May 7, 1998

AIR JORDAN: THE SHOE OF ENTREPRENEURS

Edited by Douglas Harbrecht

Like millions of his kindred basketball fans, Bob Nagelkerk doesn't want to believe the news about Michael Jordan: That these long, playoff weeks may be the last for the Chicago Bulls' No. 23. That the superstar, after months of hinting and hedging, may actually retire.

Nagelkerk mans a small outpost of the Jordan Economy -- an empire extending from Indonesian factories to the boardrooms of product sponsors Gatorade and McDonald's. It also winds its way to the offices of Small Earth, a Grand Rapids (Mich) company dealing in new and used Air Jordan basketball shoes. That's where Nagelkerk plies the telephone, helping scour the nation for rare Air Jordans, most of them stashed and forgotten in hoopsters' closets.

That there is even an after market for Air Jordans, some of them peeling, sweat-stained relics, showcases Jordan's unique power as both a brand and personality. Among the Japanese, the shoes have become fashion must-haves, and in recent years they've commanded as much as $3,500 for pairs of mint, 1985 Air Jordans (original price: around $80). An ailing Japanese economy has lately cut vintage shoe and clothing prices by some 30% to 40%, but Americans are slowly taking up the slack, dealers say.

In contrast to Japanese shoe hounds, state-side Air Jordan buyers are less fashionplates and more memorabilia fanatics. For them, each shoe -- and there have been 13 different models to date -- represents an instant, visual snapshot of a season in Jordan's storied career. The first red, black, and white models recall Jordan's flashy rookie campaign. Pick up a pair of the twelfth edition, and be transported to the Chicago Bulls' record fifth championship run. "Seeing an old pair is like hearing one of those old Motown hits," says Nike Jordan brand manager Erin Patton objectively. "You think about what you were doing when that song was out."

For Nike, the soundtrack has been love songs. Worldwide demand for the newest Air Jordans -- $150 high-tops bearing the superstar's hologrammed likeness -- continues to snarl traffic in sneaker stores. Total sales of Jordan-branded merchandise, which is now sold through a Jordan-only spin-off company, are likely to hit $300 million in fiscal 1998.

Revenues at three-employee Small Earth are but a sliver of that -- just $600,000 a year. And sales aren't through a worldwide network of sporting-goods outlets, but rather through a hodgepodge of individual collectors and vintage store owners. All told, Small Earth moves up to 600 pairs of vintage sneakers each month -- about 70% of them Air Jordans. A competing firm, Orem, Utah's Farley Enterprises, sold $4.5 million in new and used merchandise last year, some 25% of it Air Jordans.

Though tiny when measured against Nike, those are still impressive numbers, especially when you consider that the companies work with skeleton staffs and high markups (usually 100% or more). But just as people are asking about the sustainability of the Chicago Bulls' brand of ball, and even the NBA itself, there's a question about the longevity of the collectors: Is Small Earth's game up once Jordan retires? "I wonder about it all the time," says Nagelkerk. "It could pop the balloon. If he quits playing, the anticipation of a new edition coming out every year could end."

The Jordan neurosis also follows Mark Christenson, general manager of Upper Deck Authenticated, a subsidiary of the trading-card company that holds an exclusive deal with Jordan for signed jerseys, balls, and photographs. As Christensen sees it, there will be huge demand for Jordan paraphernalia once the roundball legend retires. (The entire sports collectible market is worth some $200 million.) But Chistenson expects fans' appetite to slowly diminish once Jordan is no longer racking up what now seems his annual haul of championship ring, scoring title, and all-star appearance. "There will always be demand for his signature," says Chistenson. "And we'll create some new opportunities, but some will go away."

Similarly, Small Earth co-owner Chuck VanderHoek anticipates sneaker-lovers migrating to a crop of new NBA standouts. "They may well use the time and energy that they spent on Michael Jordan to follow the next star," says Birkenstock-wearer VanderHoek, who got into the Jordan business through his involvement with vintage clothing and antique furniture. "And there is going to be a next star." Nike, of course, is counting on the same thing, and it has put some of the league's young sensations under the Jordan umbrella. "Michael's already stepping back and saying, 'let those guys drive those shoes,'" adds brand manager Patton.

What is most likely to destroy the cottage industry of vintage shoes, however, is Nike itself. Patton suggests that after Jordan's retirement, the company will still make Air Jordans, but also will begin re-releasing older models, as it did when Jordan swore off hoops to take a crack at minor-league baseball. Flooding the sneaker world with reproductions would leave behind only a tiny market of die-hard collectors. "There is always going to be the purist that wants the original and will accept no substitutes," says VanderHoek. He concedes, however, that a sneaker re-release would be a huge blow to his business.

As the playoffs rage across the television screen, the folks at Small Earth -- and most of the globe, for that matter -- can only sit and wait for Jordan's official word. Will he stay? Will he go? What will his shoes bring tomorrow? Sometimes, the ball takes funny bounces.

By Dennis Berman
Staff Reporter
Business Week Online