US sneaker scandal highlights how shoe-flipping system is rigged

Now, a scandal involving a Nike executive and her reseller son is roiling the sneaker world, highlighting worst suspicions about a booming market in which shoes can be traded like stocks. For serious sneaker collectors, this is more than a tempest in a shoebox.

"There's a lot of fraud. There's a lack of transparency," said shoe aficionado Chad Jones, who last year founded reseller marketplace Another Lane with his wife, Adena. The duo wanted a place that honored Black consumers' role in popularizing the sneakerhead culture while vetting seller legitimacy in addition to shoe authenticity.

The latest controversy sprang from a Bloomberg Businessweek profile of a 19-year-old Oregonian named Joe Hebert, who was clearing $20,000 (Dh73,460) or more a month flipping sneakers online.

The story, which appeared online Feb. 25, detailed how Hebert acquired sneakers using bots to make bids for him, including on Nike Inc's SNKRS app where the company launches new products. The payments went through an American Express card held by his mother, Ann Hebert, Nike's vice president and general manager of North American operations, overseeing sales, marketing and merchandising.

Nike initially said Hebert had disclosed her son's business as required and had violated no company rules. Joe Hebert told Bloomberg that his mother wasn't involved in his business and didn't slip him discount codes.

But with questions swirling about insider information and technological shenanigans, Ann Hebert soon resigned after more than 25 years with the shoe giant.

Nike Chief Executive John Donahoe on March 8 assured employees during a videoconference that the company was taking the controversy seriously.

"There's no value more core to who we are than the trust our consumers put into us and our brand and our products," Donahoe said, according to pop culture website Complex. "And the fact of the matter is, this incident has sparked questions in some of our consumers about whether they can trust us, particularly around launch product."

This wasn't the market's first scandal, not even so far this year.

A February collaboration between Nike's Air Jordan 1 and Trophy Room, a retailer owned by basketball great Michael Jordan's son Marcus, had a particularly messy debut, with shoes showing up on social media before the official drop date. Sneakerheads screamed favoritism and profiteering. Marcus Jordan blamed leaks on the distribution center.

In recent years, sneakers have become an asset class like stocks, bonds and cryptocurrency, becoming a multibillon-dollar market worldwide. They trade on a variety of reseller platforms; the best known include StockX, GOAT, Flight Club and Stadium Goods.

The marketplaces like to promote their extensive authentication processes so that buyers know that the items they end up with are the real deal.

But such efforts don't get at how the sellers acquired the shoes, and that's what is stirring up sneaker fans who don't think they're getting a fair shot at buying newly released products.

"This makes me want to drop the shoe buying game," a commenter posted on a YouTube interview featuring Joe Hebert in his new warehouse, surrounded by enough shoes to stock a few stores. Said another: "This man is the reason yall don't hit on your kicks when you want them."

Longtime sneakerhead Manny Cruz said the field has been flooded with big spenders who are only in it for the money. Shoe drops by Nike and other retailers have become a joke, said Cruz, a 38-year-old Paramount resident who works as a wholesale auto parts distributor.

"You won't be able to get the shoe to your cart or you won't be able to get to the checkout screen. You'll be sitting there, stuck on this screen for an hour. Meanwhile, the product is sold out. It's a waste of time," Cruz said.

Controversy is expected in any young market undergoing fast growth and wrenching change. And the sneaker-flipping business is seeing plenty of both, harkening back to the pre-2008 housing boom when speculators flipping houses helped drive up prices.

With pandemic stay-at-home orders, athletic footwear sales fell in March 2020 to the worst monthly results on record, said Matt Powell, senior vice president for sports at market research company NPD Group. But in June, athletic shoe sales rebounded to the best month ever, he said, rising 25% from a year earlier.

That's because people who didn't lose their jobs — freed of commuting and entertainment costs — had more disposable income and, in April, received the first of the coronavirus stimulus checks. Meanwhile, new resellers looking for a side hustle flooded the business, Powell said.

"They don't have any allegiance to the brand. They have no allegiance to the celebrity or the athlete. It's simply a chance to insert themselves into this market and that has caused the price of the shoes to go up for the collector and the true fan," he said.

To win hot new products, some resellers have turned to automated solutions, which can cost hundreds to thousands of dollars. That added cost only makes it more likely that bot users will strive for even higher prices on their shoes.

"To jump to the front of the line to buy limited-edition sneakers, it is easy to purchase any of the hypebots or sneaker bots available on websites like aiobots.com, hypebots.com or anothernikebot.com," according to the 2020 Bad Bots Report from cyber-security firm Imperva.

Nike CEO Donahoe, after announcing the Hebert-related management shake-up, acknowledged as much when he said: "We've been working on anti-bot technology for the last several years. That is part of the solution, but we need to double down our efforts."

Adena Jones, chief executive of Another Lane, said she and her husband raised $160,000 to launch the marketplace last April to restore some old-school sneakerhead culture where people, not bots, sell shoes to other people, not other bots.

Another Lane emphasizes investigating the people it allows to use the platform as much as authenticating the shoes that are sold on it.

"We vet our members. So you're not just out there being anonymous. Your name is connected to the product," said Adena Jones, 35. "And if you're selling a fugazi product [fake or damaged], A, you probably wouldn't make it onto our platform, or B, you would be kicked off our platform."

Added Chad Jones, Another Lane's 42-year-old chief operating officer, with a tinge of distain in his voice: "You know how you combat somebody who you think is getting too many pairs of sneakers and just in it to resell them for as much as possible? You don't buy from him. It's that simple. And then when he's stuck with $100,000 worth of product and can't pay that credit card bill back from mommy, then he's out."

Mark Ruszecki, who has a 500-pair collection, has been a sneakerhead since the late 1990s, when he used to meet up with guys he had come to know and trust in a local park and buy, sell or trade.

"It was about who you knew, and it was about context and connections," said Ruszecki, 42, a Los Angeles personal injury attorney and a partner in the law firm Javaherian & Ruszecki.

Ruszecki said he has soured on virtual sneaker drops. "You set a notification for 7am. You try to get a shoe. You assume there is some master computer back there figuring it all out, but I don't know what they are doing. Then almost immediately you get a popup that tells you you've lost. It's frustrating.

"Personally, I'm not going to play that. I don't need the hottest, newest shoe. I'm not 17 years old and I'm not on TikTok. I'm just going to buy the older shoes I've always wanted, without all the hype."

Others say it's not just about bot abuse of the shoe-drop system; it's that lack of transparency in how the apps work.

"This is another event in a string of events to where the greater sneaker community doesn't really trust the Nike SNKRS app," said Robert Mulokwa, founder and owner of KickPredict.co, an international platform where people interested in dabbling in the sneaker investment market can bet on whether popular sneakers will rise or fall in price.

"It's a big deal in this sense: Nike needs to become more transparent about how they award who wins and who doesn't win on the SNKRS app," Mulokwa said. "No one knows how it happens or what happens, and that's an ongoing thing."

Communicating with consumers is the key, said consultant Margot Bloomstein, author of 'Trustworthy: How the Smartest Brands Beat Cynicism and Bridge the Trust Gap'.

"We can blame the technology, but beyond just acknowledging a problem, Nike and other brands should explain what is happening with their raffle and shoe-drop apps, offering people a lot more detail so that they can understand it and be empowered by that information," Bloomstein said. "Then they also need to demonstrate accountability and explain exactly what they'll be doing so that this cannot happen again in the future."

This story originally appeared in Los Angeles Times.