Fast-growing Detroit startup StockX sniffs out fake sneakers

JC Reindl | Detroit Free Press

Show Caption Hide Caption StockX is growing fast in Detroit The company is up to 370 employees and is handling $2 million a day in transactions. It launched just over two years ago.

The pair of allegedly rare Air Jordan sneakers arrived last month to the bunker-like Authentication Center of StockX, a Dan Gilbert-backed company that is one of Detroit's fastest-growing startups.

The black-and-red Jordans were purportedly from 1995. For sneakerheads who collect such things, that's close to antique.

If these shoes were authentic, they might fetch $500 on StockX's online marketplace, which functions like a stock market for the re-selling of hard-to-find sneakers, sportswear, watches and handbags.

But this pair didn't pass the smell test.

One of the center's "authenticators" took a whiff of the Jordans and immediately knew something was off. Smell is one of the 25 to 30 indicators they can use to distinguish a legit shoe from a cheap knockoff.

"It just had a very distinct smell that we hadn't smelled before," recalled sneaker authenticator Sadelle Moore, 31, of Detroit, "so we knew automatically that was fake."

This army of dozens of merchandise authenticators form the backbone of StockX and its effort to become the world's leading resale marketplace for scarce consumer goods.

Launched in February 2016 with just a handful of employees, StockX has grown to 370 employees, including about 40 workers at its western U.S. authentication center in Tempe, Ariz.

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The company says it currently processes thousands of pairs of shoes a day and handles about $2 million in daily sale transactions. It plans to open new centers in New Jersey and London this year.

StockX CEO Josh Luber, 40, said one of the company's latest challenges in finding enough people to hire.

"There are 200 people we’d hire tomorrow, if we can find the right people," Luber said. "We’d triple the engineering team, we’d double the authentication team, we’d double the customer service team. That is just part of hyper-growth.”

StockX is headquartered on the same floor as Gilbert's personal office in downtown Detroit's One Campus Martius building. It recently moved its authentication and operations staff to additional space inside the Quicken Loans Data Center, 1401 Rosa Parks.

Roughly 70 percent of StockX's merchandise is currently sneakers, followed by about 20 percent streetwear and about 5 percent watches and handbags. StockX only sells authentic sneakers that are unworn and in their original box.

The company says it overtook eBay last year for sneaker resales. Its competitors also include online sellers and platforms such as GOAT, Grailed, Flight Club and Stadium Goods.

There is significant money in reselling sneakers. Shoe companies intentionally produce limited quantities of desirable models, such as the latest Adidas Yeezy or Air Jordans, which makes it hard for consumers to buy a pair before inventories sell out.

Similar to the dynamics of event ticketing, this confluence of small supply and big demand creates a market of people who are willing to pay lofty sums for a must-have commodity. Hot sneakers can sell for hundreds or sometimes thousands of dollars above their original retail price.

StockX's innovations include its elaborate authentication process and unique sales platform that functions like a stock market.

The way the platform works is buyers place bids and sellers place "asks." When a bid and ask match, a sale occurs automatically. StockX then tracks and graphs the completed sales, showing the current and historical market value of a particular sneaker, watch, handbag or other item.

StockX takes a 9.5 percent cut of each sneaker transaction, with the fee lowering to 8 percent for high-volume sellers.

Similar to what Kelley Blue Book is for used cars, StockX has already become a leading gauge of market value in the sneaker resale world — even for transactions that don't happen on the StockX platform.

That dynamic was on display June 30 at a sneakers and streetwear trade event called the Michigan Sneaker Xchange in Cobo Center. The event, which was sponsored by StockX, was jammed with sellers displaying like-new and lightly worn merchandise with price tags that could hit several hundred dollars or more.

Many in the crowd of buyers were teenage boys. Some looked no older than 12.

Sneaker seller Mohamed Ibrahim, 21, of Toledo said it's common to see buyers check the price of a shoe on StockX.

"Everyone references StockX when they're at these events," Ibrahim said. "They'll pull out their phone before they'll even think about purchasing something."

Sellers typically like how StockX uses stock photos and standardized descriptions for merchandise, which makes the sales process easier for them than platforms requiring photos and written descriptions for each item.

Roland Coit, 39, of Pontiac has sold as well as bought shoes through StockX.

His purchases included a roughly $700 pair of black Air Jordan 4 Retro X Kaws and a pair of Yeezy Wave Runner 700s for which he paid under $500.

"The dope thing about it is you know it's real and you don't have to worry about counterfeit or anything like that," Coit said.

Not everyone at the sneaker event was a StockX fan. The owner of a Columbus, Ohio, store called Addicted 2 Kicks, who would only give his Instagram nickname "Juice," said he stopped selling on StockX because it forbids worn shoes, which he often sells. StockX only allows so-called "deadstock" shoes in never-worn condition.

He instead sells on rival reseller website GOAT.

"I was making a lot of money with StockX at first, but they got too many stipulations," he said. "They suspend your account, a lot of BS they put you through, and I had no problem with GOAT. I'm making crazy money on there."

The startup story

StockX emerged from the foundation of Luber's earlier Philadelphia-based startup called Campless. That company launched in 2013 and used eBay sales data to produce a price guide for sneakers that was the first of its kind.

It even was used by insurance companies to write policies for large sneaker collections. However, Campless was not a sales platform.

“My idea was, 'Look, eBay is the largest marketplace. That seems inefficient, and it also seems crazy how you look on eBay and one shoe is selling for $1,000, and the other shoe is selling for $400. What’s the right price?' " Luber recalled.

By 2015, Gilbert, who founded Detroit-based mortgage giant Quicken Loans and owns the Cleveland Cavaliers NBA team, was looking to start a business to test an idea he had for a "stock market of things" for consumer goods in a marketplace using real-time trades.

He tapped Greg Schwartz, an entrepreneur he had backed through his venture capital fund, to help set up the business. They decided that sneakers would be a good first product to demonstrate the stock market concept.

But neither Gilbert nor Schwartz felt they knew enough about sneakers. So they reached out to Luber, then living in Philadelphia.

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Luber, who owns a personal collection of more than 350 pairs of sneakers, recalled being pleasantly shocked to hear how Gilbert and Schwartz shared his own long-desired goal of using sneaker sales data to operate a stock market-like platform.

All the other corporate executives Luber had sat down with simply wanted to incorporate his sneaker data into their existing business models, he said.

Soon after, Luber sold his company to Gilbert and moved to Detroit to start StockX.

"Dan is a cofounder in this," said Luber, whose office attire is often backward baseball caps and hoodie sweatshirts. "He’s not like the billionaire investor who wrote a check. He literally had the same idea.”

Gilbert financed much of StockX's early growth. Other investors have included Eminem, actor Mark Wahlberg, Pittsburgh Steelers cornerback Joe Haden, entertainment executive Scooter Braun and fashion designer Jon Buscemi, among others.

Biggest sales

The asking price for StockX's sneaker inventory last week ranged from a $40 pair of tan Vans to $25,000 for the auto-lacing Nike Air MAG "Back To the Future" shoes. The ultra-rare MAGs came out in 2016. Just 89 pairs reportedly were made. So far, nine have resold on StockX; the highest sale price was $32,275 for a size 11.

Teko Harmon, a manager for the authentication center, said the staff will wear white showroom gloves for extra careful handling whenever a pair of Air MAGs arrives.

Other shoes with big-dollar StockX sales include the University of Michigan-themed Air Jordan 5 Retro ($4,500); Air Yeezy 2 Red Octobers ($9,600, originally $250 retail) and the "rust pink" Air Jordan 1 Retros ($2,400, originally $160 retail).

No fakes guarantee

Weeding out replica sneakers from authentic originals is key to StockX's business model. The company guarantees that the merchandise it ships is "100 percent authentic." So if too many knockoffs were to get through and customers then complained on social media, StockX's brand would suffer.

Luber said there are strong incentives to make knockoffs of rare sneakers and pass them off as genuine.

"It's a really big business because of the margins that these fake factories can make," he said. "They can make a fake shoe for $40 in China and sell it for $1,000 on eBay."

Ebay does not authenticate resold sneakers.

When StockX started two years ago, about 15 percent of the sneakers it received from sellers turned out to be replicas or fakes. Nowadays, the company says that figure is down to about 2 percent.

StockX bans sellers from its platform that willfully or repeatedly attempt to sell fakes. Would-be buyers whose orders are stopped by the discovery of a fake get refunds if no similar item is available.

"Because we check, most people don't even try to send fakes through us," Luber said. "Most of the fakes that we see are people that generally don't know they have the fakes themselves. Because if you have a fake shoe and want to scam somebody, you are better off going to eBay, somewhere where people aren't in the middle checking."

On the Reddit.com community Repsneakers, which focuses on replica sneakers, a few people have claimed to receive knockoff sneakers from StockX.

One user named "bwheezzyy" wrote, "there’s really no way to trust that someone is going to authenticate your shoes, especially when it’s such a madhouse there and they have to check so many shoes."

Those who alleged to have received fakes said that after they notified StockX, the company gave them a full refund and a $20 discount code for future purchases.

Legit check training

StockX sneakers authenticators go through a 90-day training period. They study a company "fake book" showing telltale signs of knockoffs. They also examine actual fake sneakers that StockX encountered in the past, such as the infamous "Yeezy Supremes." (Such a shoe was never officially released.)

"We bring in fake sneakers, we rip them apart, we note every single difference between all of them. And then we teach people, 'Here are the real ones, here are the fake,' " Luber said. "It could be different color stitching, it could be different materials, it could be different packaging. Sometimes it's the box."

And sometimes it's the smell.

Learning how to smell a knockoff is part of the training and legit check process.

"The first thing that every authenticator does with every shoe is they smell the shoe, because the glue on the fake shoes usually has a much more distinct smell," he said.

Many of the factories producing knockoffs are believed to be in China and Vietnam, he said. Some are even said to be located next door to factories producing authentic versions of the shoes they are ripping off.

Luber has yet to tour a factory that makes fake sneakers, but he hopes to someday.

"It's one of those things that is on my bucket list as a sneakerhead that I want to go and see," he said.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.