Sniffing out fakes: Authentication the ‘secret sauce’ to explosive growth of sneaker resale markets StockX, GOAT (2024)

Mike Kotila is a “sneakerhead” from suburban Detroit and in 2012 he sold off a hundred pairs from his collection to raise $5,000 to buy an engagement ring for his now-wife.

That was before the recent proliferation of collectible sneaker resale markets such as StockX, GOAT, Grailed, Stadium Goods and Flight Club. He wishes they had been around seven years ago.

“Absolutely it would have been better. Not necessarily easier, since I sold the hundred pairs in a single transaction, but I would have gotten a lot more money,” said Kotila, 45, a banking industry vice president whose shoe collection today numbers about 200 pairs.

In addition to a better sense of market pricing, as important to shoe buyers and sellers such as Kotila is the peace of mind from the authentication processes that some of the sneaker marketplaces established to combat the flood of counterfeit Jordans and Yeezys and other much-sought-after kicks.

“Before StockX, I had a couple experiences when I bought a shoe on eBay only to get it in the mail and discover it was fake,” said Kotila, who began collecting shoes in 1986 with a pair of Air Jordan 1s.

The anguish of opening a box to discover a pair of fakes has happened to untold numbers of collectors, so companies seeking to carve out a slice of the $2 billion sneaker resale market have each adopted authentication practices to instill consumer confidence. The intent is to take the uncertainty out of buying shoes, where it can be difficult to avoid counterfeit shoes in sneaker-based Facebook groups, subreddits, Craigslist, eBay or in one-on-one sales.

One of the shoe industry’s leading analysts said the authentication efforts, along with the ease of the online buying-selling experience, put the secondary sneaker market into overdrive.

“Authentication rocketed the market to what it is today,” said Matt Powell, a senior industry adviser specializing in footwear for Port Washington, N.Y.-based retail analysts NPD Group Inc. “It’s created a whole new class of consumers that are flipping shoes. Authentication means a ton. It really is the secret sauce in all of this. It really has taken collecting to a whole other level.”

Detroit-based StockX, in particular, has drawn a lot of attention for both its business model – it serves as a sneaker exchange not unlike a commodity market in that sellers and buyers each set a price and transactions occur automatically when they match for each shoe – and for its comprehensive authentication efforts.

The company launched in early 2016 and now has six authentication facilities and is considering more as part of overseas expansion. Sellers on StockX must mail unworn shoes to the centers in Detroit, New Jersey, Arizona, Atlanta, London or the Netherlands, where they are inspected by specialists trained to sniff out – sometimes literally – counterfeits. If they pass muster, they’re repackaged and shipped to the buyer. The whole process takes a single day if the shoe passes the authentication tests. (Disclaimer: StockX chief investor and co-founder Dan Gilbert holds an ownership stake in Courtside Ventures, which in turn holds a minority interest in The Athletic.)

“We make an incredible effort to make sure every product that passes through is 100 percent authentic but also the right size and condition that the buyer is expecting,” StockX COO and co-founder Greg Schwartz said.

Counterfeits, from the absurdly fake with misspelled brand names to the near-replicas that require intricate inspection by trained specialists, have been the bane of the sneaker industry for years. Shoe and apparel giant Nike two years ago partnered with Amazon in a bid to curtail the amount of fake or third-party merchandise on the e-commerce giant’s site, but recently abandoned the effort for lack of success, according to industry reports.

If Amazon and eBay are fraught for buyers wary of fakes, the dedicated sneaker resale markets offer varying levels of authentication.

StockX allowed The Athletic to briefly tour its authentication facility in Detroit’s Corktown neighborhood. It’s a nondescript newer building behind tall security fencing, and it shares space with data center for Gilbert’s Quicken Loans business.

On a typical weekday, bulk shipments filled with shoe boxes of every variety arrive at one end of the 20,000-square-foot facility. The boxes are immediately sorted and distributed to the platoon of authenticators, each at a stand-up station equipped with a computer, black light sensor and other tools for the job. Once through that process, the boxed shoes are moved via carts to the other end of the factory-like floor where they’re repackaged, labeled and shipped to the buyers.

StockX won’t disclose how many pairs of shoes that it’s processing other than to say it’s “thousands” every day and that has led to a $1 billion gross merchandise value run rate, i.e. the total value of sneakers and other products processed through StockX annually. The actual revenue the company makes from that is a smaller total generated by the fees it collects on each sale. It did say revenue has doubled over the past year.

There are about 20 authenticators at work at any one time in Detroit, and more than 100 work for the company worldwide among its 1,000 employees. They must complete a 90-day course to learn the basics of shoe authentication before taking the floor, and it takes two years to rise through the ranks to become a senior authenticator. Details about counterfeits are kept in a reference database nicknamed the “fake book.”

Cameron Lamberti, 31, has been at StockX for two years and is now a senior authenticator and handles quality control. He estimates he has examined more than 200,000 pairs of shoes.

Lamberti displayed a legitimate and a counterfeit pair of Jordan 1 Retro High Off-White Chicago shoes, which retailed for $190 when they debuted in 2017 and now typically resell for $3,000 to $4,000 on StockX. While the shoe appears near-identical to the untrained eye, Lamberti revealed the subtle differences such as lack of natural discoloration on what should be a two-year-old shoe. A slight variation in sticker letter on the box also was a warning.

The authentication process begins with the box. Is it the correct box for the shoe? Is the logo the right style? Is it embossed properly? Is the color of the box legit? The size, shape and spacing of the lettering on shoe size sticker is another check.

“(Authenticators) can tell right away from the box,” Lamberti said.

Next among the verification data points is the tissue paper covering the shoes inside the box. Is it the right color and consistency, and is it printed properly? Has it aged as expected on a vintage shoe? Then it’s basics – is it the correct shoe? Are there both a left and right shoe? Is it the size the buyer ordered? Tags and stickers are checked. So are laces. Does the shoe smell new or odd?

“They’re looking at anywhere from 30 to 40 different aspects of the product, from the box and tissue paper down to the glue and even the smell in some cases,” Schwartz said.

Material fades in time, so a fresh, bold color on some shoe fabric and leather is a giveaway that an older sneaker is likely a fake. Material quality along with trim and stitching are giveaways, although Lamberti said some counterfeit makers can acquire the same materials, cutting machines and templates as the originals because they’re located near the legitimate manufacturers overseas.

Most bogus kicks come out of Asia, particularly China and Taiwan, because that’s where the legitimate shoes are made. Counterfeiters sometimes are even made in the same building, according to Powell.

“There are hundreds of factories. There’s no rep from the brands camping out there. In many cases, they’re making one brand’s shoe next to another brand’s shoes,” the shoe industry analyst said.

Each sneaker coming through the StockX process gets a green plastic tag that has all the shoe’s information embedded within it via a hologram QR code, and all parts of the transactions are tracked along the way. And yes, shoes sometimes come into the authentication facility with fake green StockX tags, fake StockX stickers and fake StockX invoice cards. Lamberti held up a bag of a dozen or so such counterfeit chips just from a week of transactions.

StockX doesn’t disclose all parts of its authentication process for proprietary reasons. It guarantees shoes sold through its system are genuine or buyers get a refund.

Authenticators must identify three things wrong to flag a shoe as a problem, and they photograph them before sending them to a quality control station for further examination. Sometimes the seller is deliberately trying to pass off a fake. Sometimes, it’s an unwitting seller stuck with an inauthentic shoe. StockX dings sellers for fakes and refunds buyers if there’s a problem, which is standard across all of the sneaker marketplaces.

“We will give them the benefit of the doubt once,” Lamberti said.

Counterfeits tend to occur when there’s a hyped shoe that has recently debuted or is about to.

“We’re seeing (fakes) before the shoe even drops,” Lamberti said. He said some days he doesn’t see any fakes, then other days more than 20. It varies by what’s hot and the timing, he said.

A Travis Scott Jordan brand collaboration shoe that retails for $190 can quickly fetch $600 to $1,000 on StockX – a few have ask prices in the tens of thousands — so counterfeiters are quick to produce. Same for Jordan 1s and Yeezy 350s.

Another sometimes-faked shoe that StockX has seen come through is the Nike MAG shoes that are replicas of Michael J. Fox’s self-lacing sneakers from 1989’s “Back to the Future Part II.” There were 1,500 pairs created for a 2011 special auction release and just 89 from a 2016 auction. Now, they can sell for more than $20,000. The StockX app filters such high-end shoes in the process to more veteran authenticators.

The authentication procedures have driven most counterfeiters to less platforms such as eBay, according to Schwartz.

“They’re going to sell that product on a channel where this infrastructure is not in place,” he said. “There’s very, very little fake product that even enters the facility.”

StockX said that 99.9 percent of its transactions are completed without issue and most of that remaining 0.1 percent that is a problem after the authentication process is mistaken sizes, damaged boxes and counterfeits.

The company has said about 2 percent or less of the products sent to its facilities are fake, down from about 15 percent a few years ago.

Critics have occasionally accused StockX of allowing bogus sneakers through its vaunted authentication system, but company executives say it’s very rare and that StockX is constantly working to stay ahead of counterfeiters because its reputation relies on it.

StockX, like some of its competitors, also deals in an expanding range of goods such as upscale streetwear brands (Supreme and KAWS), luxury watches Rolex and Jaeger-LeCoultre, high-end Gucci and Louis Vuitton handbags, and collectibles such as rare trading cards and Funko Pop and Bearbrick vinyl figurines.

All of the shoe resale companies make money via payment processing fees and transaction or commission fees. In the case of StockX, it’s a 3 percent payment fee and a shoe transaction fee that ranges generally from 8 to 9.5 percent, based on volume sales and product legitimacy.

Rival sneaker resale market GOAT Group Inc., based in Los Angeles, operates a similar verification model as StockX. GOAT uses a model more akin to eBay for sales instead of matching buyers and sellers purely on price, but still requires the shoes to be mailed to an authentication facility before the transaction is completed. It said it uses both a machine-learning based scanning system to authenticate shoes and also human authenticators.

“In 2015, we pioneered the ship-to-verify model, where sellers ship the product to a GOAT facility to be authenticated, prior to shipping to the buyer,” said Eddy Lu, GOAT co-founder and CEO, via email. “We created this business model after my co-founder Daishin (Sugano) received a fake pair of Jordan 5 Grapes from eBay, and we realized that there was a huge number of people buying sneakers online unsure of their authenticity. Because of this personal experience, we are vigilant about providing our users with authentic products.”

GOAT’s authentication processes prevented more than $30 million in fraudulent transactions in 2018, and has exceeded that number in 2019, Lu said. The company also has drop-off locations in New York and Miami. StockX recently opened a New York City location, too.

GOAT merged this year with shoe consignment business Flight Club, but the brands maintain separate public-facing operations.

Another player in the sneaker resale industry is New York City-based Stadium Goods, an online and brick-and-mortar sneaker consignment operation that uses a human authentication process for unworn shoes. It declined to comment.

Also in New York City is Grailed, a shoe and streetwear marketplace which doesn’t authenticate products in person but instead uses online curators and self-policing.

Bump, a British marketplace similar to Grailed and with backing from Y Combinator, also relies on moderators to police fakes. Bump also allows buyers and sellers to message each other about prices.

Thanks in part to authentication, investors have taken a shine to the shoe resale market. StockX got a $110 million Series C funding round earlier this year from new and existing backers, which fueled a $1 billion company valuation, according to PitchBook. GOAT has received nearly $200 million in venture capital and other private backing including $100 million earlier this year from Foot Locker.

Powell said his rough calculations have the shoe resale market at about $2 billion while retail sneaker sales – people buying Nikes and Adidas directly from the companies or at shoe stores — last year in the U.S. were $44 billion.

Nike, Adidas and Ben Baller are among brands that have released special shoes directly via StockX in limited quantities, which allowed buyers to quickly set the market price while enjoying the security that the shoes were real.

While most consumers want legit Yeezys and Jordans and secondary marketplaces strive to weed out inauthentic listings, a subset of buyers are happy with fakes because they’re cheaper and often impossible for the untrained naked eye to differentiate from the real shoes.

“The consumer who is buying the counterfeit shoe is not paying anything close to the multiple people are paying for the real shoe,” Powell said. “It passes and it’s a heckuva lot cheaper than the original.”

He pointed to a recent survey by analysts CivicScience that showed 20 percent of online Nike buyers and 13 percent of online Adidas buyers knowingly purchase counterfeit shoes and apparel.

“A pretty good chunk of Nike’s target market doesn’t really care whether they buy the fake stuff, as long as it has the Nike branding on it and nobody can tell the difference,” CivicScience wrote.

Sneakerheads like Kotila in Detroit want the real thing. He used to use a StockX predecessor, historic price data tracker Campless, to track thousands of shoe prices, and today relies on the online marketplace to get even non-luxury sneakers because of the plague of automated bots that troll digital listings to scoop up shoes in a nanosecond.

“StockX has changed the sneaker game. Before StockX, there was no easy way for an average guy to get a pair of shoes once they sold out. Getting them at retail is not easy.Now for the right money, anyone can get pretty much any sneaker they want,” Kotila said.

(Photo of Lamberti: Bill Shea / The Athletic)