Secondary fashion sales are booming, with the global market for pre-owned apparel generating a whopping $40 billion per year, according to Boston Consulting Group, and growing at a rate of 15 percent per annum, as consumers increasingly tap into the online consignment segment, new market entrants rush to meet burgeoning demand, and existing players look to differentiate themselves and their value propositions. Against this background, funding keeps pouring into the secondary market – whether it be funneled into new resale platforms or already-established ones that are looking to expand their operations, including in an international capacity – and all the while, given the increasingly crowded nature of the market, consolidation is starting to come into effect, with existing entities joining forces to grab a bigger share of the market. 

With so much activity underway on the resale and rental space, we have put together a (running) timeline of investments and M&A events to provide a broad overview of which players are raising funds, which are merging together, and what the trajectory of this segment of the market – which only appears to be gaining in steam – looks like more generally … 

October 2022 – Naver Corp. to Acquire Poshmark in $1.2 Billion Deal

Naver Corp will acquire resale platform Poshmark for $1.2 billion in a deal that Naver says values Poshmark at about $1.6 billion, including about $580 million of cash reserves. The Seongnam-based internet conglomerate, which owns South Korean’s top search engine, will pay $17.90 in cash for all of Poshmark’s issued and outstanding shares, a sum that is strikingly less than the $42 per share that Redwood City, California-headquartered Poshmark priced its January 2021 IPO. Naver says that it expects the deal – which will “expand and diversify [its] leading e-commerce platform, strengthen its community with a global social network of younger users, and position it to capitalize on the global online fashion re-commerce and sustainable economy opportunity” – to close by Q1 of 2023.

In a statement on Tuesday, Naver CEO Choi Soo-Yeon said, “The combination will create the strongest platform for powering communities and re-fashioning commerce. Poshmark is the definitive brand for fashion in the United States that provides a social network for buying and selling apparel. Naver’s leading technology in search, AI recommendation and e-commerce tools will help power the next phase of Poshmark’s global growth.”

September 2022 – Impossible Kicks Raises $3 Million in Series A 

Sneaker and streetwear reseller Impossible Kicks (“IK”) announced the close of a $3 million Series-A equity raise on September 20, bringing its total funding raised to $7 million since its founding in February 2021. In a statement, IK expects $55 million-plus in sales in 2022, up from $15 million in sales in 2021. The Irvine, California-based company will use the cash to facilitate its “continued expansion plan across the United States, which includes two new locations prior to the end of the year and nine additional storefronts in 2023.” (As of Sept. 2022, the brand supports 15 storefronts across nine states – including California, Colorado, Connecticut, Florida, Michigan, New Jersey, New York, North Carolina, and Texas.)

“With an unrivaled brick and mortar presence,” IK says it “will also augment its e-commerce and digital efforts, including the development of proprietary products.”

August 2022 – Reflaunt Raises $11 Million in Series A

Reflaunt closed its Series A round with a total of $11 million in funding, the the London and Singapore-based resale-as-a-service company announced on August 24. The close comes a couple of weeks after the circular fashion service provider first revealed that it had welcomed $5.2 million in funding from the likes of Bombyx Capital Partners, Shanghai-based Ventech China, and TLF Ventures. Global Blue, a Swiss-based tourism shopping tax refund company, also participated in the Series A round, along with early investors, including Swarovski’s creative director Giovanna Battaglia and American retail conglomerate Madaluxe Group.

Reflaunt says it will use the new cash to expand its services and secure new partnerships with luxury brands and retailers. “We have integrated the resale experience in the brand’s ecosystem, which allows us to record the product’s digital ID at the moment of check-out and foster a seamless resell-in-a-click experience when the customer is ready to give the product a second life,” Reflaunt co-foudner and CEO Stephanie Crespin said in a statement.

August 2022 – Trenbe Raises $25.2 Million in Series D

South Korea-based luxury goods marketplace Trenbe announced on August 22 that it raised 35 billion won ($25.2 million) in a Series D funding round, which included investors, such as IMM Investment and Atinum Investment. Gangnam-headquartered Trenbe says that it will use the funds to “diversify its business and improve customer experience.” The round follows from the company’s July 2020 Series B, in which it raised 11 billion won.

August 2022 – Sneaker Trading Co. Tradeblock Raises $8.9 Million in Seed II Round

Houston-based Tradeblock has raised more than $8.9 million in seed funding from investors Courtside VC, Trinity Ventures and Concrete Rose Capital, the company announced August 25. The company is planning a rolling close to its current Seed II round and expects to bring in an additional $4.5 million from investors by close. Launched in 2020, Tradeblock consists of a barter-based trading platform for shoe collectors. With the new funding, the company plans to invest in expanding its authentication and logistics efforts, as well as its data science capabilities to better enhance the platform’s virtual bartering experience.

July 2022 – Resale Platform Galaxy Raises $7 Million in Funding

Gen-Z-focused pre-owned fashion platform Galaxy has raised $7 million in new funding from investors that include Snap Inc’s Yellow Accelerator, Floodgate, RGH Capital, Turner Novack’s Banana Capital, and Homebrew. Launched in August 2021, the company combines live-shopping and fashion resale in order to “build entertaining and engaging experiences that generate explicit data” – via machine learning – “where users tell us what they like by interacting with our product,” CEO Danny Quick stated in announcing the round. The company says that it will use the newly-raised cash to implement “new, user-friendly features and increased opportunities for creators to feel empowered and earn a living on their own terms, in their own time.”

May 2022 – Carousell to Buy Up Refash

Singapore-based online classifieds giant Carousell has signed off on a deal to acquire secondhand retailer Refash for an undisclosed sum, as the resale market continues to grow in Asia. Carousell said in a statement that 7-year-old Refash, which touts itself as an “online thrift store,” will continue to operate its own brand, as distinct from the Carousell entity, and that the acquisition is expected to “drive a synergistic partnership between the two marketplaces.”

April 2022 – Sneaker Marketplace SoldOut Raises $33 Million

Korean sneaker marketplace SoldOut raised $33 million in a funding round led led by Korea online retail titan Musina and FinTech Dunamu. The nearly 2-year-old resale company will use the funds to fuel its expand into new product categories and build out its customer experience, including by upgrading its platform and opening a second inspection center in Seoul.

March 2022 – Vestiaire Acquires Tradesy

French resale company Vestiaire Collective announced its acquisition of Tradesy, “a U.S. pioneer in the fashion resale industry,” on Tuesday. Terms of the deal were not disclosed, but the companies said in a statement that by joining forces, they will “significantly increase the size and reach of their peer-to-peer marketplaces, to the direct benefit of their sellers and buyers. The combined company will boast a membership community of 23 million, a catalog of 5 million items and a Gross Merchandise Value exceeding $1 billion. Customers of both Vestiaire Collective and Tradesy will significantly benefit from the companies’ alliance.”

A screenshot from Tradesy's website

*As of August 2022, Vestaire announced that it would fold Tradesy into its own brand in furtherance of a larger effort to bolster its presence in the U.S. market.

FY 2021

December 2021 – Rebag Raises $35 Million in Series E

Rebag has raised $35 million in funding a Series E round, bringing the 6-year-old resale company’s total funding to $103 million. “Following a strong year driven by technological advances and category expansion,” Rebag says that the round – which was led by private equity firm Novator with participation from existing investors, such as General Catalyst – “positions [it] for its next cycle of innovation and accelerated growth,” and that the investment funds will be used to further build upon Comprehensive Luxury Appraisal Index for Resale, its proprietary software aimed at bringing transparency to the luxury resale industry. The company says it will also use the round to scale its tech-enabled brick-and-mortar business. 

December 2021 – Farfetch Acquires LUXCLUSIF

Fashion e-commerce platform Farfetch announced on December 9 that it has acquired resale platform LUXCLUSIF, including the company’s technology platform, for an undisclosed sum. This deal will allow FARFETCH to “significantly accelerate its resale capabilities through the development of key technology and service features such as automated pricing, and faster geographic and category expansion of its resale service, FARFETCH Second Life,” the London-based company stated.

Founded in 2013, LUXCLUSIF is a B2B service provider with “a successful turnkey solution enabling the acquisition, authentication and sale of second hand luxury goods to – and from – auctions, retailers, e-commerce platforms, and stores worldwide,” the companies said in a statement. “Together, FARFETCH and LUXCLUSIF can leverage these capabilities and positioning to become the global platform for pre-owned luxury for both customers and industry partners.”

November 2021 – eBay Acquires Sneaker Con’s Authentication Arm

eBay announced on November 29 that it has entered into a definitive agreement with Sneaker Con Digital under which it has acquired Sneaker Con’s authentication business, a leading sneaker authenticator with operations in the U.S., U.K, Canada, Australia and Germany. According to a statement from eBay, “The acquisition is an extension of the ongoing collaboration between [itself] and Sneaker Con, which has been critical to powering eBay’s Authenticity Guarantee. The service, which eBay launched in October 2020, offers full vetting and verification of select sneakers bought on the marketplace by a team of Sneaker Con’s industry experts.”

Additionally, the marketplace stated that its “Authenticity Guarantee has significantly changed the way people buy and sell sneakers on [its site], as evidenced by quarter over quarter category growth. In just over a year, more than 1.55 million sneakers have been authenticated globally on eBay.”

November 2021 – Marque Luxury Raises $20 Million

Marque Luxury has secured $20 million in funding through an investment by Provident Capital Partners, the Irvine, California-based reseller announced on November 19, saying that the round “follows a period of tremendous growth for MARQUE Luxury, which has opened numerous re-commerce hubs in the United States and several hubs in Asia during the last year and has aggressive plans for future expansion.” The 4-year old company says it will use the new cash to “drive continued business expansion on an operational scale focused mainly in North America,” to “support its omnichannel strategy and allows [it] to generate business activity in the global market on a business-to-business and business-to-business-to-consumer basis.”

November 2021 – StockX Acquires Scout

In its first acquisition, StockX has bought up Scout, a leading developer of power seller tools that is already serving more than 10,000 sneaker resellers around the world. StockX says that the new technology will enable it to “ramp up inventory” – which is, of course, the lifeblood of resale platforms and the primary driver of consumer demand – thanks to Scout’s “best-in-class automation, inventory management, tracking and integration with marketplaces.” At the same time, StockX states that the move will help its marketplace sellers to “accelerate their businesses,” presumably a bid to attract sellers in an increasingly competitive resale market, where no shortage of other resale players have taken to focusing on pre-owned sneakers and streetwear.

In addition to onboarding Scout’s product, StockX confirmed that it will bring on the company’s team three co-founders and seven employees, who “bring their deep experience as sneaker resellers and developers of inventory,” as aims to scale seller business operations.

Detroit-based StockX, which revealed that it surpassed 6.5 million lifetime buyers and 1 million lifetime sellers in the first half of 2021, has been building out its initially sneaker-focused offerings since its founding in 2016 and expanding internationally. In the wake of its latest funding round, a Series E-1 round that closed in April 2021, the company boasts a valuation of $3.8 billion valuation.

October 2021 – Poshmark Acquires Suede One

In its first-ever buy-side move, Poshmark announced on October 13 that it has acquired Suede One, an authentication platform that “combines machine learning, computer vision and expert human review to virtually authenticate sneakers,” with Suede One’s team joining Poshmark effective immediately. According to Poshmark, the acquisition “will scale [its] authentication capabilities and accelerate momentum in high-growth secondhand categories, especially sneakers and luxury,” and reflects the secondhand marketplace’s focus on “strategic investments that drive continued platform innovation, accelerate growth in high-growth resale categories and enhance the user experience to attract and retain both buyers and sellers.”

Founded in 2020, Suede One “has built impressive capabilities in virtual authentication that will allow us to deliver tangible benefits to our community, scale our authentication services in a meaningful way, and accelerate our momentum in sneakers as well as luxury goods, two of the fastest-growing categories in the resale space,” according to Poshmark founder and CEO Manish Chandra.

In a release on Wednesday, Poshmark detailed Suede One’s process, revealing that “for popular sneakers such as Jordan 1s and Yeezy 350s, Suede One can automatically authenticate the majority of submissions with greater than 99 percent accuracy, based on internal testing. For other sneaker types, human experts review the submission with help from the company’s proprietary authenticator tool.”

September 2021 – Vestiaire Raises $209 Million in Venture Round

French resale company Vestiaire has raised 178 million euros ($209 million) in a September 22 venture round which included participation from two new investors, SoftBank Group Corp and Generation Investment Management, bringing its valuation to $1.7 billion dollars. To date, Vestiaire has raised $663.3 million, per CrunchBase.

September 2021 – Tradesy Raises $67 Million in Series D Round

Resale platform Tradesy has raised $67 million in a September 16 Series D round led by led by Foris Ventures, which is Kleiner Perkins head John Doerr’s family office. To date, the company has raised $200.7 million over a series of eight rounds, according to CrunchBase. 

September 2021 – Grailed Closes $60 Million Series B Round

Men’s fashion and streetwear-centric marketplace Grailed announced the closing of a $60 million Series B funding round on September 16, which was led by fellow resale player GOAT Group and with participation from Groupe Artémis, along with existing investors Thrive Capital and Index Ventures. 

August 2021 – Trove Raises $77.5 Million in Series D

Trove Recommerce, which partners with brands to create online platforms for them to sell used goods, raised $77.5 million in an August 25 Series D round, led by G2 Venture Partners. 

June 2021 – GOAT Raises $195 Million in Series F Funding Round

Online sneaker and apparel marketplace GOAT Group has raised $195 million in a new funding round, which has “more than doubled its valuation to $3.7 billion.” The round for the 6-year-old Los Angeles-based company, which boasts some 30 million customers across 170 countries, was led by Park West Asset Management, funds and accounts advised by T. Rowe Price Associates, Inc., Franklin Templeton, Adage Capital Management and Ulysses Management.

June 2021 – Etsy Acquires Depop for $1.62 Billion

In a quest to target Gen-Z consumers (i.e., those born between the late 1990s and the early 2010s), who are driving both social shopping and largescale pushes in sustainability, Etsy announced that it will acquire burgeoning British shopping app Depop for $1.62 billion. 

May 2021 – Treet Raises $2.8 Million in Seed Round

Reseller Treet – which powers brands to set up their own resale sites where buyers and sellers can list and find items – raised $2.8 million in a May 26 seed round with participation from Bling Capital, Matchstick Ventures, Techstars, BAM Ventures, BBG Ventures, Green Meadow, Interlace Ventures, V1.VC and Alante Capital.

May 2021 – Vinted Raises $303 Million in Series F Round

Vinted raised 250 million euros ($303 million) in a May 12 Series F round, the Vilnius, Lithuania-founded online resale platform announced. According to a release from Vinted, which got its start in 2008 and boasts some 45 million users, the company “operates in over 10 markets, and has become the largest online C2C marketplace in second-hand fashion across Europe,” and will use the funding from the latest EQT Growth-led round – one that values the resale upstart at $4.3 billion – to expand its operations in Europe and “new geographies,” ramp up its hiring, and improve user experience. 

April 2021 – StockX Raises $195 Million in Secondary Market Round

StockX announced the conclusion of a $195 million secondary tender offering on April 8, as well as an additional $60 million in Series E-1 primary shares, boosting the streetwear and sneaker platform’s December 2020 valuation of $2.8 billion by 35 percent, and bringing its total funding to $690 million.

March 2021 – Vestiaire Raises $216 Million in Series H

Kering and American investment firm Tiger Global Management led a March 1 Series H funding round that saw secondhand marketplace Vestiaire Collective bring in $216 million in funding, along with existing investors, including its CEO Max Bittner, Vogue’s parent company Condé Nast, and the Eurazeo Group, among others. The deal gives Paris-based Vestiaire “unicorn status” – i.e., puts a $1 billion-plus value on the privately-held company – and “ideally positions it for its next cycle of accelerated growth.” 

February 2021 – Reflaunt Raises $2.7 Million in Pre-Series A

Second-hand fashion platform Reflaunt raised $2.7 million dollars in a pre-Series A funding round from investors including former Jimmy Choo CEO Pierre Denis and Ganni founder and former CEO Nicolaj Reffstrup, among others, with an aim to “offer a variety of resale models to more leading global brands” and to allow consumers to resell pre-owned products “directly on the brands’ individual e-commerce platforms.” 

January 2021 – GOAT Welcomes “Strategic Investment” from Groupe Artemis

GOAT Group announced on January 19 that it would welcome a “strategic investment” from Groupe Artemis – the controlling shareholder of Kering – as it “continues its expansion in fashion apparel and new categories.” The undisclosed Artemis investment comes on the heels of a Series E round of $100 million announced in September 2020, which valued the company at $1.75 billion. 

Kim Kardashian has settled charges waged by the U.S. Securities and Exchange Commission (“SEC”), which accused her of “touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion.” Specifically, the SEC found that the reality star-slash-brand-builder “failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax.” In prompting the crypto tokens in her June 2021 Instagram post, Kardashian included a link to the EthereumMax website, where the company included instructions for potential investors to purchase EMAX tokens.

The SEC found that Kardashian’s post violated the anti-touting provision of the federal securities laws ((17(b) of the of the Securities Act), which “makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer.” In order to avoid engaging in violations of the anti-touting provisions of the federal securities laws, the SEC has stated that individuals who promote “a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.” (In other words, #ad, on its own, is not sufficient here.)

In a statement on Monday, the SEC revealed that “without admitting or denying the SEC’s findings,” Kardashian agreed to settle the charges, pay $1.26 million, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to refrain from promoting “any crypto asset securities” for three years, and to cooperate with the SEC’s ongoing investigation.

“This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it does not mean that those investment products are right for all investors,” SEC Chair Gary Gensler said on Monday. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.” Kardashian’s case “also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities,” he added.

“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”

In addition to the EMAX settlement, the SEC recently announced that it filed suit Bermuda-based Arbitrade Ltd. and Canadian firm Cryptobontix Inc., along with their principals – Troy R. J. Hogg, James L. Goldberg, and Stephen L. Braverman – and Max W. Barber, founder and sole owner of SION Trading, which is named a defendant in the case, for allegedly perpetrating a cryptocurrency pump-and-dump scheme.

Not her first brush with issues involving EMAX, Kardashian was named as a defendant in a class action lawsuit over EthereumMax, which accuses the token-maker and a handful of famous endorsers of engaging in a “pump-and-dump” scheme, complete with undisclosed endorsements. In the complaint that he filed in a California federal court in January, Plaintiff Ryan Huegerich claims that the defendants “misleadingly promoted and sold EMAX tokens through social media advertisements and other promotional activities, while failing to adequately disclose material connections between EthereumMax and the celebrity defendants endorsing EMAX.”

Huegerich alleged that in her Instagram post – which read, “Are you guys into crypto???  . . . Sharing what my friends told me about the Ethereum Max token! A few minutes ago Ethereum Max burned 400 trillion tokens, literally 50% of their admin wallet giving back to the entire E-MAX community” – Kardashian “did include a promotional disclosure.” However, the disclosure was “tucked in the far bottom right of the post and is just three characters long: ‘#AD,’” with Huegerich noting that Kardashian “has experience and familiarity with making misleading claims in similar promotional endorsements on her Instagram and Twitter accounts.” For example, he claims that in 2015, the Food and Drug Administration ordered Kardashian to remove a promotional post for morning sickness medication that lacked adequate disclosures. 

Kardashian has since sought to get the claims that Huegerich lodged against her tossed out, arguing that her Instagram post – which did “not” amount to “financial advice”– contained a clear disclaimer that “undermine[s] any consumer’s claim of deception.” In case that is not enough, counsel for the star argued that “platforms like Instagram and Twitter are laden with puffery and exaggeration, such that ordinary consumers should know that they are not trustworthy sources of financial advice.” And still yet, Kardashian contends, “Crucially, no named plaintiff alleges that they in fact viewed either Instagram post before purchasing tokens during the relevant time period.”  

THE BIG PICTURE: While the Federal Trade Commission has been largely unwilling to take notable action when it comes to undisclosed social media posts, other agencies – such as the Food and Drug Administration and the SEC – seem to be inclined to step in when the goods/services being promoted without the necessary disclosures rise to a certain level of importance. The SEC’s settlement with Kardashain suggests that crypto rises to that level. The parties’ deal comes amid rising attention to crypto among various agencies and lawmakers, alike, which are grappling with how to regulate the increasingly popular market, which boasts a value of more than $3 trillion.

Nike, Inc. reported revenue of $12.7 billion for the quarter ending August 31, 2022 (up 4 percent on a year-over-year basis), with President and CEO John Donahoe citing “the depth and breadth of NIKE’s global portfolio” as enabling the sportswear titan to deliver a “strong start” to 2023 fiscal year and helping it to “continue to manage through volatility.” Also on the up for Q1: NIKE Direct sales, which reached $5.1 billion, up 8 percent on a reported basis, and NIKE Brand Digital sales, which rose by 16 percent, led by 46 percent growth in EMEA. Sales momentum “even in this environment puts Nike head and shoulders above its peers,” Neev Capital managing director Rahul Sharma stated on Thursday

Geographically speaking, Nike revenue in North America rose 15 percent year-over-year to $5.5 billion, driven by a 17 percent increase in shoe sales. Sales in “Europe, Middle East & Africa” grew by 23 percent to $3.3 billion, again, helped along by an 18 percent rise in footwear sales. The tough market for Nike for the quarter was, of course, Greater China, where revenue fell by 16 percent compared to Q1 2021 to $1.65 billion, with apparel sales dropping 18 percent and footwear by 11 percent. 

While revenues were up in Q1, the Swoosh is not without issues for the quarter. Profit was dragged down by “elevated freight and logistics costs,” and high inventory levels. Nike revealed that inventory was up by 44 percent on a year-over-year to $9.7 billion as of the end of Q1, “driven by elevated in-transit inventories from ongoing supply chain volatility, partially offset by strong consumer demand during the quarter.” Taken together, the result was a drop in gross margins, which fell by 220 basis points to 44.3 percent; analysts were expecting 45.4 percent, according to Refinitiv’s IBES data. At the same time, net income fell to $1.47 billion – down from $1.87 billion for the same period last year.

Nike North America revenue chart

Looking ahead to Q2, Nike expects revenue will grow in “the low double digits,” while gross margin is expected to continue to drop – this time by about 350 to 400 basis points compared to Q2 2021. The company says it will focus on liquidating inventories in the second quarter, asserting that roughly 65 percent of its inventory backlog in North America is currently in transit.

The earnings call on Tuesday was dominated by analyst questions about inventory – no mention of RTFKT, Nike’s enduing Nikeland partnership with Roblox, non-fungible tokens, or virtual goods from Nike or analysts despite Nike’s continued emphasis on the virtual goods front. (Donahoe may have alluded to this, stating that Nike’s “growth is strengthened quarter by quarter,” thanks, in part, to “the fundamental shift in consumer behavior toward digital,” a comment that may extend beyond pure e-commerce activity to the metaverse, where Nike is actually driving some revenue.)

In terms of inventory, CFO Matt Friend stated that the issue is “predominantly apparel, [and] it is in North America predominantly.” Nike expects “total inventory to improve as we go from the first quarter,” and while North America is “obviously the geography where we’ve seen this most significant increase,” Friend said that the company “does expect to see it reduce.” As for what the Swoosh is doing to address excess inventory, Friend claimed that “because we have a portion of that inventory being seasonally out of relevance, we’ve decided to take that inventory and more aggressively liquidate it” – by way of in-house markdowns, as well as offloading it to third-party discount retailers – “so that we can put the newest and best inventory in front of the consumer in the right locations.” 

As for the Chinese market, Donahoe is “enthusiastic,” saying that “Chinese consumers are emerging from these lockdowns with a real hunger for innovation, quality, and energized storytelling,” – and in particular, “hyper-localized innovation and storytelling.” 

Reflecting on the company’s results, Sharma asserted, “Despite hysteria over a European recession, consumer-facing companies – from Nike to Zara – are doing very well there,” noting that “tough times may be coming but U.S. margin implosion is a huge contrast as companies seem to have managed U.S. inventory spectacularly badly.” For Nike, this has meant a rise in the number of days in inventory (136 days now versus 95 pre-Covid), along with a 14 percent spike in inventory “just over past quarter, despite big U.S. markdowns,” he says, with more inventory issues expected to follow. 

Nike’s margin “will spike nicely once inventory is run down,” per Sharma, but that “will take time – we may not even be at peak inventory yet.” 

A New York federal judge has sided with Lululemon and tossed out a lawsuit waged against it by Peloton over the parties’ lookalike sports bras and yoga pants. In an opinion and order on Thursday, Judge Andrew Carter of the U.S. District Court for the Southern District of New York (“SDNY”) granted Lululemon’s motion to dismiss Peloton’s lawsuit, finding that the declaratory judgment action that Peloton lodged against it last year – prompted by a cease-and-desist letter that it received from Lululemon – amounts to an anticipatory action. The suit is part of a pair of rival cases between the two parties, which pulled the plug on a 5-year-long co-branding partnership last year. 

The clash got its start on November 24, 2021 when Peloton filed a declaratory judgment action against Lululemon with the SDNY, alleging that it received a cease-and-desist letter from Lulu (in which Lulu alleged that five of Peloton’s private label sports bras infringe its design patents, and a pair of Peloton-branded leggings infringe its trade dress rights). In furtherance of its DJ suit, Peloton sought a declaration from the court that, among other things, it did not infringe Lulu’s patents or trade dress. Escalating the matter, Lululemon lodged a complaint of its own on November 29 – albeit with the Central District of California – arguing that Peloton is on the hook for design patent and trade dress infringement in connection with its sale of “copycat” athleticwear. 

Nov. 11, 2021 – Lululemon sends cease-and-desist letter to Peloton

Nov. 24, 2021 – Peloton sues Lululemon (declaratory judgment)

Nov. 29, 2021 – Lululemon sues Peloton (design patent & trademark infringement)

Lululemon pushed for dismissal early this year, claiming that that Peloton filed “an improper anticipatory declaratory judgment action” – after Lulu says it approached Peloton in response to the letter in order to resolve the matter out of court – in order to “game” the venue in the design patent and trade dress infringement case. 

In his order on Thursday, Judge Carter determined that Peloton’s DJ suit “is an anticipatory action that warrants dismissal.” Here, “both parties agree” that in the wake of receiving Lulu’s cease-and-desist letter, Peloton informed Lulu on November 15 that it could not guarantee that its response would be ready by the November 19 deadline. Lulu responded that “[a]s a matter of professional courtesy, we are happy to consider extending the deadline for response,” once Peloton proposes a new deadline. “Peloton answered by proposing a deadline of November 24, and lululemon agreed,” according to the court, with Lulu stating that “[p]er your request, lululemon agrees to extend the deadline for Peloton’s response to November 24.” 

Instead of sending a response to the cease-and-desist on November 24, Peloton filed suit against Lulu on that day. 

“This context and timing – Peloton representing that it would likely not be ready to submit a response as requested, proposing a new deadline by which to respond, and then instead filing the declaratory judgment suit on that date – supports a finding that this suit is an improper anticipatory declaratory judgment action,” Judge Carter states in his order. And noting that “the balance of convenience favor[s] neither party” in the case at hand, the judge granted Lulu’s motion to dismiss.  

While one case is off the table, the one that Lululemon filed against Peloton is still in play and slated to resume following a suspension for the duration of the Peloton v. Lulu matter. 

UPDATED (Sept. 30, 2022): The parties have settled the remaining matter, with counsel for Lululemon filing a notice of voluntary dismissal with the U.S. District Court for the Central District of California. The dismissal is with prejudice. In a statement, the parties revealed that they “have negotiated a mutually agreeable settlement, and are pleased the matters could be resolved amicably, resulting in dismissal of the pending litigation between them.” While the full extent of the agreement has not been made public, Peloton agreed to discontinue “certain designs” that Lululemon had objected to in the suit, albeit, without the company revealing any wrongdoing.

The cases are Peloton Interactive, Inc. v. Lululemon Athletica Canada Inc., 1:21-cv-10071 (SDNY), and Lululemon Athletica Canada, Inc. v. Peloton Interactive, Inc., 2:21-cv-09252 (C.D.Cal.)

MSCHF and Vans went before the U.S. Court of Appeals for the Second Circuit on Wednesday after the federal court agreed to hear an expedited appeal to the preliminary injunction put in place this spring to block MSCHF from promoting its allegedly infringing Wavy Baby artwork – or sneakers, depending on which party you ask – by displaying the shoes on its website, mobile app, and in art exhibitions, among other things. Counsel for MSCHF, David Bernstein at Debevoise, argued on Wednesday (echoing some of the claims made in the short-lived Satan Shoe case) that the Wavy Babys amount to “expressive works” that are not meant to be worn, but instead, were designed to serve as commentary on sneaker culture and Vans’ role in it, asking the court to consider whether the element of expression or the commercial nature of the sneakers is the predominate factor here.

Appearing on behalf of Vans, Lucy Wheatley of McGuireWoods asserted during Wednesday’s oral arguments that while sneakers may be capable of serving as parodies, that is not what is going on in case that Vans filed suit against MSCHF, in which it is accusing the Brooklyn-based art collective known for its provocative product drops of embarking on “a campaign to piggy-back on Vans’ rights and the goodwill it has developed in its iconic shoes” by offering up a sneaker that “blatantly and unmistakably incorporates Vans’ iconic trademarks and trade dress.” The case, which got its start in April, is being closely watched by brands, academics, and lawyers, alike, for its potential to bring clarity to the murky balance between trademark law and the First Amendment in the context of artistic works.

The panel of judges for the Second Circuit – at least one of which opined that Vans’ side-stripe-bearing shoes might be “the perfect objects of parody to distort” – has been tasked with reviewing the lower court’s decision, along with amicus briefs from a group of intellectual property professors, which focused primarily on trademark dilution, and the International Trademark Association, among others, with the latter urging the Second Circuit to clarify what constitutes an “expressive” work under the Circuit’s Rogers v Grimaldi test.

Vans, MSCHF sneakers

The parties landed before the federal appeals court following an April order from U.S. District Court for the Eastern District of New York’s Judge William Kuntz, in which he granted Vans’ motion for a temporary restraining order and preliminary injunction on the basis that Vans is likely to prevail on the merits of its underlying claims, including trademark infringement, and that the VF Corp.-owned sneaker-maker is likely to suffer irreparable harm unless MSCHF’s alleged infringement is stopped.

In fashioning the injunction order, Judge Kuntz held that “whatever the artistic merits of the Wavy Baby shoes [are],” they “do not meet the requirements for a successful parody,” and sidestepped the application of the Rogers test.

In its answer in June, MSCHF argued that while Vans (and seemingly, the district court, as well) “may not appreciate MSCHF’s critique of [Vans’] place in consumer culture or Vans’ participation in an increasingly digital world,” the Wavy Baby sneakers are, nonetheless, “an expression protected by the First Amendment,” and thus, Vans’ trademark infringement claims not only “lack merit,” but also “fail to account for the expressive message and commentary encompassed in MSCHF’s Wavy Baby artwork.” Citing the U.S. Court of Appeals’ decision in Rogers in its answer, MSCHF claimed that its Wavy Baby project “references Vans’ trademarks and trade dress in an artistic work in a manner that has artistic relevance to the work without being explicitly misleading.”

According to a declaration from MSCHF founder and CEO Gabriel Whaley that was previously lodged with the court, that commentary comes in the form of MSCHF’s attempt to “challenge the sneaker-head culture Vans participates in, question consumerism, and confront the tension between a virtual and digital world” with the sneakers that swiftly sold out this spring. 

In the wake of the district court granting a temporary restraining order and preliminary injunction for Vans, a move that MSCHF has characterized as an “unconstitutional prior restraint on [its] artistic expression,” the company has reiterated that the Wavy Baby product is clearly an expressive work and should be tested under Rogers. Specifically, counsel for the company has argued that its Wavy Baby project “references Vans’ trademarks and trade dress in an artistic work in a manner that has artistic relevance to the work without being explicitly misleading.”

“Regardless of where one comes out on whether or not the sneakers at issue are expressive works,” Weintraub’s Scott M. Hervey states that, “at a minimum the district court should have engaged in [the Rogers] analysis. The question remains whether the Second Circuit will take this opportunity to establish some guidelines on what constitutes an expressive work.” 

The case is Vans Inc. v. MSCHF Product Studio Inc., 22-1006 (2d. Cir.)