How Does GOAT Make Money? Business Model of GOAT


How Does GOAT Make Money

When it comes to buying and selling sneakers online, GOAT is definitely the leader. What started as a place for sneaker enthusiasts to buy just their favorite pair of kicks has quickly grown into a legitimate marketplace — with some really cool features.

GOAT is one of the fastest-growing sneakers marketplaces in the world, now valued at $3.7 billion. For every sneaker bought on the platform, the team verifies it for its authenticity before it is shipped to the buyer, making it stand out from other sneakers marketplaces.

You’d think selling sneakers wouldn’t be as profitable as other businesses, but GOAT generates a lot of revenue.

So, how does GOAT make money? GOAT is a consignment marketplace for buying and selling authentic sneakers. GOAT makes money by charging a 9.5% commission on sales that it facilitates through its platform. 

In this article, we’ll take a deep dive into their business model and find out how GOAT makes money.

What Is GOAT and How Does It Work?

GOAT (Greatest of all time) is an online marketplace to buy and sell authentic sneakers via the web and mobile app. It accesses the secondary market as an intermediary between sellers and buyers, verifying authenticity for the buyer.

Based in 13 locations worldwide, their “ship-to-verify” model and buyer protection make them a trustworthy brand. Their selection ranges from trending releases in the present, rare collections from the past, and unreleased samples from the future.

They provide an experience that allows anyone to purchase the exact shoe they want at a price they are willing to pay.

Their business model works best when we connect the most passionate buyers with the most passionate sellers. Think of it in terms of supply and demand – if they can match up the right sneaker with the right customer, everyone wins.

 

How Does GOAT Make Money?

GOAT is a resale marketplace for authentic sneakers that enables sneakerheads to buy and sell authentic sneakers. GOAT makes money in the same way that most marketplaces do. It takes a percentage of each sale.

The business model of GOAT is pretty straightforward: GOAT makes money by charging sellers a fee for every successful sale. There are no listing fees, no subscriptions, and they don’t hold any inventory.

This is called the “revenue split model” because GOAT doesn’t own any of the inventory.

The seller fee is the same whether you’re listing an item at $100 or $1,000. The 9.5% commission fee will be subtracted from your final sale price before your money is deposited into your bank account. In other words, if you sell an item for $100, GOAT will take $9.50 out of your final sale price

All sellers start with a rating score of 90. And they have to pay a commission fee that is the sum of the platform’s 9.5% commission and an additional seller fee.

For every cancellation, they deduct 10 points from their rating. On the other hand, for every successful sale, they add 2 points to the rating.

Even when a seller’s rating drops, GOAT may charge them 9.5% if they successfully deliver authentic products.

GOAT currently does not make money by selling customer data or ads.

Seller RatingCommission Charged
Above 909.5% + seller fee
70 – 8915% + seller fee
50 – 6920% + seller fee
Below 5025% + seller fee or suspension

Note: The seller fee is different for every user depending on the location and the shipping address.

 

From Fake Air Jordans to A Trusted Reseller

College friends Eddy Lu and Daishin Sugano, a developer and designer, were serial entrepreneurs who had quit their corporate job to pursue ideas. They developed high-cost, low-quality apps when the iPhone came out and failed a few times.

In 2013, Sugano purchased a pair of Air Jordan 5 Grapes from eBay, which turned out to be fake. That is when sneaker enthusiasts Lu and Sugano identified a lucrative market for secondary sneaker brands.

The rise in counterfeit sneakers available created significant problems for brands, an issue that Lu and Sugano could solve through GOAT.

Two years later, in 2015, they founded GOAT to build a trusted marketplace for authentic sneakers.

 

GOAT, the Saving Grace for Sneaker Enthusiasts And Brands

Lu said nostalgia plays a significant role as collectors are sensitive about the story behind the shoe.

Collectors worldwide fancy rare sneakers and are willing to pay hundreds of dollars for them. But, they constantly fear counterfeit products.

Brands like Nike have been battling against fake products for decades now.

GOAT became a solution, not just a company, and gained popularity because they removed fear and replaced it with trust.

 

The GOAT Group

GOAT Group is the leading platform for authentic sneakers, apparel, and accessories comprising three major brands, namely – GOAT, Flight Club, and alias.

It conducts business in over 164 countries with 30 million members and 750 full-time employees. The GOAT Group headquarters in Los Angeles with two other corporate offices in New York and Shanghai.

The facilities operate from the UK and Hong Kong, with distribution centers in Ohio, New Jersey, Fontana, among many others.

Flight Club, who started the sneaker consignment game, operates from three physical retail locations on Fairfax in LA, Broadway in New York, and Miami.

 

GOAT Funding and Valuation

Initially, the company raised $7.6 billion in funding from Y combinator, Upfront Ventures, Andreessen Horowitz, and Reddit.

In 2017, GOAT merged with Flight Club and became the largest monopoly in the secondary sneaker marketplace. Despite the merger, the two brands operated independently, capturing different channels in the marketplace.

GOAT focused on web and mobile app sales, and Flight Club dominated the global retail and e-commerce market with its physical stores.

The GOAT group raised $60 million in funding through venture capital firms like Index Ventures, Webb Investment Network, Matrix Partners, Upfront Ventures, and Accel.

Although GOAT targets a niche market, it’s backed up by large investments. In 2019, Footlocker invested 100 million in GOAT, making it their largest investment in history.

A strategic investment aimed to create a seamless, frictionless experience for customers partaking in the secondary market. GOAT used the funding to scale operations and meet domestic and international demand. Footlocker leveraged GOAT’s technology to advance the sneaker buying experience. 

GOAT has recently raised another $195 million in Series F financing, a massive round that values the company at $3.7 billion, according to sources familiar with the deal.

 

How Does GOAT Verify Authenticity?

As per GOAT’s guide, sellers upload pictures of sneakers from different angles. Once GOAT approves the pictures, they post them online for buyers to bid on them.

When they have a buyer, GOAT asks the seller to ship the product.

Their first round of screening happens through a combination of different technology like machine learning and digital authentication.

The second round is an in-hand verification, where they check the product physically before sending it to the buyer.

 

Technology Usage

GOAT is a marketplace for the world’s most sought-after sneakers. It connects sneaker collectors with sneakerheads, allowing users to buy and sell authentic sneakers online.

GOAT’s technology allows sellers to list their shoes and get accurate pricing information in real-time without leaving the app.

 

Digital Authentication

To identify the quality of the sneakers uploaded by sellers, GOAT uses a combination of image recognition, machine learning, and digital authentication to assess the photos from different angles.

After this online verification, the shoes are shipped to the distribution center, where they conduct an additional level of quality control to check authenticity.

 

Augmented Reality

Their “Try-On” feature uses augmented reality to let users virtually wear the shoes to see how it looks on their feet.

 

Branch

GOAT uses Branch, enterprise mobile growth and attribution platform, for emails and social sharing.

When the recipient accesses the link, GOAT directs them to the exact page they want to visit to create a seamless experience.

 

Mutual Benefit Through Risk Minimization

GOAT’s platform business model is designed to mutually benefit all the three parties involved – the seller, GOAT, and the buyer.

GOAT’s marketplace is based on the “trust system” in which the company has built a proprietary algorithm that determines the legitimacy of every item listed on its site.

Expensive rare collectibles can be susceptible to damage, theft, etc., and thus GOAT mitigates risk in various ways.

  • GOAT does not bear the risk of storing inventory. After online verification, they call for in-hand verification only after a buyer has placed a bit on it. The risk is mitigated because the product is in GOAT’s possession only during the authentication process before being shipped to the buyer.
  • The seller doesn’t get paid until the product is verified. It protects both the buyer and GOAT against counterfeit products and fraudulent sellers.
  • The buyer protection ensures that sneaker enthusiasts feel secure making large purchases on their favorite products without worrying about fraud.

 

What Makes GOAT Different?

GOAT’s business model is differentiated from others in the space, in several ways

  • Insta-Ship: This feature offers products that are already verified and can be delivered to the customer the very next day for a premium fee.
  • Low commission rates: GOAT differentiates itself from other sellers of used sneakers through low commission rates of 9.5%. They offer buyer protection for any order above $300, and if the pair turns out to be a fake product, their order is canceled with a full refund.
  • GOAT Clean: GOAT launches second-hand sneakers that were worn before but professionally cleaned by them. They are photographed and can be exchanged for store credit. Reselling second-hand shoes is budget-friendly and comes with the same guarantee of authenticity that GOAT provides to its new sneakers.
  • Try-On: GOAT was the first brand to introduce augmented reality to let users virtually try their shoes on.

 

Social Media Marketing

The company jump-started sales by offering premium sneakers at discounted rates through a black Friday campaign.

The popularity of an event like Black Friday popularized the brand immediately and boosted their sales. However, due to the high volume, the app crashed several times, leaving customers irritated. The days after that saw little to no sales.

They used their social media account on Instagram to market the hashtag, which awarded the winners $1000 in GOAT credit.

The #GOATDIY contest began with an aim to connect the community and invite individuals to explore their creativity for a chance at winning credit.

 

Expansion

The sneaker industry is one of the most valuable, growing industry with $70 billion in sales in 2020 alone. However, with a market, this large comes pitfalls: fakes, fraud, and misrepresentation.

GOAT has found a way to solve each of these issues by creating a platform that allows users to sell their sneakers and buy authentic sneakers from other members of the community.

 

Geographical

GOAT started as a US-based seller for authentic, verified sneakers. Later, they expanded to include apparel and accessories from leading brands.

Further, they opened a facility in Hongkong to capitalize on the Asia-pacific market.

To increase their digital footprint in a fast-paced environment and meet the global demand, GOAT is launching an app in China.

 

Product

The recent expansion from second-hand products to luxury clothing and streetwear apparel comes from the company’s vision. As Lu describes, to become the one-stop destination for everything people want to wear from head to toe.

 

Conclusion: How Does GOAT Make Money?

Having read through the article, we hope that we have shed some light on their business model of how this online retailer makes sales and turns it into profit. We’ve gone over their different revenue streams, the technology they use, and their marketing strategies.

Even though GOAT is still considered a startup in the sneaker industry, it already managed to win many loyal customers. 

The business started with one market and one model, but sales growth quickly convinced the founders to expand it into many other models, markets, and regions.

It will be interesting to see how GOAT continues to perform financially as they continue with their expansion and marketing.

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