Nike Takes on Bots, Sneakerheads Rejoice

Nike has a plan to combat the bots that dominate the secondhand sneaker market.

Sneaker culture just got an early Christmas present Wednesday after Nike  (NKE) – Get Nike Inc. Report changed the rules for online selling, targeting the bots and resellers that everyone hates. 

It’s nearly impossible to get to the front of the online line when the most popular shoes drop as users with bots computer programs use automation to snap up the limited releases. 

Usually, these buyers aren’t even hanging onto the shoes. In short order, more entrepreneurial users look to flip the rarest sneakers for ludicrous profits over what they paid for the shoes. 

After years of complaints online, Nike is taking steps to even the playing field for the less tech savvy. 

Under updated rules, Nike says it can cancel orders placed with automated ordering software or technology on its website or apps. 

The company also said it could charge restocking fees, decline to issue refunds and suspend or close the accounts of people using its direct-to-consumer channels to resell items. The company also reserves the right to impose purchase quantity limits, 

Underground Sneaker Culture

Sneakerheads consider themselves to be modern day art collectors, with the latest drops from Jordan Brand, Kanye’s Adidas, and Lebron James being treated like paintings from Picasso, Renault and Basquiat. 

The rarer the shoe, the more resale value the sneaker has. The sneaker resale market is worth $6 billion, globally, according to shoe review site RunRepeat, with the U.S. market accounting for $2 billion annually. 

Sneakers make up 25% of the entire secondhand apparel market. 

The markups for the sneakers are crazy on the secondhand market. The Nike Air Yeezy 1 “Grammy” sample sold for a record $1.8 million last year through famed auction house Sotheby’s.

A pair of Jordan 1’s hold the second spot with a $615,000 resale. 

Nike has mad the secondary market a priority in recent months. 

Last year, Nike claimed that secondhand market StockX was allowing counterfeit versions of its sneakers on the platform in a lawsuit against the company. 

The Big Picture at Nike

Nike’s latest move was met with mostly positive reactions of social media. 

But the company still has an uphill battle after saying last month that “higher markdowns” will be needed to reduce its bloated global inventory, pressuring profit margins for the world’s biggest sports apparel company.

Nike, which topped Street forecasts for its first quarter earnings by a penny, posting a bottom line of 93 cents per share on revenues of $12.7 billion, said inventories rose 44% from last year to $9.7 billion, with an unprecedented 65% surge in its key North American market.

Nike said shifting the goods will likely narrow margins by between 2% and 2.5%, with most of the pressure coming during the current quarter. A surging U.S. dollar, which hit a fresh 20-year peak against its global currency peers earlier this week, will likely clip $4 billion from its annual revenue forecast, Nike said.

The inventory surge “reflects the combination of late delivery for the past two seasons plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia,” CFO Matthew Friend told investors on a conference call late Thursday.

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