From sneakers to sports gear: the underground market of e-commerce “scalpers”
This article first appeared in Wired.it, all rights reserved.
Scalping has gone digital: the hoarding of goods to resell them online at inflated prices. An anti-competitive practice that is often difficult to recognize and combat.
Paola Viozzi manages a small gym in Precotto, north of Milan. In 2020 the pandemic-induced crisis hit businesses like hers hard, forcing them first to limit entry and subsequently to close. Fitness enthusiasts, however, have not stopped training, also thanks to online courses offered by those who, like Paola, organized online lessons reinventing themselves on Zoom. “Many people have not given up on sports,” Paola comments. “Given the persistence of the pandemic, many decided to purchase fitness equipment on their own and recreate a small home gym.“
But sports enthusiasts were soon disappointed to discover that the shelves for some of the most commonly used fitness equipment, such as weights, were empty. Sales assistants explained that their stocks had run out. In reality, after a quick search, the same equipment could easily be found on online sales platforms. At double or even triple the original price. Some people even sold their own so-called “bike bonus” [a bicycle purchase bonus scheme provided by the Italian government in response to the coronavirus pandemic].
Is this the new frontier of scalping? This is the digital version of the old scalping of tickets outside concert venues: every time the demand for a product increases, an army of deal-grabbers rush out to round it up and hoard it, taking advantage of easy online shopping and home delivery. The most symbolic case is that of sneakers. A cult-status item whose value increases manifold with customization.
No improvisation
To understand the kind of passion that sneakers are able to generate, we just have to go back a few weeks. Lidl, the popular German supermarket chain, decided to offer a series of limited edition sneakers. As reported by the media, long queues and gatherings soon appeared in front of Lidl’s shops: the shoes (originally priced at just a few Euros) quickly disappeared, only to be seen again online at prices often in excess of €200. If, however, for products available only in physical stores one just has to set the alarm early in the morning, this problem does not arise when products can be purchased online.
Those who hoard sneakers are not individuals looking for easy money. “There’s no improvisation. The bots used by scalpers are some of the most complex we have ever come across,“ reveals Benjamin Barrier and Benjamin Fabre of DataDome, a French company specialized in fighting this type of threat. “After all, this is a very profitable type of business.” What’s needed to get into scalping? Some money, sure, but mostly technical knowledge and a knack for business. The tools of the trade? “No problem. You can easily rent them at a low cost”, explain the DataDome entrepreneurs.
The community surrounding the sneaker scalping business is made up of very smart people, linked on Twitter, who then switch to private chats for serious business deals. The key information exchanged concerns the latest trending products and their release dates, essential for striking at the exact right time based on a careful strategy planned in advance. The scalper probes the Internet for information on limited edition styles and prepares a calendar of attacks.
Bots, proxies and VPNs
But how does one get one’s hands on a bot? There is a community out there where one can buy and sell bots specifically designed for sneakers. Prices range from $250 for basic bots to $3,600 for some of the most advanced and high-performing kinds. Once you have purchased the bot, you need to program it. The first step is to configure the keywords, which must point to the right stores and be very specific. Making mistakes can be expensive: the risk is finding yourself with dozens of boxes of goods you can’t sell.
Some of the bots’ favorite targets are sites created on Shopify, a Canadian platform that enables the creation of e-commerce sites without the need to know how to program. A big name: until a few years ago customers even included Tesla.
To avoid getting caught and banned, scalpers rely on the use of so-called proxies: software that allow you to mask your actual geographic location. Typically, you work with one proxy per task, in other words per single purchase transaction. So by purchasing 20 proxies, 20 tasks can be enabled at the same time, as if the shopping carts were filled in the four corners of the globe. The online shop may block the user if too many requests are detected in a short period time, so a delay comes into play, which can be configured at will. The differences are infinitesimal. Those who do not have powerful enough computers at their disposal and prefer not to buy one can run the bot on a web server, while also choosing the location from which the machine operates.
The harm to retailers
“The harm to retailers? Huge! First and foremost, the user experience is penalized. Regular customers forgo the purchase, as all the best merchandise has already been rounded up by bots a few moments after its release. There are many Twitter testimonials from exasperated users who say they will never return to certain websites. At this point, reputation is affected,” Barrier and Fabre explain. “Sometimes bots completely engulf a store, knocking it down. And we know that the conversion rate depends on speed, i.e. the very essence of an online store.”
To defend themselves, companies integrate Captchas into their forms and monitor IP addresses, a sort of electronic identity card that identifies each connection. The idea is to prevent a single user from making too many purchases, emptying the virtual shelves of an online shop. But often this is not enough. According to DataDome, an underground proxy market is out there, which makes it possible to bypass this type of digital ID.
Who sells these? “This is a bit of a gray area,” the two managers continue. “For example, you can subscribe to a service such as Hola or Smartproxy. The Terms and Conditions agreed to by the user, which typically nobody reads, set out, so to speak, that the service rents the IP out to third parties when inactive. Is this legal? Yes, because it is clearly stated. Is it fair? This is another matter entirely.”
Product scarcity is a bad decision
If anyone has ever considered using product scarcity as a marketing strategy to create a big buzz, they are wrong. “Perhaps it may have worked until a couple of years ago,” warn Barrier and Fabre. “But today, the consumer is informed and the damage to a retailer’s reputation far outweighs the potential benefits.”
This is not the case for Decathlon, explains the company. “We are familiar with this practice, although I have no evidence that it was applied to our products,” Nicoletta La Torre, External Relations Manager, tells Wired. “But the problem is: how do we know whether a gym or a private individual is buying in quantity? At the same time, for us it is not acceptable for sport to become inaccessible. Even if this practice is not illegal, it is certainly contemptible.”
Lidl agrees that retailers’ hands are tied. “The phenomenon of online reselling is not easy to control, and it is beyond the scope of a company like ours,” explains Lidl – which, however, certainly neither agrees with the practice nor supports it. “This is not in any way the purpose of the collections sold by the company, whose prices are never discounted, but simply in line with the retailer’s commercial offer: guaranteeing quality products accessible to all.”
“The phenomenon itself is not illegal,” agrees Alessandro Sessa, director of the Altroconsumo consumer association: “If something has been done to limit the secondary ticketing of concert tickets, lawmakers took no action on scalping.”
Everything falls under the ethics umbrella. What role should platforms play in all of this? In March, protective face masks and disinfectants sold at exorbitant prices by COVID-19 scalpers caused a great deal of indignation, forcing many retailers to intervene with stronger controls. A question, first of all, of reputation. When it comes to scalping, the attitude is different. Wired contacted eBay to inquire about the multinational’s position on the matter. To date, the company has not replied.
