Business

Fast-growing startup StockX sniffs out fake sneakers

Only the real thing leaves this shop, its founders say.

July 14, 2018 at 5:24AM

Antonio Gray of Detroit worked as a sneaker salesman for six years before becoming an authenticator at StockX, where he looked over a pair of Jordans last week. StockX has created day trading for consumer goods specializes in hard-to-find sports shoes. (The Minnesota Star Tribune)

DETROIT – The pair of allegedly rare Air Jordan sneakers arrived last month to the bunkerlike Authentication Center of StockX, one of Detroit's fastest-growing startups.

The black-and-red Jordans were purportedly from 1995. For sneakerheads who collect such things, that's close to antique.

If these shoes were authentic, they might fetch $500 on StockX's online marketplace, which functions like a stock market for the reselling of hard-to-find sneakers, sportswear, watches and handbags.

But this pair didn't pass the smell test.

One of the center's "authenticators" took a whiff of the Jordans and immediately knew something was off. Smell is one of the 25 to 30 indicators they can use to distinguish a legit shoe from a cheap knockoff.

"It just had a very distinct smell that we hadn't smelled before," recalled sneaker authenticator Sadelle Moore, 31, of Detroit, "so we knew automatically that was fake."

This army of dozens of merchandise authenticators form the backbone of StockX and its effort to become the world's leading resale marketplace for scarce consumer goods.

Launched in February 2016 with just a handful of employees, StockX has grown to 370 employees, including about 40 workers at its western U.S. authentication center in Tempe, Ariz.

The company says it processes thousands of pairs of shoes a day and handles about $2 million in daily sales transactions. It plans to open new centers in New Jersey and London this year.

StockX CEO Josh Luber, 40, said one of the company's latest challenges is finding enough people to hire.

"There are 200 people we'd hire tomorrow, if we can find the right people," Luber said. "We'd triple the engineering team, we'd double the authentication team, we'd double the customer service team. That is just part of hypergrowth."

Roughly 70 percent of StockX's merchandise is sneakers, followed by about 20 percent streetwear and about 5 percent watches and handbags. StockX only sells authentic sneakers that are unworn and in their original box.

The company says it overtook eBay last year for sneaker resales. Its competitors also include online sellers and platforms such as GOAT, Grailed, Flight Club and Stadium Goods.

There is significant money in reselling sneakers. Shoe companies intentionally produce limited quantities of desirable models, such as the latest Adidas Yeezy or Air Jordans, which makes it hard for consumers to buy a pair before inventories sell out.

Similar to the dynamics of event ticketing, this confluence of small supply and big demand creates a market of people who are willing to pay lofty sums for a must-have commodity. Hot sneakers can sell for hundreds or sometimes thousands of dollars above their original retail price.

Its innovations include its elaborate authentication process. "We bring in fake sneakers, we rip them apart, we note every single difference between all of them," Luber says. Its unique sales platform functions like a stock market.

Matching bids, sellers

The way the platform works is buyers place bids and sellers place "asks." When a bid and ask match, a sale occurs automatically. StockX then tracks and graphs the completed sales, showing the current and historical market value of a particular sneaker, watch, handbag or other item.

StockX takes a 9.5 percent cut of each sneaker transaction, with the fee lowering to 8 percent for high-volume sellers.

Similar to what Kelley Blue Book is for used cars, StockX has already become a leading gauge of market value in the sneaker resale world — even for transactions that don't happen on the StockX platform.

StockX emerged from the foundation of Luber's earlier Philadelphia-based startup called Campless. That company launched in 2013 and used eBay sales data to produce a price guide for sneakers that was the first of its kind.

It even was used by insurance companies to write policies for large sneaker collections. However, Campless was not a sales platform.

"My idea was, 'Look, eBay is the largest marketplace. That seems inefficient, and it also seems crazy how you look on eBay and one shoe is selling for $1,000, and the other shoe is selling for $400. What's the right price?' " Luber recalled.

By 2015, Dan Gilbert, who founded Detroit-based mortgage giant Quicken Loans and owns the Cleveland Cavaliers NBA team, was looking to start a business to test an idea he had for a "stock market of things" for consumer goods in a marketplace using real-time trades.

He selected Greg Schwartz, an entrepreneur he had backed through his venture-capital fund, to help set up the business. They decided that sneakers would be a good first product to demonstrate the stock market concept.

But neither Gilbert nor Schwartz felt they knew enough about sneakers. So they reached out to Luber, then living in Philadelphia.

Luber, who owns a personal collection of more than 350 pairs, recalled being pleasantly shocked to hear how Gilbert and Schwartz shared his own long-desired goal of using sneaker sales data to operate a stock market-like platform.

All the other corporate executives Luber had sat down with simply wanted to incorporate his sneaker data into their existing business models, he said.

Soon after, Luber sold his company to Gilbert and moved to Detroit to start StockX.

Gilbert financed much of StockX's early growth. Other investors have included Eminem, actor Mark Wahlberg, Pittsburgh Steelers cornerback Joe Haden, entertainment executive Scooter Braun and fashion designer Jon Buscemi, among others.

Calais Sewell prepares authenticated goods for shipping at the new StockX center in Detroit. The platform is doing about $2 million in sales daily. (The Minnesota Star Tribune)