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

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689 points taubek | 1 comments | 09 Apr 25 12:58 UTC | HN request time: 0s | source
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hx8 ◴[09 Apr 25 16:16 UTC] No.43633780[source]▶
> 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 go up? The costs of handling the shoes, retail space, advertising, and labor are all fixed.

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ty6853 ◴[09 Apr 25 16:20 UTC] No.43633824[source]▶
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.
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pfannkuchen ◴[09 Apr 25 16:29 UTC] No.43633994[source]▶
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 understand what you are saying?

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1. addaon ◴[09 Apr 25 16:40 UTC] No.43634145{3}[source]▶
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.