Bull Case Bear Case: Yeezy 350 Sneakers Complete Set

Welcome to the latest edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence!

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2015 - 2020 Yeezy 350 Sneakers Complete Set

Rally

4/28 @ 12:00PM ET

Valuation: $40,000

‍Bull Case

• Landscape-shifting sneaker. Arguably no sneaker was more culturally relevant in the late 2010s than the Yeezy 350. While Adidas and Kanye West marked their new partnership with the launch of the Yeezy 750 in 2015, it was the Yeezy 350 that catapulted the brand to the forefront of the sneakerhead’s consciousness, leading the charge for the now ubiquitous Adidas BOOST foam. For what felt like the first time, it wasn’t a Jordan or Nike sneaker gracing celebrity feet, selling out instantly, and demanding massive resale markups. While Yeezy was and still is a relatively small portion of Adidas revenues (<10% as of 2020), the harder-to-quantify impact on the brand's standing was immense. Adidas became the most popular sneaker brand on Instagram in 2015, no small coincidence, and the beginning of the partnership coincided with a highly successful period in financial growth for the company over the next five years. As time has passed, the 350 model has remained one of the most widely-appealing in the YZY line, and it’s beloved enough to consistently debut in new colorways or restock today and sell out swiftly. Unquestionably, when people think of the key, iconic sneaker models of the 2010s, the 350 will be right towards the top of the list, if not alone at the top. 

• Consistent resale stalwart. While the 350 hype has surely faded since the intensity of the years after it first debuted, it remains a sneakerhead standard. That of course means that it remains a resale favorite. There is just one sneaker in this collection that can be had below the $220 retail price in any size on StockX (sorry, “Carbon”, the truth hurts). On average, they sell for over $200 above retail. That the model has retained sufficient demand and excitement to continuously sell for those strong premiums, colorway after colorway, release after release, suggests that it has indeed carved out a special place in sneaker culture. Should that continue, it could bode well for the set here, which harkens to the now-icon’s earliest days. 

• Ready-made set. While each of the sneakers in the collection is generally readily available across popular resale marketplaces, the allure of a one-stop shopping experience for future buyout candidates may be worth noting. Many of these sneakers are approaching 6 years old, and due to the model’s popularity, particularly in the late 2010s, knock-offs are a threat. Fake Yeezys were particularly prominent in the mid-to-late 2010s, and though authentication processes and services have improved, so too have replicas. So, the existence of a well-composed, authenticated set (authentication performed by industry expert LegitCheck), with provenance from Christie’s may appeal to a collector versus individually buying and managing 57 pairs. There is precedent for a set selling well at auction relative to the sum of parts. For example, a set of "The Ten" Off White Nikes recently sold at Sotheby's for $35,280. That's a 35-45% premium to the sum of the individual sneaker values (do note that those were unique circumstances following the passing of Virgil Abloh). This very set of 350s sold at a premium at Christie's, but more on that in a moment...

Bear Case

• The whole vs. sum of the value of parts. Based on the most recent sales on resale markets, the sum of the values of each of the underlying sneakers in the set ranges from $22-28k. Now, at the average price of approximately $450, one would have to pay a resale marketplace between 7-15% in additional fees relating to processing, shipping, and tax. Even taking the high end of the summed range and the high end of the additional fee, the total still reaches just $32k. $32,000 is listed as the cash portion of the asset cost in the offering circular, though Christie’s lists the auction sale as $37,500. In any case, the valuation at $40,000 builds in a substantial premium to the cost to acquire what actually is a fairly liquid collection of sneakers on the open market. We have frequently seen sneaker collections trade fractionally at less than the sum of their parts, and those assets have an average ROI to date of -2.92%. Note: the sizes in this collection vary considerably, ranging from UK 8 to UK 10.5 (that’s 8.5 to 11 US), which means if size is of no concern, a collection can be built manually with even greater ease. Additionally, with new colorways continuing to release, does a collection that ends with 2020 releases require further build-out?

• Already democratized. Kanye West has long noted his aspirations to democratize access to the Yeezy line, given the difficulty in acquiring the products at retail price. Adidas management has publicly shared these aspirations with West, and business decisions have reflected that effort…to an extent. Restocks of various colorways of the 350 (among other models) have become fairly common in recent years; already this year, the “Zebra”, “Oreo”, “Core Red”, and “Blue Tint” colorways have either returned or been slated to return. Notably, when a colorway of the Yeezy 350 is restocked, it is not listed under a separate product on StockX and GOAT, meaning that 2016 releases are effectively treated the same as 2022 releases. This means there’s little benefit to owning the initial production run (at least at present). To the extent democratization continues - keeping in mind brands always carefully manage supply to sustain brand heat - it could limit the upside of the collection. The “Zebra” is perhaps the most re-released colorway, and its value has consistently and precipitously declined over the last 5 years, from heights over $1,500 to today’s value of around $275. There is no guarantee that even the scarcest sneakers in the collection will remain so, and restocks will remain a threat to the valuation.

• Stagnant to declining values. The “Zebra” colorway is not the only one to decline in recent years. Far from it. The debut colorway, the “Turtledove”, which has not restocked (but allegedly will this year), is down slightly over the last year from the $1,650-1,750 range to the $1,250-1,450 range. That’s typically the most expensive sneaker in the set. The second most expensive sneaker, the “Pirate Black” colorway, is trading effectively right where it was a year ago. Similar statements can be made about the early “Moonrock” and “Oxford Tan” colorways, though there is very mild appreciation in some cases. Absent restocks, the pattern is largely similar across the set: a spike after release before correcting to lower levels, mild appreciation, and then stagnation or decline over the last year. While the significance and widespread adoption of the sneaker over several years means 350s will not soon be bargain purchases, they appear to be less in vogue at the moment, and the days of widespread, rapid appreciation may be in the past.

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