Footlocker’s Best Move: Investing in GOAT

On Feb 7th, Footlocker announced that it invested $100 million in GOAT Group, which owns sneakers marketplace GOAT and Flight Club. Prior to this investment, Footlocker was a largely mall-bound retailer with a linear online store. Now, with one deft investment, Footlocker pivots towards the future of retail, which combines omnichannel shopping with marketplace business models.

According to TechCrunch, “The companies said that the investment would eventually lead to Foot Locker and Goat Group combining their efforts across their digital and physical retail platforms.”

We’re eager to see if this means Footlocker has right of first refusal to acquire GOAT down the line. If it did, it would be joining an impressive list of traditional companies that have acquired platforms with success. Nonetheless, the benefits of investing in (and maybe later buying) a platform business are clear and instructional for other companies looking to build or acquire a platform of their own.

Footlocker taps into the “hidden” market

GOAT primarily serves a market of highly passionate sneaker collectors who are on the hunt for good deals and authentic luxury brand sneakers (think Air Jordans). Forbes described this market as the “hidden sneaker market”. And it’s profitable. A pair of Air Yeezy’s sold on eBay for $9,000.

We’ve written before about sneakerhead startups StockX, GOAT, and Stadium Goods (acquired in December 2018 by Farfetch, a luxury marketplace) that sell with these impassioned collectors in mind. While sneakerheads have always browsed Footlocker for deals on new collectible sneakers, Footlocker (and its traditional competitors) never catered to this type of customer directly. That’s why specialized marketplaces like GOAT were able to crop up and thrive in the service gaps left by both traditional retailers and commerce giants like Amazon.

Through partnership with GOAT, Footlocker can cater to customers that are arguably the most engaged in the sneakers industry. And it will do so through a sneakers marketplace wherein Footlocker itself doesn’t need to anticipate the full demand of sneakerheads. This cannot be overstated as a huge benefit of the marketplace model when catering to very niche customers. Keeping up with which styles are up and which are down, which will fetch a high price and which will only be purchased under retail price, is an important game for Footlocker to understand, but also one with a high margin for error. In addition, this niche market of collectors insists on authenticity and GOAT pioneered the ship-to-verify authentication process for shoes sold on its marketplace. It’s brand rests heavily on its ability to make online sneaker shopping ‘safe’ from bootleggers. That’s a large knowledge gap for Footlocker to fill. By investing in GOAT, it acquires part of that knowledge directly.

In addition, with a marketplace, third-party sellers can meet demand that Footlocker cannot meet or anticipate. By doing so, GOAT’s marketplace keeps collectors happy and loyal to that marketplace that has what they’re looking for every time, no matter who sells the shoe, and with an important authenticity guarantee.

Why investing in a sneakers marketplace was better than building

When considering whether to build or buy, look at the current startup platforms in your industry and ask “Is anyone about to take off in a big way?” If so, look to invest in or buy them first.

Without a doubt, the best way for Footlocker to expand into a marketplace business was through an investment (and later, we hope, an acquisition). GOAT has had incredible traction in the past year alone. Again, from TechCrunch,

In 2018, several top sellers on GOAT sold more than $10 million worth of sneakers, up from $2 million in 2017, according to the company. GOAT Group now counts more than 600 employees, up from 200 a year ago, with 12 million users currently active on the platform. That figure is up massively from last year, when 2.5 million folks were on the platform. …GOAT has raised $197.6 million since it was launched it 2015.

Were Footlocker to build their own sneakers marketplace, they would be chasing a rocket ship as its own newborn platform was just learning to crawl. When considering whether to build or buy, look at the current startup platforms in your industry and ask “Is anyone about to take off in a big way?” If so, look to invest in or buy them first. The catch-up process of building a platform and then the fierce competition that follows to cling onto a market share that turns a profit will be painful.

However, in a deeply fragmented market with no clear winner or rising star, a traditional company like Footlocker (in the years before GOAT even existed) may have had the right resources and supply chain network to build a marketplace that catered to this niche client. Unfortunately for Footlocker, that time came and went years ago, but other industries such as logistics or health insurance are still operating in the sweet spot where a traditional company can build a platform business of their own at a price point far below what a startup acquisition costs these days. (Sign up for our newsletter below to get started with our platform design toolkit for some tips on how to build a platform.)

GOAT benefits too in a rare win-win

But the benefits aren’t all for Footlocker. This was a smart move for GOAT too. Footlocker’s deep, decades long relationships with big sneakers brands like Nike and Adidas means that GOAT can benefit from a larger resource and funding pool, better deals with suppliers, better inventory, and even exclusive limited releases aimed at its niche customer base.

This complementary win-win dynamic between traditional corporate strengths and platform business strengths is at the core of why we believe that whenever traditional businesses are talking about corporate innovation, they should be talking about platforms. A platform would help a traditional company tap into a quickly growing customer base through network effects, and the platform would benefit from the traditional company’s large resource and funding pool, supply-side relationships, logistics network, and business acumen.

This win-win partnership is certainly true of GOAT and Footlocker. If they integrate their operations smoothly, StockX and Stadium Goods will have a hard time competing with GOAT.

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