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

-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.

I would think that specialised and expensive shoes have less markup than cheaper and more common shoes. But if the cheaper and more common shoes become 50% more expensive then there aren’t really any cheap shoes left to feed the bottom line…

All of that would typically be tied together as inventory cost (aside from theft, though some people do).

Lots of fascinating things in retail. Around half of all theft will be from your own employees, for example.

People will go and shop around for the best price on a $300 item, but for a $10 item they'll buy whatever's infront of them, so long as it's not clearly outrageous.

The retailer & the wholesalers involved all have a reasonable idea about what people will pay for the products in question. The portion of that final consumer price that stays with the retailer is just the result of negotiation.

The retailer can likely buy decent alarm clocks from anyone, so alarm clock makers & wholesalers have no pricing power and the retailer can demand high margins.

But the retailer can only get Garmin from Garmin. If Garmin has done a good job promoting the brand, such that the retailer feels they have no choice but to stock it, they will have to suck it up and accept low margins.

I'm pretty sure Footlocker doesn't borrow money to pay Nike up front for inventory. Nike is smart enough to know that there's zero chance their shoes will be sold if they sit in a warehouse, so Nike might as well ship them to retailers and get paid gradually as the shoes are sold to consumers.

If the shoes don't sell, their losses can get much larger.

They need the potential to make more profit to offset this this potential for larger losses.

It's kind of like asking why Sears needs to make $200 in profit selling a refrigerator but only $2 selling a t-shirt.

Because that's just how it works...

The general point is that additional cash is tied up in shoes which cannot do something else. Who bears the burden of the loss of that additional cash changes over time (Nike to Footlocker to consumers) but the burden is bourn.

(And that's before you count the impact of the inevitable reduction in unit sales. There're various kinds of overhead that don't scale linearly units sold, or that have a long lag before scaling, or have a significantly-sized step function in the scaling.)

BTW, where did the cash go? Oh yeah, into the hands of the US federal government. We have a word for that: tax.