channels and eliminate layers between the start of its production all the way to the end buyers. Nike is also aggressively going after other companies and NIKE is expanding its efforts in the digital age via the Metaverse and NFTs. That you will see further below.

Foot Locker’s efforts for the year ahead involve accelerating certain initiatives that it specified 4 strategies. The first is to further diversify its merchandise and vendor mix (including existing brand relationships with new partnerships and expanding further into apparel. As far as collectors and sneakerheads are concerned, Foot Locker specified that it will soon have exclusive access to Reebok’s basketball footwear and that includes iconic products from Shaq and Allen Iverson and the continued exclusive LaMelo Ball program with Puma — and it specified its connection with sports culture. It seems fairly obvious that at least some of those shoes will be targeted by collectors, resellers and the like.

Three other Foot Locker initiatives were shown as follows: Accelerating the shift to off-mall and rollout of key growth banners; enhancing omni-channel evolution efforts; and a new cost savings program.

Foot Locker also brought up its investment in GOAT Group, which by this company’s own words represents the leading platforms for authentic sneakers, apparel and accessories in three distinct brands (GOAT, Flight Club and alias) with what it says is a global community of over 30 million members across 164 countries. According to Foot Locker’s release, the companies are in active discussions to create programs aimed at enhancing the value proposition and consumer experience of both platforms. This includes creating a more intentional connection between the two companies prioritizing loyalty and membership benefits. Some of those sales may be tied to collectors, resellers, and the like.

The near 30% stock price drop on Friday’s post earnings reaction wiped out roughly $950 million in Foot Locker’s market capitalization (its stock price). The vendor relationship admission means lost business from Nike at more than 60% of its business this year, versus 70% in 2021 and versus 75% in 2020. Looking forward…

BROADER ASPECTS OF SHOE COLLECTING, NFTs, METAVERSE

Collectors Dashboard has already addressed how Nike’s “digital shoes” for the Metaverse may attract collectors. That also means that it may attract flippers or investors looking to make a buck down the road.

One great source of information and for buying and selling sneakers and other culture assets is StockX. It helps to sell sneakers, streetwear, electronics, trading cards and collectibles, handbags and watches. And this also includes NFTs and digital assets. At one point in prior years, StockX had estimated that 5% of people who buy sneakers are solely buying the sneakers to resell them. What that number is now is unknown, but even if it is close to 1% it is a massive collectibles market that the public may simply be overlooking.

Nike is now suing StockX for trademark infringement over selling Nike sneaker NFTs via “The Vault.” StockX issued a statement on its NFT program on Feb. 8, 2022, immediately noting that the suit lacks merit and is based on a mischaracterization of its service through its NFT experience. According to what we read from multiple sources over the last month or so is that Nike-branded NFTs being sold through StockX have confused customers and have led to inflated prices, unclear purchase terms, and even buyers’ doubts about legitimacy have impacted Nike’s business reputation. Before this seems unreal and impossible to fathom, just keep in mind that Nike acquired the virtual sneaker maker RTFKT late in 2021 in an effort to rapidly expand its Metaverse footprint.

Does this all seem like Nike is also cutting down on layers between the company’s first production efforts and the end-users (consumers)? It seems that way at this time. How that pans out is something that Collectors Dashboard will leave up to all of the companies involved, their attorneys and even the courts.

And this Nike-driven focus is also happening at a time when widespread NFT hacks, scams and theft are becoming more rampant. OpenSea has reportedly faced its own exploits recently, and we recently covered a U.S Treasury report identifying the emerging digital art market (NFTs) presenting at least some new risks in crime and money laundering. The Treasury even referred to NFTs as bearer instruments and the report specified NFT platforms such as Dapper Labs, SuperRare, and OpenSea (see our synopsis of that 33-page study). Regulators and law enforcement may simply not know what to do in these markets and platforms at a time that trading volumes have risen sharply and the players in the space are often not known.

BROADER ISSUES (AND RISKS) TO CONSIDER AHEAD

And to further give more insight on sneakers and collectors (or investors), our synopsis of growing efforts inside eBay Inc. (NASDAQ: EBAY) showed a major expanded effort late in 2021. And for the attribute of collectibles as an alternative asset class, eBay’s targeting sellers in the sneaker space directly mentioned “investing in your first pair or adding to an envy-worthy collection.” eBay’s statistics on sneaker listings should also highlight how large this market is: over 1.6 million sneaker listings on an average day, the women’s sneaker category rose by more than 80%, and sales of men’s sneakers purchased by female shoppers have also doubled.

Collectors Dashboard has tried to identify how collectibles (sports, non-sports, comics, coins, etc.) may hold up during a stock market crash. This would of course also include sneakers. That may come front and center with Russia/Ukraine and even larger nations flexing their might against smaller nations. Those are far more drastic issues than whether or not Nike, Foot Locker and other companies are facing serious exposure and risk from the collectibles market.

Looking at one corporate earnings report is not going to show the big picture on the influence of collectibles here. But looking at the broader picture involving multiple large companies and emerging trends offers more of a broad view. It now seems that even some of the largest companies need to be thinking long and hard beyond solely their exposure to partners and distribution players — perhaps even what their exposure is to the collector/investor markets.