High-tech startups are reassessing their prospects for the future as interest rates rise and investors get queasy.
Source: Tech companies rocked by layoffs as industry faces biggest downturn in two decades
CBS News delivered a report explaining the difficulties tech companies face in uncertain economic periods. In this post, they quote Andrew Challenger, senior vice president of outplacement firm Challenger, Gray & Christmas, “Many technology startups that saw tremendous growth in 2020, particularly in the real estate, financial and delivery sectors, are beginning to see a slowdown in users.” The article continues to expand on the quote by looking at companies like Coinbase, in the crypto space, which is spiraling. The CBS News article also delivers a list including “Netflix, Peloton and Robinhood.” StockX can now be added to that list after laying off 8% of their workforce. While many see the e-commerce middleman as a reseller, it’s important to understand at StockX’s core is tech and like a crypto company, StockX is only as viable as the market itself.
StockX has been smart enough to try and insulate itself with DropX and their IPO strategy, but these tactics rely heavily on brands delivering a product to the platform for distribution. These strategies are often too small to have a significant impact in offsetting operating expenses and a broken business strategy which has shaped StockX since it began allowing sellers on the platform. I discussed that broken strategy in this post:
Does eBay Really Have the Best Fees in the Game? How Shipping Shapes Sneaker Resale
If you’ve read this post, you realize sales under $100.00 usually end in a loss for StockX. When you consider the majority of sales in resale happen under 150 and 100 dollars, and you factor in operating expenses, StockX is burning through cash. Since the quarantine in 2020 the supply chain has been in disarray. In Nike’s most recent quarterly report (Fiscal Year 22-4Q) they stated, “Inventories for NIKE, Inc. were $8.4 billion, up 23 percent compared to the prior year period, driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions.” In the current environment, brands aren’t capable of controlling their supply chains. Which means the one segment of operation capable of generating more revenue for StockX (DropX/IPO) is uncertain. That holding of inventory also means the product isn’t reaching wholesale account doors. This limits the number of shoes that are able to be resold; directly affecting StockX and other resale platforms.
According to the Sourcing Journal, Nike’s Matt Friend continued his statement, “So we’re managing our inventory accordingly. We’re making decisions about our assortment and product life cycles. We’re taking some of our styles to seasonless so that we can manage it on more of a rolling basis.” This positive spin should be worrying for wholesale accounts. If Nike is moving their business to a seasonless strategy, wholesale accounts won’t be able to predict or organize sales strategies throughout their fiscal year. Seasonless will throw off the biggest times of the year for retail, Back to School and the Holiday season. The uncertainty of how freight is arriving in the U.S. realizes a discussion I introduced when analyzing Nike’s explosive FY2021 Q1, a year I label as an anomaly for resale:
10 Realities of Resale Being Shaped by NIKE’s Incredible FY2021 Q1
StockX is a Tech Company
Like crypto, what tangible product does StockX make? In the post on fees above, it became clear StockX couldn’t afford to pass on costs to sellers as the introduction of fees in the past led both buyers and sellers to jump ship. Once again, what tangible product does StockX make? The CBS report explained, “So far this year, tech companies worldwide have laid off a total of 35,000 workers, according to Layoffs.fyi, which tracks job cuts in the industry. Many more are abruptly reversing their hiring plans, in particular formerly fast-growing cryptocurrency companies.” Contrary to what many sneakerheads assume, StockX is not yet a retailer/e-tailer. StockX is a tech company providing a service and capturing a percentage of transactions. StockX’s layoffs are on par with the drop in value for crypto businesses because these businesses are built on speculation. When things slow down there isn’t a physical product to be liquidated to generate revenue, people become liquidity. In 2017 the site was at 3 million visits a month. During 2020 StockX hit 46.8 million visits a month. By 2021 the site cooled, but still garnered 34.69 million visits a month. In April of 2022, StockX was at 31.9 million visits a month. That’s a 32% drop in traffic from 2021 to 2022. 31.9 million is still considerable, but no business can continue to operate at the same level when traffic is declining, especially when there isn’t a product to sell. A comparison to Nike’s growth since 2017 shows why a tech company built on reselling Nike goods is slowing. In 2017 Nike was at 77.3 million visits a month. In April 2022, Nike’s traffic hit 127.3 million a month.
In the 10 Realities of Resale Being Shaped by NIKE’s Incredible FY2021 Q1 post, I explained why Nike’s growth should not equate to a rising tide lifting all boats.
Hype is an anomaly and to be honest sneakers like Travis Scott’s or Ben and Jerry Dunks have such limited quantities, looking to those releases creates outliers that fail to actually create the micro to macro comparison needed to make predictions or discuss sneaker business.
One thing is for certain, Nike’s dominance is clear and the quarantine and months since businesses have reopened have seen some of the biggest numbers for both resellers and retail. Remember, I wrote earlier this year and in my last book that resale was trending down. COVID-19 has delivered an interesting situation for retail and for resale. Things are good right now, but I’ve seen a similar trend in 2011-2012. That year I did over 550,000 in resale. The spike happened because Amazon began accepting more Seller Central Marketplace accounts. That’s a different discussion. This time around StockX and GOAT have helped to create an easier path to resale, which created a spike, and has contributed to investment dollars flying all around resale. The problem is these investors don’t have a real measuring stick for what’s actually happening. On the surface everything looks great. It would appear that Nike’s growth is a rising tide. It’s not lifting all boats.
In Nike’s recent FY22 4Q they lost 1% year over year. Here is the kicker, in their third quarter of Fiscal Year 2020, revenue grew 5% to 10.1 billion. The company lost a percent last quarter, but when compared to 2020 the revenue was 12.2 billion. Their direct sales continued to grow, up 7% while (insert drumroll) wholesale was down 7%. StockX is a middleman built on the back of buyers purchasing from wholesale outlets. Right now, sneaker culture is throwing around a ton of hypotheticals about StockX. Many are excited that the platform is having to adjust. No one should ever be happy when people are losing jobs. Sneaker culture is also comparing the Zadehkicks scandal to StockX’s layoffs. Some are positing that Zadeh no longer buying kicks has hurt StockX. That couldn’t be further from the truth. When I wrote my post on why Zadeh’s proximity to several of Nike’s best Factory, Employee and Clearance stores was no longer able to insulate the business from poor structure, I was explaining why all of resale was being reshaped. When Pusha-T rapped these lines on Brambleton:
You would pay sixteen, I would pay eighteen
When I paid twenty-two, still was a great thing
Laid up countin’ a million, we daydream
Till the plug took back his half, that’s they change
He could’ve been explaining how Nike has always been the plug… but now, It’s Almost Dry.
