The Entire Procedure of Determining The Cost of a Sneaker
The Entire Procedure of Determining The Cost of a Sneaker:
Determining how much a pair of sneakers cost is often a questionable debate. Most big brands in the shoe industry make thousands of dollars on these glitzy and fashionable sneakers. Typically, a decent pair of sneakers value $100, so the real question is: How much does a pair of sneakers actually cost? There is a whole science as to how sneaker pricing works.
On average, it costs around 28$ to make a sneaker that will be available for wholesalers at 50$, which means the company will make about 21$, but after the SG&A and taxes, the actual profit will be around 4$. The wholesaler will sell it for 100$. This cost breakdown is for Nike sneakers.
Not long before, sneakers were meant to be unbranded, universal, and low-priced. It stood as one of the most loved and sought-after things by kids because it would be easy and simple to run around. Moreover, parents especially preferred a pair of sneakers for their kids as they saved a great deal of wear and tear on a "real" pair of shoes.
However, over the years, the low-priced sneakers and gradually transformed into a designer wear running or athletic shoe. In this whole process, these sneakers have led to the emergence of an entirely new classification of what we now call "Luxury Goods."
Basic Sneaker and its Pricing
Usually, you can find a basic sneaker that costs around $70 US Dollars. The majority of the retail stores purchase sneakers from various branded stores at a wholesale rate, roughly $35. If this is a significant retail store, they are also likely to receive a free freight or discount of 3-5%. This is how these retailers take away almost 50% of the price, which is a significant fragment. However, the bigger the retail store, the more expenses they have.
The retailers also have to bear additional costs like paying wages to their employees, large-scale advertising, lighting expenditures, and, most importantly, spending huge sums on rent. The store also has to set the last remaining pair of sneakers on sale. If some sneakers are not in high demand and are taking ages to be sold, most of them are bound to be put up on sale.
You will often catch signs like "30% off sale" on the retail store's windows. This usually means that this particular store is undergoing losses and not making any money. A sale sign typically reflects that after paying off all the overheads, the store is incurring losses.
The Real Cost of Making A Sneaker
The shoes we buy at 70$ actually cost 15$ to produce, and we get it for 7$, Yes! I was shocked as well, but this is how shoe business works. Once any shoe brand purchases a shoe from the factory outlet, it needs to be shipped. The majority of the shoes are shipped via sea freight. Sea freights from China to the United States of America roughly cost around $0.50 per pair.
Usually, a forty-feet shipping container weighs around the size of a semi-truck trailer. It can carry almost 5,000 pairs of sneakers. So, one box filled with 5,000 pairs traveling from China to California, for instance, would cost $2,500. After the sneakers reach the United States of America, they need to be imported legally.
In the case of leather sneakers, the USA's government also calls for an additional import duty of 8.5% of the Free On Board (FOB) price. This includes an extra $1.32 for the import duty and $0.32 for insurance and customs duty. By adding all these expenses ($15.00 + $.50 + $1.32 + $0.32), the cost of the sneaker in the warehouse now sums up to $17.10.
After the following expenses have been dealt with, it is time for the sneakers to hit the stores. Selling to the branded stores at a wholesale price of $35 compared to the actual cost of $17.10 should result in a profit of $17.90.
However, the gain is less than $17.90, since the salesmen also receive commissions depending on the wholesale price. Typically, if a salesman gets a 7% commission at a wholesale price, it amounts to $2.45 on a pair of sneakers that cost $35. The new profit should now amount to ($35 - $17.10 - $2.45), only $15.45 per pair.
If the retailer is big and tries to negotiate a 5% discount, you can reduce an additional $1.75 and sum the total profit up to $13.70. But this is still not it. From this amount of $13.70, a shoe brand has to pay off the product managers, designers, developers, marketing managers, sales managers, athletes, spokespersons, advertisers, etc.
So, the question of what makes a pair of sneakers cost $15 still looms in the air. To understand this, it is essential to understand the anatomy of a sneaker. The next part mentions the breakdown of all the necessary costs that are incurred in making a sneaker.
Anatomy of a Sneaker
The upper of the shoe roughly covers 34% of the total cost incurred in making a sneaker. This includes all the upper parts, logo prints, hardware, laces, tongue, etc.
The leather outer of a sneaker account for almost 16% of the cost.
The labor costs, profit, and overhead costs account for 27% of the total cost.
14% of the cost account for the outsole, which is the sneakers' bottom unit.
6% of the cost account for the packing, including case box, shoebox, and hang tags.
Lastly, 3% of the cost account for mold amortization. If there is any novel tooling, then it can be compensated to the factory on each pair rather than purchasing novel molds altogether.
The Footwear Costing Sheet
Once the design of the sneaker is finalized, the factory takes the sheets of specification and then do a detailed calculation of how much each line item costs. The costing sheet comprises all the shoe parts such as the stuffing paper, the packing box, hang tags, the silica gel packs, etc. All the items that are part of the shoebox should be included in the costing sheet. All items will be listed down respectively against the costs per unit along with the usage of making each part.
The waste percentages, also called the cutting losses, are also included in the costing sheet. This is the number of scrap materials that remain after all the sneaker parts have been cut out. It is remarkably weird, but the scrap costs are also part of the shoes that also have to be paid for. The cutting loss is quite low for mesh material, almost less than 5%.
However, when it comes down to top-notch and excellent quality leather shoes or other extravagant shoes, there is no compromise. These factories can definitely not use any leather that has scars or cuts from the animals. The waste percentage of leather shoes can be as high as 20%. After the usage and cutting losses have been listed, the total cost per pair can be accumulated.
With all the listed parts, the costing specialists can view the material prices for all the parts and calculate the usage. Preparing and managing a costing sheet is tedious, time-consuming, and requires a sheer amount of hard work. However, if the production runs at a 500,000 pairs rate, then money can add up quickly. A proficient costing specialist allows you to save up on many bucks, sometimes even worth an entire salary.
Shoe Costing Sheet
In the costing sheet, you can find a list of all the shoe parts on the left corner with a brief note of all the material specifications. On the right side are included all the factory cost calculations of each pair. For instance, a toe cap made of suede materials costs $1.25 per square feet. A sneaker requires 0.950 square feet of suede material to make the toe cap of one pair.
After the leather is cut, there is 10% of the waste incurred. The total cost for one pair of suede toe caps will cost $0.8177. Similarly, a costing sheet includes all the components of a shoe, its per pair cost, the total material usage, waste percentages, and overall material costs.
A costing sheet is an essential tool for all shoe designers and developers while designing a particular shoe to meet the target price.
The Hidden Construction Prices
The location, design, and manufacturing process play an essential role in deciding and determining the sneaker's final price. Manufacturing a top-notch and high-end shoe requires cold cementing the leather-based uppers over rubber sole units.
· There are expensive sneakers, and then there are some less costly or cheaply priced sneakers. In a costly sneaker, the factories use costly and top-quality leathers, such as pebble leather, which does not crack or crease over time.
· An expensive sneaker also comprises thicker leather. It ensures the sneaker keeps its shape and appearance for a more extended period.
· Lastly, you will often find tumbled leather in high-end sneakers. Many moderately priced shoe brands use this leather to reach an optimal level of affordability and quality.
Converse Sneaker Construction
On the other hand, a converse sneaker is a vulcanized sneaker that undergoes a primitive construction procedure where it is placed in the oven. It is basically hardened and treated with Sulphur at very high temperatures.
The process of making a converse sneaker is rather inexpensive and less complicated.
The majority of the converse sneakers are cup sole units.
Interesting Facts about Cheaply Priced Sneakers
The thing about cheaper sneakers is that they are comprised of lower quality Ethylene-Vinyl Acetate (EVAs) in the midsoles.
They also use more inferior quality materials in constructing the uppers.
Ways to Spot a Top-Quality Sneaker
The leather is one of the easiest things to identify in determining the quality of a shoe; however, it can sometimes be harder for performance shoes.
The flexibility of materials like leather and suede helps determine whether a sneaker is a top-quality or low quality.
Another sign is smelling the interior of a shoe. If your sneaker smells strongly of glue, you will know that it is comprised of cheap materials.
An expensive and top-quality shoe typically gives off a smell of good quality leather.
If the sneakers are lightweight, they will be made of costly items that immediately reflect better quality.
If a pair of sneakers appear like they have not undergone hours and hours of manufacturing, it is likely that the manufacturing costs are low. Hence, you are probably looking at a pair of Converse sneakers.
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