Retail’s 2017 Trend of the Year: Hypebeast Arbitrage

Hypebeast arbitrage was retail’s 2017 Trend of the Year.

Even in a retail year marred by increasing store closures and bankruptcies, one phenomenon is bucking that trend. The oldest strategy in the hype business — giving buyers an opportunity to speculate and profit in the secondary market — has resurfaced in a big way in the Technology Age. Think Beanie Babies meets cryptocurrency ICOs.

Let’s call the phenomenon what it is: hypebeast arbitrage is the simultaneous buying and selling of extremely popular merchandise to exploit differing prices in the market. The hyped merchandise generally are birthed through a scheduled “drop,” a strategic, highly-choreographed manna release from high above Madison Avenue at volumes and prices far lower than would be justified by demand. Instant sellout and hype are inevitable, though it’s not quite clear which of these two was engineered first. Look behind the curtain and you might find a math wiz optimizing the relationships between retail price, secondary price, release volume, number of retail outlets, and distribution of stock keeping units.

Online drops of merchandise by some brands routinely cause Internet traffic jams with buyers stranded in screen-refresh purgatory for hours. At physical drops (example: Adidas and Kanye West’s Yeezys), the queues at outlets are reminiscent of iPhone releases — replete with camping chairs, street vendors, television crews, and a carnival vibe — except that the people are standing in line hoping to win a lottery ticket just to get into the store. The Supreme store in Manhattan is a phenomenon unto itself, with a perpetual one hour line of hand-stamped acolytes waiting to pray at the altar of limited-availability consumerism — retail therapy turned into a Disney ride.

Those fortunate to get to the front of any of these queues face a difficult decision: purchase an item to use personally, to store it in original packaging for investment — known an “deadstock” in street parlance — or to flip in the secondary market. The arbitrage is akin to how scalpers historically have played the event ticket market. The secondary buyer might be a friend or a bid on one of the highly liquid, well-functioning online exchanges (example: StockX).

This final piece of the puzzle is what makes the whole strategy work. The quality of the product, albeit often excellent, is secondary to the quality of the secondary market. The reliable liquidity has turned two groups that have historically been economically disenfranchised — teenagers and the urban poor — into hypebeast arbitrageurs who convert their time into cash by tapping into the purses of those who hold the purse strings.

In some ways, hypebeast arbitrage is a supremely American idea: egalitarianism, entrepreneurship, and shopping. On the other hand, it relies on a feature more commonly associated with grainy photos from non-capitalist countries: breadlines. Alas, after all the work Jeff Bezos has done to help us shop in the prime of our pajamas, we are back to standing in breadlines because we can’t help ourselves: the sizzle is the sizzle, in a self-referential, Kardashian sort of way. Perhaps nothing says where we were culturally in 2017 better.

[This article was originally published on Medium]

© 2017 Joon Yun