Foot Locker Invests $100M in GOAT Group to “Stay Relevant with the Digital Consumer”

Foot Locker

Foot Locker has invested $100 million into GOAT Group (co. has raised $197.6M since ’15), the parent company of secondary footwear marketplaces GOAT and Flight Club; in a move that that CEO Richard Johnson says will help the company “stay relevant with [the] digital consumer.” GOAT boasts of having over 12 million active users on its platform. In addition to the capital, Foot Locker will bring its 3,200 stores (across 27 countries) to the strategic partnership; despite selling $10 million worth of shoes in 2018, GOAT Group has just 2 retail locations (Flight Club NYC, Flight Club LA). It’s been estimated that the Foot Locker investment was made at a valuation between $400 million and $500 million.

Howie Long-Short: Richard Johnson said the company would “leverage GOAT Group’s technology to further innovate the sneaker buying experience”, but it’s unclear how resale technology would benefit a mass retailer. As NPD Group retail analyst Matt Powell told me, “Foot Locker already has an established e-commerce business – they know how to sell one pair of shoes at a time and ship it to the customer. From a strategic standpoint, this partnership is more about deep learning of another facet of the athletic shoe business. FL can now begin to really track retail vs resale pricing and compare that data against the quantities that they are able to purchase.”

The GOAT Group investment also gives Foot Locker a chance to diversify in a tangential business – that is still growing. But with sales and interest in athletic shoes on the decline, it’s worth wondering if FL is late to the party.

Matt agreed saying, “it’s noteworthy that GOAT Group and Stadium Goods [which took a $250M investment from FarFetch] were looking to sell. My sense is that the meteoric growth the secondary markets experienced throughout the first few years has started to temper and that the early occupants of the space now see it as the right time to cash out.”

Sellers listed 750,000 pairs of rare athletic and lifestyle sneakers for sale on GOAT in 2018, up from 250,000 the year prior, but the increase is not indicative of a robust secondary market as much as there’s just a lot more people selling than buying right now. When GOAT launched in ’15, sellers were unnerved about sending valuable shoes to a warehouse for authentication (company keeps 10%-30% for its troubles). The company has managed to calm those fears by building a trustworthy reputation, so more people are now listing shoes for sale. The rise of profiteers has also contributed to the growing number of sellers. Historically collectors sold to other collectors, but now there’s also a business to consumer component to the marketplace.

While perhaps not the motivating factor, Foot Locker’s partnership with GOAT Group should also serve as a traffic builder for their brick and mortar locations – even if the inventory on hand is limited. As Matt told me, “while most of the industry’s growth is e-commerce based, people continue to tell [NPD Group] that they prefer shopping in physical stores because they want to touch and feel the product. With expensive limited edition shoes, buyers may want to see them in person before making the purchase.”

The sneaker resale market may have peaked, but GOAT Group still has plenty of upside. Matt explained, “once a company is established and has the authentication and handling parts of the process down, it really opens the business up to sell anything – postage stamps, watches, designer handbags; the GOAT platform can work across multiple product categories. We’ve already seen Stock-X introduce new verticals. They have a substantial watch business in addition to their core sneaker business. You’re going to see more and more of these resale sites offering a broader range of products.”

Fan Marino: Foot Locker has been active of late within the investment space having also taken equity stakes in Carbon38 (female athleisure), Super Heroic (children’s lifestyle) and PENSOLE (footwear design academy). Matt told me that the GOAT Group investment offers the greatest commercial upside (he thinks Super Heroic could be valuable too), but that “conceptually, the relationship with PENSOLE is the most exciting thing FL doing. Not only do we need to teach people how to design shoes, but we need to bring more people of color into the industry. The statistics are staggering white on the product side and they lean heavily towards people of color on the consumer side.”

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Author: John Wall Street

At the intersection of sports & finance.

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