Stock X and the 22 billion dollar sneaker Industry

In the United States, the sneaker industry has become an estimated 22 billion dollar market since 2013. One of the major factors for it has become the desire to acquire tenis shoes “sneakers” that are extremely rare. The rarity of a sneaker is either valued by their limited production, desire by sneakerheads, collaboration between big companies and artists or simply because they were worn by our favorite celebrities. With the Nike Air Jordan 1 retro being the most reliable investment, there is no doubt that other big companies such as Adidas, Puma, and Rebook are putting in a lot of effort in order to compete with such historic Icon as the Jordan Retro.

Stock X’s CEO Josh Luber, a MBA grad from Emory University Goizueta College of Business has been one of the most iconic sneakerheads since the late 2000’s. Even though he wasn’t a millionaire back in 2013, there is no doubt that his massive sneakers collection caught the attention of many, either through his social media channels or simply his instagram account. Knowing that Ebay made an estimate of 200 millions dollars in 2013 through selling sneakers, Josh along with his two other partners decided to create what we know now as STOCKX. “Mr. Luber, who, like many sneakerheads, speaks of his footwear collection as if it were an ever-expanding portfolio, started collecting at age 10. In 2012, while an analyst at IBM, he founded Campless, a website he described as the Kelley Blue Book for sneakers.”
What makes StockX a multimillion dollar company is its unique business model and platform. The way it works is very easy: you have a pair of sneakers that you wish to sell and if there is a buyer interested in your sneaker he can either bid or click the buy it now option. But that is not just it, the platform also provides a free service where the sneaker will arrive at the Stock X company where a guru or sneakerhead will examine the product in order to determine if it is 100 authentic. That way buyers can be 100 percent sure that the product they are getting shipped from StockX is authentic.
This specific service is what makes StockX shine against its competitors. Another great attribute that StockX members enjoy is being able to receive all the information pertinent to a specific shoe, such as release date, the demand for it and how the sneaker has performed since its release and the date that the buyer is wanting to buy it. It’s because of innovative companies like StockX that people now can have an informed transaction when buying or selling their products.

How close to the edge is too close?

Image result for edge of mountainMany industries in the US are highly regulated, often by both the state and federal governments. This can create significant problems when someone tries to do something new in them. When trying to innovate in such environments, one is faced with how to balance charging ahead with the idea and waiting to ensure that no government hammer is about to drop. What one person calls a great innovation can sometimes be dangerously close to what another would call illegal activity. If that other person is a government regulator then the innovator could be in big trouble. However, waiting to determine the legal landscape risks losing valuable time and money to competitors.

A recent example of this tension between pushing ahead and waiting playing out seems to be what the Robinhood investment app has been doing. While I actually couldn’t find a concise statement on why I should invest with them on their website, they seem to position themselves as a new way to operate in finance by offering no trading fees, ease of use on mobile devices, and no account minimums. However, their revenue method has been described as “toeing the line of legality” and there are fears that its main source of revenue will be regulated out of existence. An attempt to offer a new product (a checking account) faced regulatory pushback leading to Robinhood to pull product before its launch. Their website currently has a cash management option labeled as “coming soon” instead. The feasibility of the account, even if not threatened by regulators, is in question anyway,re-raising issues about their business model.  Robinhood appears to be doing more of the pushing and less of the waiting, with results that seem promising and have so far avoided real consequences. However, this risk for serious consequences remains (such as rolling out the checking accounts to customers at the time of announcement).

The Robinhood example brings up the legal issues of not only the company itself, but also of its attorneys. Attorneys are, at some level, responsible for the legal advice that they give to their clients, especially if they are also an employee. Lawyers are already perceived as risk-averse and focusing on what one cannot do, rather than on what one can do, and lawyers, like all other company insiders, face similar risks to others who work in a highly regulated industry like finance such as insider trading. However, lawyers are also subject to the rules of the legal profession, and these rules can give lawyers certain affirmative duties and in some cases the option  doing something that would otherwise violate the duty to the client (such as the Rule 1.6 confidentiality rules). This tension can create difficulties for attorneys seeking to advise clients as the attorney can be conscripted by the regulator to assist with compliance or risk losing the ability to practice. Knowing this, if one wishes to innovate in regulated environments how much distance should one keep from the attorneys? Do such innovators know of such potential problems? Is it just a risk that the attorney assumes when advising clients in such a regulated industry that the attorney could be penalized for bad analysis? In such highly regulated environments, is it better to ask for forgiveness rather than for permission and does that apply to the advice an attorney should give? Are there disincentives for lawyers to work with entrepreneurs in such highly regulated environments for fear of the repercussions? Law itself is a highly regulated industry. Does this dynamic work there as well? More broadly, determine the difference between legal and business risk has come up as one of the key things attorneys have to decide when advising new enterprises. I’m wondering if in some contexts, such as highly regulated industries,  that their is no difference. The Aereo case might be an example from a less regulated context, but does that approach translate well into more highly regulated industries?


Boutique Fitness as an Entrepreneur’s Paradise?

Health and fitness in the US is a $30 billion industry. And it is a booming one, with annual growth of at least 3-4% over the past ten years. You can hardly walk down a single city block now in cities such as Boston, New York, and DC without spotting one or two boutique fitness studios.

Boutique fitness is different from your average everyday gym like Planet Fitness and Crunch, with prices below $20 per month, but it also differs from luxury gyms such as Equinox, where members can pay upwards of $200 per month for perks that include Kiehl’s products in the locker room and refreshing eucalyptus towels. Instead, a boutique fitness studio can be identified as a smaller gym (usually between 800 and 3500 square feet) that prioritizes community-focused group exercise of a specific fitness type.

This could include rowing, cycling, yoga, bootcamps and HIIT (high-intensity interval training) workout structures, and boxing, etc. (There are even stretching studios now!) Within a fitness type, it gets even more granular. For example, a rowing studio could offer rowing for kids and rowing for marathon runners, in addition to their regular rowing classes. There are even companies such as ClassPass, which partners with different kinds of studios, allowing members the opportunity to try different types of classes on a flat-rate monthly billing structure.

Although prices seem astronomically high (often coming in between $20-40 per single 50-60 minute class), the argument can be made that the workout is more effective and better than a cheap, but dormant membership to the gym around the corner. One of the popular studios, Barry’s Bootcamp, which combines cardio with weight training, is actually trademarked (!!) as “The Best Workout in the World.” Their website advertises the science behind the class that allows you to burn up to (or over) 1,000 calories in just a 50 or 60-minute class session. Not only is the workout quicker and more efficient, but with draconian cancellation or no-show policies and fees, you are less likely to miss a class.

Boutique studios also offer the chance to get to know the instructors and the regulars around you, which can help you feel comfortable if you’re reentering the fitness scene after an injury, pregnancy, or other extended absence. With a small space and small class size, instructors can correct form and personalize the experience a bit more. It’s almost like having a personal trainer at a reduced price point. Many of these studios offer nice shower products and made-to-order protein shakes, striving to create an environment that will have you never wanting to leave, or at the very least, have you not wanting to return to your regular neighborhood gym. It can offer a refuge from the stress of high-pressure corporate America (here’s looking at you, big law!).

The entrepreneurs in this sector that are driving the “craze” seem to be expert curators or at least, very adept at hiring a marketing team that knows their audience and aims to please. I listened to two episodes of Guy Raz’s “How I Built This” podcast on NPR, to get some more insight on entrepreneurs in this space, and why they founded their own fitness companies.

The first episode I listened to featured Elizabeth Cutler and Julie Rice, founders of the stationary bike studio, SoulCycle. They originally founded the studio because no existing gym classes really appealed to them; they didn’t have a niche that they liked, but they still wanted to work out and stay active. The business grew and scaled from their first studio in New York in 2006 to about 90 studios today in the US and Canada. The popular fitness studio has “cultivated a near-tribal devotion among its clients.” When they sold the business to a larger company, they each made $90 million.

The second episode featured another multimillion dollar company, Barre3. Founded by Sadie Lincoln in 2008, the company is based around a fitness class that blends ballet, pilates, and yoga. The company has since expanded to 33 states. Lincoln was inspired to found a barre studio because she found herself working out every day, running on the treadmill and counting calories, but not really feeling the benefits. Thinking that the current fitness options were failing her and assuming that others felt the same way, she set out to change that.

It seems as if a common motivation amongst these founders and entrepreneurs in the fitness space is to turn exercise classes into something that would be motivational and aspirational for clients. Exercise classes do not always have to feature an instructor who screams and swears like a bootcamp sergeant, but can instead focus more on energy and wellness. These founders also recognize that each class can be made better, focusing on each hour, instead of the flat-rate membership at a regular gym, where you won’t necessarily feel compelled or want to go.

Although many of the predictions are rosy for boutique fitness, one consumer analyst noted another cycling studio’s recent price cuts as a precursor of things to come for the industry. Competition is growing. And not just from the studio two blocks away. Luxury at-home workout options like Peloton (giving you the option to work out in the comfort and convenience of your own home) could also present a significant threat.

Questions to Consider:

  • Is the boutique fitness “craze” a bubble that is going to burst in the next few years or is it truly the workout of the future? In other words, is this still an Entrepreneur’s Paradise or is it already becoming an oversaturated market?
  • Will the studios eventually have to lower margins and modify some of the draconian cancellation policies to compete, both with other studios and with at-home fitness options such as Peloton? Or do these options appeal to different types of consumers entirely?
  • Will boutique fitness affect the healthcare industry, specifically insurance? Should employers be willing to cover or subsidize the costs of boutique fitness classes versus a regular gym?
  • Can we see future partnerships with fitness-tracker companies such as Fitbit and Whoop, etc.?
  • As Courtney mentioned in her post/discussion last week, are some of these companies trying to “do too much” and where is the line?


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