AI is helping people buy up and hoard sought-after sneakers. Adidas says it has a solution.

By Weston Blasi

This week, Adidas charged everybody who entered its shoe raffle the full price of the shoe ($230), and said it would refund entrants' money if they didn't win within 14 days

AI has become a buzzy topic recently across many industries, but it's been used by sneakerheads for years in the form of "bots."

These bots help customers quickly purchase sought-after shoes that are released in limited quantities, often to resell them for a profit on the secondary market. They do this, in part, by enabling buyers to create multiple accounts and improve their chances of not only getting a pair of coveted shoes, but getting many pairs.

Shoe brands are aware of the bot problem - and the perceived lack of fairness for customers - and in the past have made some strides in the area through CAPTCHAs and penalties for those caught using bots, but the problem remains.

Typically, a raffle on sneaker apps like Adidas's Confirmed or Nike's (NKE) SNKRS would debut at a certain day for a finite period of time. Users could enter that raffle for free with their payment information already linked to their accounts, and if they won the raffle, they would be automatically charged the price of the shoe. People who didn't win would get a notification or email saying they lost, and would not be charged.

During its release of some of its Yeezy shoe inventory this week, Adidas (XE:ADS) tried something new.

Adidas charged everybody who entered its raffle the full price of the shoe (in this case $230) immediately, and said it would refund entrants' money for the shoes they didn't win within 14 days.

This week's Yeezy sneaker drop featured the Steel Grey 350V2. The release was a multi-day raffle beginning Feb. 26 and ending Feb. 29 - winners of the raffle have been notified, but there are still some sizes available, according to the Adidas website.

"This mechanism was put in place as an extra layer to protect against bots entering raffles. Adidas is committed to making our releases fair for everyone. We take every opportunity to ensure that all high-demand product is available via adidas.com and our adidas apps are delivered into the hands of consumers," Adidas told MarketWatch about the new provision.

In theory, this new mechanism means bot users who create thousands of accounts and raffle entries would need a large amount of cash or credit to enter a raffle multiple times, potentially disincentivizing them because it requires a large amount of upfront capital. Prior to this week on Adidas' Confirmed app, it would cost a bot user $0 to enter a raffle 1,000 times, but now it would cost them $230,000.

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But some sneaker fans don't like the idea of paying for a product before they know if they'll be able to buy it.

"I can't wrap my head around essentially prepaying for a product I am not guaranteed to get at the end and then having to wait several weeks to get my funds back," Kelly Russell, a 44-year old sneakerhead from Boston told MarketWatch. "Not even a sneaker I desperately want. That just doesn't track. It's a raffle. It's not online shopping where I know I'm going to receive what I selected at the end of the exchange.

"It was like the twilight zone had descended up on me," she added.

Another sneakerhead normally interested in a Yeezy drop is Terrill Shelly from San Francisco. Shelly has at least four pairs of Yeezys but isn't keen on paying full price upfront simply to enter a raffle.

"Due to this policy, I've thought about other ways I could spend the money," he said. "So it has effectively deterred me from buying this latest drop."

Perhaps if customers were guaranteed to get their $230 refunded immediately there would be less of a push against the move from Adidas. According to the rules of the drop, customers may have to wait up to 14 days to get their money back, although it could come sooner than that.

"Personally, this is nothing more than an interest-free loan and I'm definitely not into letting a big company hold my funds with no guarantee," said Kenneth Foster, a sneaker collector from Charlotte, N.C.

It's still unclear if this move by Adidas will curb bot usage.

"I do think this will actually work to stop bots, but only while the cost/benefit analysis is in Adidas's favor," Alabama-based sneaker content creator David Daniels, who goes by SneakerPhetish on social media, told MarketWatch. "If the shoe is worth enough money, botters & resellers won't have a problem tying up their money for a generous profit."

Essentially, if there is a huge demand and limited supply of an upcoming shoe that could be worth more on the secondary market, Daniels still believes sneakerheads with bots won't be deterred and will still be prepared to tie up capital in order to make money.

This week's 350V2 Steel Grey Yeezy drop had "lukewarm demand," Daniels said, meaning we may not know how successfully Adidas's pre-authorized raffle charge is working to curb people from using multiple bots until a more in-demand shoe is released.

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Adidas cut ties with Yeezy creator Ye, the artist formerly known as Kanye West, after he made a string of antisemitic remarks in 2022 that the company called "unacceptable, hateful and dangerous." The German retailer said it had an estimated $1.2 billion in Yeezy inventory, and would donate some of its profits to charity. Adidas kept the Yeezy brand name and designs when the artist and company parted ways.

Ye called the recent Yeezy drop "non-approved" and referred to the sneakers as "fake Yeezys."

-Weston Blasi

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03-01-24 1435ET

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