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How much do you think it costs to make a pair of Nike shoes in Asia?

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Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#121

Post by slg »

milesskorpen wrote: post #104
aimor wrote: post #89

Trying to summarize the summary for myself From a $100 shoe that sells for $76: - $24 goes overseas (22 cost, 2 freight) - $8 goes to the US gov't (3 import, 2 Nike tax, 3 Footlocker tax) - $33 goes to US employees or businesses (5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses) - $5 goes to Nike (11% return) - $6 goes to Footlocker (8% return) But now with 100% tariffs, it's a $100 shoe that sells for $100…

The piece to add there is that all this money is getting paid by the consumer. The overseas piece doesn't change, same number of US dollars going to the other country. The $24 increase in cost is paid by the US consumer.

It's just a sales tax. I don't know why people opposing tariffs never talk about them in this manner because sales taxes are something people innately understand if they have spent any time in the US and "tariffs" clearly aren't as well understood.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#122

Post by aimor »

milesskorpen wrote: post #104
aimor wrote: post #89

Trying to summarize the summary for myself From a $100 shoe that sells for $76: - $24 goes overseas (22 cost, 2 freight) - $8 goes to the US gov't (3 import, 2 Nike tax, 3 Footlocker tax) - $33 goes to US employees or businesses (5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses) - $5 goes to Nike (11% return) - $6 goes to Footlocker (8% return) But now with 100% tariffs, it's a $100 shoe that sells for $100…

The piece to add there is that all this money is getting paid by the consumer. The overseas piece doesn't change, same number of US dollars going to the other country. The $24 increase in cost is paid by the US consumer.

Yes that's right. The manufacturing cost in the US would have to be $46 or less to undercut the import. So ignoring tax changes, something like...

A Made in USA shoe that sells for $100:

- $7+ goes to the US gov't (? shoemaker tax, 3 Nike tax, 4 Footlocker tax)

- $79 goes to US employees or businesses (46 to shoemaker, 5 Nike marketing, 11 Nike expenses, 17 Footlocker expenses)

- $7 goes to Nike (11% return, 7.15 exactly)

- $7 goes to Footlocker (8% return, 7.45 exactly)

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#124

Post by hamburglar »

pfannkuchen wrote: post #105
ty6853 wrote: post #86

Earlier quoted context omitted.

Because the market recognized value add is the capital investment and returns, including the credit basis on which inventories flow. These people are operating on a per $ basis, not a per shoe basis. If the margins % lower then the capital will flow to something else more profitable and then prices rise until the margins are relatively flat across similar productive investments.

That doesn’t really make sense to me. The market cares about dollar returned vs dollar invested. If some piece in the middle of the chain goes up and end customer prices go up as well, that doesn’t directly affect investors at all. The way it could and likely will affect investors is if people start buying fewer shoes, but that is a different process than what you are describing. If I’m off base can you help me under…

Surely you can see that putting in $75 to make $150 for a $75 profit is significantly different than putting in $10075 to make $10150 for the same $75 profit, yes?

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#125

Post by alangibson »

hx8 wrote: post #83

> But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses. I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe…

Short answer is return on investment. If I get $50 on a $75 investment when I used to get it on a $50 investment, my ROI goes down. My investors are now mad. They sell their stakes and buy into a company with a better ROI. My stock price goes down and now I'm mad.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#126

Post by addaon »

pfannkuchen wrote: post #105
ty6853 wrote: post #86

Earlier quoted context omitted.

Because the market recognized value add is the capital investment and returns, including the credit basis on which inventories flow. These people are operating on a per $ basis, not a per shoe basis. If the margins % lower then the capital will flow to something else more profitable and then prices rise until the margins are relatively flat across similar productive investments.

That doesn’t really make sense to me. The market cares about dollar returned vs dollar invested. If some piece in the middle of the chain goes up and end customer prices go up as well, that doesn’t directly affect investors at all. The way it could and likely will affect investors is if people start buying fewer shoes, but that is a different process than what you are describing. If I’m off base can you help me under…

Selling shoes that you purchase wholesale for $75 has costs that go beyond selling shoes that you purchase wholesale for $50. There's the cost of money to buy the inventory, the cost of holding the inventory (and insuring it), the cost of shrinkage, the risk of being unable to sell some of that inventory. Most of those costs scale with the wholesale cost of the product being sold, although not necessarily fully linearly. As a result, a top line $50 margin on a $75 product gains you less than a $50 margin on a $50 product -- in a world with cheap capital. If you're restricted to holding $N of inventory due to cost of capital, this becomes even worse -- not only are your bottom line margins going down as much as 15%, but you're able to do it on only two thirds as much inventory, which (depending on turnover rates, etc) can drive you even lower.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#127

Post by yapyap »

rayiner wrote: post #42

Americans need to get over their view of “Asia” as being about making shoes. When I was working in engineering in the early aughts, we mocked the Chinese as being able only to copy American technology. Today, China is competitive with or ahead of America in key technology areas, including nuclear power, AI, EVs, and batteries. We need to anticipate a future where China is equal to America on a per capita basis, but f…

> Americans need to get over their view of “Asia” as being about making shoes

I’m not sure if you’re just speaking on what you experience or because of this post but the OP is a clothing guy so it makes sense he will look at it from a clothing (including shoes) perspective.

I agree though, if Americans truly do see Asia as just the cheap clothing factory continent they’re sorely mistaken. All you have to do is to just look at TSMC (Taiwan Semiconductor Manufacturing Company) and realize that if you were impacting just that company alone you would get a slap in the face as a country, all (~70%) the major chips come from there.

I am aware the US is developing a Semiconductor factory in their own country but it is not done yet and it will not go as tiny in nms as TSMC already is.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#128

Post by matt-p »

hx8 wrote: post #83

> But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses. I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe…

In theory, you're right, however it ignores some key points;

-Some of their costs are in fact linear based on the cost of the item.

Inventory cost doubles, perhaps now they have to take out higher interest debt to finance that. Things like insurance would also at least double.

Transaction fees (like card fees at about ~2%) and other parts (like returns risk) also increase linearly.

-Reduced sales due to increased prices.

If an item is less affordable people buy less of them. Theft will also go up. If trainers were $100 a week ago and are now $200 - you will sell less, they will be stolen more.

All in you actually do need more than the fixed $50 of margin if the wholesale cost of the item changes from $50 to $100 - it may actually be that $100 is the correct number, or even too little - sales volume would concern me the most, particularly on this 'luxury' item.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#129

Post by treis »

hx8 wrote: post #83

> But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses. I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe…

Because it's mostly wrong. Luxury goods like Nike's, iPhones, et.al. are priced to maximize revenue. If those started growing on trees for free it wouldn't appreciably change the price. They'd just bank the extra as profit.

Re: How much do you think it costs to make a pair of Nike shoes in Asia?

#130

Post by throw310822 »

wegfawefgawefg wrote: post #48
bitshiftfaced wrote: post #13

Earlier quoted context omitted.

Isn't that an even more compelling reason to do it, since unemployment is already low? It means more vertical integration, more domestic investment and productive capital.

i think a lot of people are fixating on the market. I will share a metaphor you can spread. I run a mile every morning not because it is the most calorie efficient way to get around, nor because it is the most monetarily productive use of my time, but because it keeps my legs strong and me healthy.

It's a good metaphor, but I guess the idea here is that a middle-aged sedentary person has suddenly decided, for his own good, to only eat what he can catch and kill with his bare hands.
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