Hypenomics: When Streetwear Reigns Supreme

HYPENOMICS: WHEN STREETWEAR REIGNS SUPREME

By Oscar Miller

Usually, the picture of young individuals camping out on the streets of London on a cold Wednesday night provokes feelings of sympathy. However, it’s not sympathy the long lines of hopeful campers on Soho’s Peter Street are seeking – it’s opportunity. These fashionc onscious entrepreneurs, usually under the age of 25, are looking to get their hands on the newest range from New York streetwear brand Supreme. The brand has been successfully building ‘hype’ on social media for weeks in an attempt to add to demand which already greatly outstrips supply. Those able to successfully purchase items from limited weekly ‘drops’ boast both exclusivity and profitability, with some pieces selling on aftermarkets for nearly ten times their retail price. Consumers may queue for hours or even days, estimating what items will be ‘dropping’ and what sort of price they may be able to charge customers on the aftermarket.

Those able to successfully purchase items from limited weekly ‘drops’ boast both exclusivity and profitability, with some pieces selling on aftermarkets for nearly ten times their retail price.

Firstly, it is important to look at the consumers driving this excess demand. Data from PwC’s Global Consumer Insights Survey revealed that consumers spend five times as much per month on streetwear than non-streetwear, despite 70% of consumers reporting an income of less than $40,000 a year (Leeb, Menendez and Nitschke, 2019). These consumers are primarily concerned with the conspicuous consumption of ‘status goods’, those which elevate social standing (Veblen, 1899). This is known as a ‘Veblen Effect’, where consumers use product price as a signal of wealth (Mason, 1992) and where utility is derived from societal perception. The diagram below (WallStreetMojo, 2020) illustrates the demand curve for a Veblen good. The demand curve is upwards sloping, with those on higher incomes consuming more of a good because it has ‘snob value’, a clear violation of the law of demand.

Figure 1: Veblen good. (WallStreetMojo, 2020)

However, the concept of snob value doesn’t quite apply to Supreme in the same way. Expensive items may not be the most unobtainable, and it isn’t always the expensive items that attract the most attention from fellow consumers. In the case of Supreme it is rarity that drives admiration from peers rather than product price. Where traditionally it is income restrictions that make products unobtainable, in the case of streetwear brands it is simply a case of a supply shortage. One of Supremes’ most coveted items, the ‘box logo’ t-shirt, or ‘bogo’ for short is little more than a cotton t-shirt with a small rectangular print retailing for £35. This is somewhat of a challenge to Veblen’s theory, as consumers aren’t always well-off individuals looking to flaunt wealth, but instead consumers who have gone above and beyond to purchase items that signal scarcity. In behavioural terms, these consumers can be said to be prone to ‘effort heuristics’, where the value of an item can be determined by how much effort went into obtaining it (Kruger et al, 2004). In fact, those able to obtain pieces at the retail price receive more kudos from fellow streetwear fanatics than those who pay inflated prices on secondary markets, where having the financial means to pay over the list price is seen as less impressive than buying directly from Supreme. In this sense, admirative consumers may not ask ‘how much did you pay?’ but rather ‘how long did you queue?’.

In fact, those able to obtain pieces at the retail price receive more kudos from fellow streetwear fanatics than those who pay inflated prices on secondary markets, where having the financial means to pay over the list price is seen as less impressive than buying directly from Supreme.

When we look elsewhere at product releases in other sectors, we often find a direct relationship between supply and demand. Manufacturers try to supply goods and services according to market demand, removing need for an aftermarket. Though streetwear brands like Supreme adopt a different strategy. Instead, supply is perfectly inelastic - fixed at artificially low levels and demand is ignored, which given the scope for profitability seems a little strange. The diagram below (Gauge, 2020) illustrates the results of these differing strategies, with Supreme making less than their non-streetwear counterparts as a result of restricted supply, while normal sellers produce where demand and supply are in equilibrium. Supremes’ founder James Jebbia put it succinctly in an interview “if we can sell 600, I make 400” (O’Brien, 2009). Although, this approach may seem more plausible when considered as a marketing strategy rather than a sales strategy (Ibid). When the market is cleared, the demand for Supremes’ products doesn’t disappear, it is merely postponed to the next drop. In fact, it is the manufacture of scarcity that enables Supreme to perpetuate demand season after season and generate growth in the long-run, while ensuring the retention of brand image and consumer loyalty. By allowing shortages in the short run, Supreme is able to sustain demand the in long-run, thus ensuring profitability year in, year out. It is on this basis that they will likely never meet market supply, as doing so would be detrimental to both their business model and brand image, both of which are built on scarcity. It is therefore valid to conclude an inverse relationship between quantity supplied and desirability when it comes to streetwear brands like Supreme.

Figure 2: Supply and demand

By allowing shortages in the short run, Supreme is able to sustain demand the in longrun, thus ensuring profitability year in, year out. It is on this basis that they will likely never meet market supply, as doing so would be detrimental to both their business model and brand image, both of which are built on scarcity.

If windswept streets and sub-zero temperatures aren’t your thing, you will be relieved to know Supreme do sell items online; but it’s when we get to online sales that the camping makes sense. Supremes’ latest box logo t-shirt in April 2020 sold out in under 7 seconds, meaning only those with the swiftest fingers or computer-programmed checkout ‘bots’ were able to purchase at the retail price. This clearly leaves the probability of a successful online purchase extremely low. Those who manage to purchase with the intent to resell then do so on secondary markets like StockX, an online marketplace that facilitates the exchange of streetwear and sneakers. The site which in 2017 surpassed eBay in aggregate sneaker sales (Gebel, 2019) operates a variable pricing framework not dissimilar to that of a stock market, with historical data providing buyers and sellers with price information. The graph below (StockX, 2020) shows price fluctuations of the Adidas Yeezy Boost 350 ‘Turtle Dove’ over the last 5 years, with prices reaching a high of $1990.00 in 2017 compared to release date lows of $855.00. Other popular releases include Virgil Abloh’s Off-White x Nike Air Force collaboration shoe which commands $900 on StockX, representing +430% added value on the aftermarket or the Supreme ‘Brooklyn’ Box Logo which sells for $887 despite a $52 retail price – representing added value of 1,606%.

Streetwear drops here resemble initial public offerings, with retail and resell markets emulating primary and secondary capital markets respectively. Sneakers in particular are prone to speculative price bubbles, where consumers respond to the risk of discontinuation or lack of ‘restocks’, resulting in no future increases in supply. These bubbles inevitably burst with updated releases and a resultant shift in consumer preferences. StockX is symbolic of the assetisation of streetwear products, where wardrobes become portfolios and consumers become investors, many of whom depend on reselling via secondary streetwear markets as their primary source of income.

All this notwithstanding, Supremes’ achievements are difficult to replicate from a business perspective. Their success is down to unpaid celebrity endorsements and excellent product placement as much as it is carefully orchestrated strategy and it’s their nicheness which enables them to operate differently to their non-streetwear counterparts. However, with consumer preferences ever changing, it is valid to question the sustainability of Supremes’ ‘hype’ oriented business model, with sceptics claiming it’s a situation of the Emperor’s New Clothes. But in the meantime as April’s oil prices take a plunge, I can’t help but think that a box logo or two on each barrel might be enough to help prices recover.

References:

Gauge, J., 2020. Justinsgage.com. Available at: <http://justinsgage.com/topics/ streetwear-market.html>

Gebel, M., 2019. Detroit-Based StockX To Hire 1,000 With $44M Investment. [online] Eu.freep.com. Available at: <https://eu.freep.com/story/money/ business/2018/09/13/stockx-detroit-jobs/1287927002/>

Kruger, J., Wirtz, D., Van Boven, L. and Altermatt, T., 2004. The effort heuristic. Journal of Experimental Social Psychology, 40(1), pp.91-98.

Leeb, L., Menendez, E. and Nitschke, D., 2019. Streetwear: The New Exclusivity. PwC. Available at: <https://www.strategyand.pwc.com/gx/en/insights/2019/ streetwear.html

Mason, R., 1992. Meaning, Measure And Morality Of Materialism. Salford: Department for Business and Management Studies, University of Salford, pp. Pages 88-95, Modelling the Demand for Status Goods.

O’Brien, G., 2009. James Jebbia Is Supreme - Interview Magazine. Interview Magazine. Available at: <https://www.interviewmagazine.com/fashion/jamesjebbia-is-supreme>

StockX, 2020. Available at: <https://stockx.com/adidas-yeezy-boost-350- turtledove>

Veblen, T., 1899. The Theory of The Leisure Class. 1st ed. USA: Macmillan.

WallStreetMojo. n.d. Veblen Goods (Definition, Example) | Demand Curve of Veblen Goods. Available at: <https://www.wallstreetmojo.com/veblen-goods/>

Figure 3: (StockX 2020)