The $100 Sneaker: What Kind of Market Is This, Really? | Market Inventors

The mid- and low-priced sneaker market has turned into a converging free-for-all: design, distribution, marketing and the supply chain are all changing.

Because of a chance discovery by the Twitter user @Ibelievethehype in early March, within a few days tens of millions of young people around the world had picked up a meme from social media: no matter how you throw a pair of Vans, they land right-side up.

As an excuse to buy a pair of shoes, that is not much of one. Zhang Pengfei decided on the spot to get a pair anyway.

Zhang Pengfei has been working for three years and can just about claim “sneaker financial freedom” — he owns the hyped models you would expect, such as Nike's Air Max and Adidas's Ultra Boost. Last summer he spent 1,499 yuan on a pair of Parley Ultra Boosts (Adidas says every Parley pair uses 11 plastic bottles recovered from the ocean). He had also been tempted by Nike's collaboration with the Los Angeles streetwear label Fear of God, which resells for more than 3,000 yuan, but “I just can't afford it.”

There was no special reason for ordering a pair of Vans so quickly. That it would not cost much was a more sensible justification than the shoe always landing right-side up.

Vans's latest quarterly results, through the end of 2018, showed double-digit growth for the fifth quarter running, with growth in China above 20%. The company plans to pass $5 billion in global sales by 2023.

Vans caught the retro wave and is now the second most popular footwear brand among American teenagers, whose average age is 16, chosen by 20% of them. Nike is first, of course, at 41%, but according to Piper Jaffray, the research firm that has run this teen spending survey since 2001, this is “the closest any other brand has come to Nike in years.”

People rarely compare Vans with Nike. The two companies' annual revenues differ by a full order of magnitude.

Before 2017, the fashion and luxury wave had not yet washed over the whole sportswear market, and Nike did not need to spend more on high-end sneakers and athletic technology to keep control of the conversation. Vans's scale then was nothing beside Nike's; the brand it measured itself against was Converse, another label in the Nike group. Vans's position as a trendy skate shoe overlapped with only a small part of Nike's business.

“It's a very obvious feeling — the two brands [Nike and Adidas] have been actively pushing prices up, and that's opened a gap on their own shelves,” Nelson, who runs the streetwear sneaker shop Sole What in Malaysia, told QDaily. Many shoppers, he said, reached the point of thinking, “I can't afford Nike's expensive shoes, so I'll just stop choosing Nike. There's no choice left — the next step is to look at other brands.”

Every model Nike has pushed hardest over the past two years sells for more than 1,000 yuan. The Air Vapormax “bubble shoe,” at full price, goes for 1,499 to 1,599 yuan; the Epic React Flyknit2 running shoe for about 1,299 yuan; the newly released Air Max 720 for 1,399 yuan. Nike calls these models its “top-tier platform,” priced at roughly $150 and up.

Nike, the industry leader, will not let this price-inflated sportswear market pass it by, but its attention is finite. After two years spent fending off Adidas in the high-end market, CEO Mark Parker said on an earnings call on March 21: “In the coming fiscal year, we'll rapidly add new product under the $100 price point.”

A new competitive force has already appeared in this briefly empty price band. Vans, with an average selling price of about $60, is one of them. In China, hot new models from Li-Ning and Anta are eating into the steady growth of Nike's and Adidas's long-selling styles.

Converted into yuan, this market is bigger still. At the exchange rate $100 comes to about 671 yuan, but that is not how the pricing works. The Nike P-6000, which sells for $100, is 799 yuan in China, while Nike Tanjun, Nike's main model in this band, can be had on Taobao for 299 yuan.

And the competition runs on every front. Based on QDaily's interviews with brands, distributors, sneaker designers and consumers, the mid- and low-priced sneaker market has turned into a converging free-for-all: design, distribution, marketing and the supply chain are all changing.

1.

Measured by the size of the whole market, sneakers under $100 are the real mainstream.

According to NPD Group data, the average price of men's sneakers sold in the United States in 2018 was $70, and the $65 Nike Tanjun has been the best seller by volume for two years running.

This tier gets far less marketing and far slower product turnover than high-end shoes, yet it brings in three-quarters of Nike's footwear revenue. Mark Parker calls it the “core product.”

2018 US sneaker sales ranking (models under $100 in bold)

1

Nike Tanjun

2

Nike Air Max 270

3

Converse Chuck Taylor Ox Low

4

Jordan XI

5

Nike Air Huarache

6

Vans Ward

7

Nike Revolution 4

8

Nike Flex Contact

9

Adidas Yeezy Boost 350 v2

10

Nike Air Force 1 Low

Nike Tanjun's predecessor was the Nike Roshe, which Nike launched in 2012 and which became a worldwide hit; its name comes from the Japanese word roshi, Zen master. This minimalist running shoe came from Dylan Raasch, a junior footwear designer who had been at Nike only three years, and it is beyond doubt one of Nike's most successful shoes of the past decade.

The whole shoe used two materials — a knit upper and an EVA sole — plus a single lace. A solid block of EVA wears out fast but makes the shoe very light, and when Normcore, the gender-neutral design trend, swept fashion in 2014, Nike added more colorways to the Roshe Run and upgraded it with a Flyknit upper. It became a street shoe you saw everywhere.

Comfort, lightness and a clean look soon took over the sportswear market, and the run of new technologies turned “comfort” into the price of entry for the whole industry. On the latest US sneaker sales ranking, for February 2019, Tanjun — the upgraded Roshe — still came fourth, but the fashion has moved on.

The new styles shaped by the high-end sneaker market have stirred fresh demand. A person close to Nike said the sales growth driven by the dad-shoe trend has grown too large to ignore.

“Take the Air Monarch IV [$80]. It used to be a cross-training shoe sold only through outlets; it sold so well that it has been moved into other stores. Or the NikeCourt Lite [$65] — nobody could find it in stores, and it sold extremely well online, purely because it looks like a dad shoe. Nike has done Flyknit for so long that its problem is a monotonous upper, so people have swung back to liking complicated designs.”

600 to 800 yuan is the main price band for sneakers on Tmall, and the brands doing well in it are changing. “Good brands are building more competitive price bands — Li-Ning's e-commerce-only Su series, say, or Anta's NASA collaboration. A lot of the buyers used to buy international brands,” said Sheng Ying, head of Tmall's sports and outdoors category. Besides Li-Ning and Anta, brands such as FILA and Warrior have posted good numbers too, because they released more shoes that match current trends.

Being fashionable means more orders at full price. A report from Tianfeng Securities shows that new products made up 78% of Li-Ning's total sales in 2017, 9 percentage points more than in 2015; the China Li-Ning line that walked New York Fashion Week sold more than 3.5 million pairs in the first half of 2018, priced at roughly twice what Li-Ning's earlier shoes cost.

The 299-to-799-yuan mid-to-low band has traditionally rested on two price-sensitive groups: teenagers, and the middle-aged and older. As more people accept that a sneaker is simply part of an outfit, different faces are turning up among these buyers.

Fang Qinzheng is 44. The shoe brands he usually wears are Tod's, Toms and Puma, and he was among the first to buy the Wudao, Li-Ning's runway shoe, in February 2018. At 20 he wore a pair of Air Max 95s to Tokyo, and plenty of people stared at his feet. “I know the ups and downs Li-Ning has been through as a business. Once they put out this shoe, I felt I had to give it some encouragement. Under a thousand yuan, I think it's worth it.”

2.

Chen Lijie, Li-Ning's “chief designer for New York Fashion Week,” did not expect the Wudao to become a hit. Every piece in the February 2018 New York show was made by Li-Ning's in-house team of more than 100 designers, who had received the assignment four months earlier; some pieces came straight from that season's existing stock, because there was no time to design everything from scratch.

After the line took off, almost all of Li-Ning's new-product design and marketing was built around four characters: China Li-Ning. Before long Anta went to Shanghai Fashion Week, and over the following year released collaborations with NASA, Marvel and others.

These are marketing moves Nike has long used with Air Jordan and Adidas with Yeezy. Chinese brands, once shut out of that game, can copy the approach as soon as they generate enough talk, and that eventually shifts who holds power over distribution.

At the end of 2018 the streetwear outlet KIKS and Anta put on public sale a friends-and-family collaboration first released in June (only 40 pairs) — one dad shoe, one running shoe — and the response was good. The dad shoe has sold out; the running shoe can still be found in odd sizes at KIKS's Taobao store. In April 2019 KIKS also arranged an overseas release of the collaboration at the streetwear sneaker shop Sole What. Nelson, the owner, said: “The ANTA x KIKS series looks great — it's a rare case of Anta and a streetwear media outlet colliding on a product, which is what made this collaboration happen. And I hope more collaborations like it come out in future.”

Skechers started doing IP collaborations for the first time in 2018, releasing tie-ins with One Piece, Line Friends and Champion one after another. “The plan for 2019 is to work out collaborations with some independent designers and streetwear brands,” Zhang Ruiyan, vice president of marketing for Skechers China, told QDaily. At mid-tier prices, she said, shoppers do not ask much of function: “What matters more is whether the product has culture behind it, whether there's marketing content. The contest is over brand spirit, over how you interact with consumers.”

Zhang said that after adding a good number of trend-driven styles, Skechers can “get into sales channels more easily.” “We also have Skechers Mark Nason concept stores, and the plan this year is to open 100 of them.”

The biggest difference between fashion and athletic technology is that most brands can only follow a trend, not set one. Below 800 yuan, where there is no technology to sell, everything becomes a game of positioning.

Pang Xiaomin founded a sneaker startup in Shanghai. His company, Huajiao Sports, is aiming at fitness-minded people around 25 and is raising money now. “I think the essence of the clothing and footwear industry is publishing. The problem with cross-training shoes right now is that they can't meet individual demand,” he said. After spending a great deal of time fixing the brand's position, the team designed its sample shoe in a techwear style. “We won't call it a cross-training shoe, and we won't say it's for the fitness market. It's just a sneaker.”

During the interview Pang showed off that sample, priced at 299 yuan, in two colorways, one dark and one light. Without the backstory and the marketing “scenario,” it would be hard to tell from the design alone what kind of shoe it is.

3.

Chasing a trend is not as easy as it sounds, least of all when everyone else is chasing it too.

Bao Junyi joined Warrior a year ago as a sneaker designer, working only on the shoes in the “designer zone” of its Tmall flagship store. That zone does two things: it strengthens Warrior's standing in streetwear culture, and if a style sells well online it may then reach the physical stores.

At first there were only two of them, Bao Junyi and Qin Man, both of whom had worked on the women's shoe design team at the Italian brand Joshua Sanders. “After we came back we found that factories here make things very well, but they don't quite know how to use technique to make something beautiful.”

Last Double 11, Warrior put on sale a 349-yuan dad shoe called Huiling, the most expensive shoe this old Shanghai brand has ever sold. “By the time we started making it, dad shoes had been in fashion for quite a while. Warrior sits pretty far from the trend curve, so they'd basically already gone crazy popular by the time we made ours — the timing worked out just right.”

Bao has designed two collections so far, 2018AW and 2019SS. “You can clearly see that last May we were sorting through shoe shapes, all of them styles with traceable roots in Warrior's history. The Huiyan Wuxiao Dianzu we put out recently is closer to what's in fashion now.”

The cycle from design to mold-making to production runs about six months, and the longest part is “wearing down the factory.” “Warrior's soles used to be made in oxford color and almost nothing else, because oxford is easy to produce. Once we took over we had to try different colors on the eyelets, the vents, the laces.” Cutting a new mold, Bao said, means thinking ahead about what you might change later and whether the design can be adjusted as fashion moves. “Shoe molds are expensive. Different factories, different styles, all come out differently, which is why our production volume still isn't large.”

Shoes in the designer zone usually cost 20 to 50 yuan more than the other styles in Warrior's flagship store. “There's no way to go lower. For the most expensive one, the Huiling, we used the same quality of materials as Nike and Adidas.”

Even so, Bao thinks the Huiling turned “a 120-point idea into a 100-point product.” “Consumers like the styles they've already seen. I had to make a dad shoe, but I didn't want to make it the same as everyone else's. We all answer for sales in the end.”

Sheng Ying, head of Tmall's sports and outdoors category, said the supply chain is the domestic brands' advantage. “International brands' supply chains work more like futures — orders placed six months ahead, hard to adjust after that. On rolling out new products, domestic brands' supply chains are much more flexible.”

By the figures Zhang Ruiyan gave, Skechers's e-commerce channel grew about 53% over the past year, a good part of that from styles sold only online — about half, a far higher share than before. But most of these new styles are new colorways and materials; few involve cutting new molds for an entirely new shoe. “A few years ago e-commerce was for promotions. This year it's about consumption upgrading. As the Asian market keeps growing, our international markets are now asking us for styles exclusive to their own markets too.”

Just as other brands treat Tmall as a channel for releasing fast-fashion sneakers, Nike is doing the same on its own e-commerce app, SNKRS.

At the WWD Retail 2030 conference earlier this year, Cathy Sparks, Nike's vice president of global direct-to-consumer stores, said that as much as 50% of transactions at the brand's flagship stores in New York and Shanghai come from customers using SNKRS, Nike's own e-commerce app. They also noticed that these users spent more once they started using it.

Compare the products shown in the app across regions carefully and you find that Nike is already designing models exclusively for Greater China, such as the Nike Blazer Mid '77 vntg below.

According to a person familiar with Nike, these shoes designed by the domestic team “sell quietly well,” but they “will never be the main theme of the marketing.”

4.

Nike still hopes to win with a story about athletic technology. On the earnings call, CEO Mark Parker disclosed that Nike will bring new technology to its sub-$100 shoes for the 2019 back-to-school season: “We're adjusting our merchandising and marketing teams so we can support them across the whole market.”

He added: “I'm actually wearing a pair right now, and I'll tell you, it's one of the most comfortable platforms we have — exciting, and visually quite distinctive.”

Vans in fact did much the same in February: it started a new round of marketing worldwide for ComfyCush, a comfort upgrade to five classic Vans models, with the Chinese ad line “Shu Shu Fu Fu” — nice and comfy. Earlier still, in 2015, Converse used Nike's insole technology to upgrade its own classics.

Whether this sort of “technology content” persuades anyone is another matter.

In the last week of March, Zhang Pengfei got his bonus. He spent more than an hour looking at Vans shoes on his phone, and from the start he steered clear of the five models upgraded with ComfyCush.

“None of the colorways they put out appeal to me. I'm not buying Vans to be comfortable, I'm buying them because of that video. And the way I see it, Air Max and Ultra Boost, which cost twice as much, ought to be more comfortable anyway... In the end, after looking for ages, none of the Vans colorways I liked came in my size.”

“While I was browsing I thought, well, I'm going to spend the money anyway, so let me look at other things. In the end I bought Li-Ning's Wudao 2Ace... but Li-Ning's sizes run a lot bigger than Nike's. I sent it back twice, which made me hate online shopping even more.”

Cover image from Unsplash