HOW MUCH IT COSTS NIKE TO MAKE A $100 SHOE
HOW MUCH IT COSTS NIKE TO MAKE A $100 SHOE
Have you ever thought of how much Nike spends to make a single pair of sneakers retailing at $100? When you walk into a local store or check the latest collection of design shoes online, you will realize that Nike is the best shoe-selling company worldwide. It takes a lot for the company to manufacture the best brand of sneakers. Starting from getting the right software to design shoes, to the final customer satisfying product. The cost incurred to make $100 shoes is demanding and can be well understood in this article as we shall deeply look into the entire process.
As a satisfied customer, you would need your best shoe rack design to be completed with the same class's matching sneakers. But in most cases, you would pay less attention to the process undergone for that shoe to reach the market, or be estimated to cost $100 retail price. There are extra costs, such as tax, shipping costs, and material assembling. Not forgetting the advertising costs if the company intends to sell its design shoes online markets. Briefly, let’s try breaking down the overall cost of making $100 pair of shoes.
The basic knowledge of a business is the trader to make a profit. Right? Meaning we don't expect Nike to sell the shoe at $100 to retailers. For the shoe to reach the retail store, it passes through intermediaries and shipping processes, which affects the actual price. Looking at it from the profit side, the retail store buys the Nike sneakers from the wholesalers at $70 per pair, while the wholesaler buys a pair of sneakers from the shoe brand at the cost of $50. For you to get that pair of sneakers to your shoe rack design, you are required to pay $100 since the retail store needs to make a profit to finance its cost operations such as funding of employers, pay for the rent, and cater for advertisement cost if it sells its design shoes online. Occasionally, the store may put the old pairs of shoes on sale, or sell their olds stock at a 40% off the retail price if the shoe is a slow seller incurring some losses, but a business entity, it must maintain its flow of profits b stocking the new pairs at $100. Another thing to note is that the shoe brand does not own the shoe factory, meaning the shoe brand also buy the Nike sneakers from the factory.
Shoe Brand and Wholesale Price.
According to Matthew Kish of the Portland Business Journal, the average cost making a pair of sneakers that will retail at $100 is $28.50. However, these figures are based on average since the overall production cost varies depending on the materials. The shoe brand buys the shoe from the factory at a wholesale price of $50, where Nike gets back a profit of $21.50. After deducting the 57% of revenue for Sea Freight and Insurance Landed Costs and 43% of revenue for Mark-up costs, the profits reduce to $4.50. For Nike's company to make higher profits, it has to sell its shoes directly to customers through direct-to-customer channels. It also makes a profit bypassing the cost of production to the customer.
Additionally, it charges another bunch of fees that give them huge bonuses. That explains why a single pair of Nike sneakers will cost $100. Again, why would a pair of sneakers cost Nike $28.50 to manufacture? Is it because of the design shoes software or the cost of materials?
The Shipping Costs
According to the Free On Board (FOB) agreement, the seller is responsible for the costs of getting goods on the ship chosen by the buyer’s Sea Freight and Insurance Landed Costs. Nike pays $25.00 to ship a pair of sneakers from the USA to its wholesalers. It also incurs an additional cost of $15.00 for Selling, General & Administrative Expenses (SG&A). Selling a pair of shoes to wholesalers at $50.O0 leaves it with a profit of $10.00. remember, it also has to pay other taxes, including custom duties, remaining with only $4.50 as the net profit.
Companies will charge more for their products compared to the costs they used to make them. In some cases, consumers pay much higher than they can realize, making the companies reap more profits. For instance, Nike, the leading company in basketball and athletic footwear worldwide, earns the highest profits from its sneakers where people pay $100 per pair without a second thought. If you visit design shoes online sites, you will realize that Nike is ranked as the best-selling company in footwear. Maybe it is because of its classy taste or the customer's right to pay more or less for what they are willing to buy.
The cost of making a pair of sneakers.
On average, it cost Nike Company about $28.50 to make a pair of shoes. This cost doesn't include the company's expenses to make a single pair of Air Jordan. From the new study by the Portland Business Journal, these figures are not specific to one pair of shoes as the actual costs reflect the company's production framework. Another case study was done by Sole Review and released a detailed breakdown of the charges; so that you will not keep asking yourself why Nike spends $28.50 to manufacture one pair of shoes, and the wholesalers and shoe brands are making from buying a pair of shoes at $50.00. In their research, they picked 22 models from Adidas, Nike, and ASICS. They highlighted all the requirements of productions like colorways and materials' nature to come up with a definitive answer.
The research clearly shows that the YEEZY Boosts, which retails at $350, costs $76 to make. As a retailer, you would not realize this, or else you will learn to accept it. Nike Air Max 2016 is retailed at $190 while its production cost is $33. The price can be frustrating to the final customer as there is a markup of 600%. If you may ask yourself why that significant difference? Don't forget that retailers also purchase those pairs of shoes at half their market price. Noticeably, everything that the shoes pass through affects the final price of the shoes. But we can't say that Nike is not making profits from their sneakers. From the Sole Review, there is a cost breakdown on how I cost Nike to produce a flashy pair of sneakers and retail it at $100 or sometimes higher than that.
In the USA, basic sneakers retail at $70.00. the shoe brand sells a pair of shoes to retail stores at a wholesale price of $35.00. A big retailer gets a discount of 3-5% or rewarded with free freight. With this wholesale price, the retail store makes a profit of 50% automatically. However, the profits will still cater to its operational costs, such as rent and salaries. But how does the company benefit now that the shoe brand does not own the shoe factory? Looking at the factory side, it costa the company $ 15.00 to produce a pair of sneakers that retail at $70.00. when the shoe brand buys the shoe from the factory, there is shipment cost from China to the USA, which is about $0.50 per pair. This totals $2500.00 to ship 5000 pairs of sneakers using a 40 feet shipping container. On reaching the USA, the shoes must undergo legal importation duties, which is 8.5% of the FOB price in case they are leather sneakers. That is $1.32. There is an additional $0.32 for customs and insurance costs. The total cost of the shoe before selling to the shoes brand now comes to $17.14 ($15.00 +$0.50 + $1.32 + $ 0.32 = $ 17.14). When the retail store buys the shoe at $35.00, the profit earned by the company now comes to $17.86.
In most cases, the profit is likely to be less than $ 17.00, when the salesperson earns a commission based on the wholesale price, which can be estimated at 7%. In such scenarios, the company is likely to profit $15.45 for a single pair. Are you still confused about how the company manufactures a $100 pair of sneakers? There are even more to come, talk less of design shoes software.
Before we forget, we talked about a big retail store getting a discount of 5%. Assuming the company offered a 5% discount or free shipping, the profit will drop by $1.75 to %13.70. Again, the company has to use that $13.70 profit to pay for design shoes software, developers, sales managers, and many more costs associated with the shoe marketing.
The Shoe Anatomy
How can we discuss the shoe price without looking at the overall structure of the shoe? The cost of each part of the shoe is what determines the market price of the shoe. In this aspect, each component is categorically outlined with its percentage contribution to the final product. Having a quick outlook, these are the percentage impact of each part;
Upper part- 34% (this consist of all upper parts, hardware, laces, tongue, logo printings, and form)
The outer leather- 16%.
Labor, Overhead, and Profit- 27%.
The bottom unit (outsole)- 14%
Packing, hang tags, shoebox, and case box-6%.
Mold Amortization- 3%
The Shoe Costing Sheet
The costing sheet indicates all parts of the shoe, such as the packing box, silica gel pack, stuffing bag, etc. The factory takes the foil after the confirmation of the shoe design. It contains every part of the shoe, cost per unit, and the usage of every item. It is no surprise that even the wastage percentage is also added to the costing sheet. The wastage percentage can be defined as the amount of scrap material left when the parts are cut and fixed. The cost of wastage percentage must be paid for by the factory and the consumer in the later stage. The cutting loss can be less than 5% in mesh fabric and more than 20% in fine leather, where the factory cannot use any leather with cuts or animal scratches. After listing each part, the technician is mandated to check every element with its price and material usage. Although the task is time-consuming, the pennies can add up very fast when the production in 500,000 pairs.
Every shoe part is listed on the left side of the costing sheet, with a brief description note. The factory's costing calculations are indicated on the right side, starting with the toe cap. The toe cap is of suede material and priced at %1.25 per square foot. For the average sneaker, it takes 950 square feet to make a pair. There is a 10% cutting loss when making the toe cap using leather, which is translated as $0.8177 loss per square foot. The sheet is an essential tool for the shoe design software, in case it plans on designing shoes that will make a change in the market price.
How do you find the blog? Is the shoe production process an easy thing? I was totally confused at the cost breakdown the same way you might be. For the shoe to reach the market and meet its consumers' expectations, there are more hidden costs that most customers are unware of. When you visit the Nike store or design shoes online, you may be frustrated at its price, not realizing that the production factors' final cost was pre-determined. Although it may take Nike only $28.50 to make a shoe that will retail at $100, the company has to pay for a considerable percentage of custom duties and additional charges like SG&A expenses for its product to reach the customer. This explains why the cost breakdown can vary depending on the type of materials used and the discounts allocated to its sneakers. Before you add that favorite pair of sneakers to the shoe rack design, take a second look at the production look.