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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 | 3 comments | 09 Apr 25 12:58 UTC | HN request time: 0.001s | 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. myrmidon ◴[09 Apr 25 16:51 UTC] No.43634336{3}[source]▶
If you can make $5k/year by investing $100k into shoe-selling, then those profits have to rise at the same rate as base costs, otherwise, people will just invest into eggplant-selling, instead.

Another perspective is that Footlocker would sell you those $25 Nikes for $300 if they could-- but if they tried, someone else would get active in the retail business and invest into a slightly less profitable operation (with lower margins) to eat into their market share.

But if the costs for everyone rise, raising the prices proportionally (instead of by fixed amount) makes total sense because it is not really gonna cost you market share (only decrease total market volume depending on consumer price sensitivity).

Note: We just observed those exact dynamics with Covid/Ukraine driven price increases, where retailers and other middlemen actually came out really good instead of sacrificing their margins to keep consumer costs down.

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2. pfannkuchen ◴[10 Apr 25 01:54 UTC] No.43639891[source]▶
But profit for the investor is based on what they put in and get out, no? Profit calculated against the company’s cost seems like an implementation detail for the investor.
3. throwaway173738 ◴[10 Apr 25 03:20 UTC] No.43640289[source]▶
You can only raise prices so much before people look for alternatives to what you’re selling or do without. What we’re going to see with tariffs isn’t just price increases. We’re going to see some price increases, some reduction in selection, some stores closing, and some layoffs.