Sneaker retailers don’t benefit directly from reselling. Yet Nike and its peers benefit indirectly from the sneakerhead hype, giving both sides incentive to keep the resale market strong.

(Bloomberg)—A senior Nike Inc. executive’s abrupt departure has laid bare the sometimes-uncomfortable relationship between sneaker makers and the underground network of resellers who thrive off their brands.

The sneakerhead community was buzzing this week over the resignation of Ann Hebert, Nike’s vice president and general manager of North America. The revelation came just days after a Bloomberg Businessweek report about her son’s lucrative business reselling shoes.

Nike and its chief footwear rival, Adidas AG, don’t often talk about the secondary market, even as demand for rare Air Jordan 1s and Yeezys has turned sneaker flipping into a billion-dollar business. The companies don’t benefit directly from it. And since resellers make it harder for the average customer to buy their favored sneakers, shoe brands and their retailer partners go to great lengths to stop people from scooping up multiple pairs.

Yet Nike and its peers benefit indirectly from the sneakerhead hype, giving both sides incentive to keep the resale market strong.

“The reality is resale within footwear has become critical to the entire footwear ecosystem,” said Simeon Siegel, an analyst at BMO Capital Markets. “The fact that resale exists is what allows for such strong sell-through.”

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The awkward allianceand potential for conflicts of interestspilled out into the open Monday after Nike announced the immediate departure of Hebert, who had been with the Beaverton, Oregon-based company for more than 25 years. Nike didn’t give a reason for her resignation.

Joe Hebert, the executive’s 19-year-old son, flips hundreds of thousands of dollars worth of shoes each month, Businessweek reported. Nike has said the executive disclosed relevant information about her son’s business to the company in 2018, and that Ann Hebert did not violate “company policy, privileged information or conflicts of interest.”

Bad look

Still, the optics can be troubling. Hebert’s responsibilities reportedly included the SNKRS app, where Nike’s rarest and most sought-after products are typically released.

A 2018 business filing with the state of Oregon for “West Coast Streetwear” was filed by Pascal Hebert, who is listed at the same address as Ann and Joe. That business was subsequently transferred to Joe.

Ann Hebert didn’t immediately respond to a request for comment on LinkedIn.

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Nike didn’t immediately respond to a request for comment on resale.

The major footwear brands have largely stayed quiet on the topic of resale, content to maintain the status quo.

“I don’t think we’re really fixated or focused on trying to capture that secondary market,” Mark Parker, Nike’s then-chief executive officer, said on Bloomberg TV in 2014. “Are there some things we could do to take advantage of that? Possibly. We’re looking at that, but that really hasn’t been out fixation or focus.”

True to his word, Parker stayed away from resale through his tenure, which ended last year. That hasn’t changed under his successor, John Donahoe.

The growing market has fueled the rise of more specialized startups such as StockX, which is reportedly weighing an initial public offering. Rival GOAT Group, which got a $100 million investment from Foot Locker Inc. in 2019, recently scored an investment from Groupe Artemis, Kering’s controlling shareholder. StockX and GOAT are marketplaces that offer platforms for buying and selling, and they also authenticate products to weed out counterfeits.

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Interest in resale has boomed for more than just sneakers. Online clothing and accessories marketplaces such as the RealReal and Poshmark have gone public in the last two years, while ThredUp is reportedly planning an initial public offering this year. Combined, the three move about $3 billion worth of secondhand goods annually. This week, Gucci and Saint Laurent owner Kering led a $216 million investment round into European reseller Vestiaire Collective.

Different beast

But sneakers are a different beast. Unlike secondhand clothing, which is typically used and sold for less than the retail price, the bulk of resold sneakers are brand new, never worn and still inside the undamaged boxa condition known as “deadstock.” Limited sneakers typically sell for more than retail, and big-time flippers often deal in bulk.

That has made reselling a lucrative activity for those who can get their hands on the right productoften through connections with retailers or wholesalers, or using automated software to quickly buy sneakers online. The sneaker and streetwear resale market is more than $2 billion in North America and growing by more than 20% each year, according to estimates from Cowen & Co.

Those kinds of numbers are turning heads across the industry, though Nike still isn’t saying much, even as questions bubble up amid the departure of a longtime executive.

“Nike’s been fairly mum on what their view is of the resale market,” said John Kernan, an analyst at Cowen. “Clearly, there was an issue in this specific case.”

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Nike is No. 24 in the 2020 Digital Commerce 360 Top 1000

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