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

The thread was kind of hand wavy over the "$24* discount" for Footlocker? From the linked article...

>Footlocker’s purchase price (read footnote #3) for every sale of $100 shows up as $66 in their financial reports, and not $50. In plain terms, Footlocker sells its merchandise for a 24% discount on the average.

So $100 was never the sale price, just some made up, hoped for number that only appears on the shoe box, and not on anyone's financial statements. Really this should be Footlocker makes $6 on selling a $66 sneaker, for a margin of ~9%.

BTW, both Footlocker and Dick's have gross margins ~30% but Dick's has an operating margin around 12% while FL is 1-2%. Clearly FL is an inferior retailer.

And the linked article does cover Nike selling directly...

>And what happens if brands skip the retailers and operate their own stores? adidas and Nike already have their own shops, but direct-to-customer retail comes with its set of challenges. Brands will incur costs otherwise absent in the wholesale business model; spends like leasing+manpower+operational costs, store set-up and periodic re-modelling cost, the entire risk of inventory, and costs associated with warehousing and distribution. That’s only at the store level, there will be additional off-site resources needed in the back-end to support retail operations. The brands will make some extra margin selling out of their own stores, but the best case scenario will be an additional 10%, which is slightly above what a highly evolved retailer like Footlocker makes annually after taxes.

I would argue that a great deal of selling today is direct, no stores involved at all.

“ I would argue that a great deal of selling today is direct, no stores involved at all.”

That assumption burnt the previous Nike CEO post COVID.

Yep, direct from the manufacturer— no. Direct from the retailer without touching a physical store— yes.

>So $100 was never the sale price, just some made up, hoped for number that only appears on the shoe box, and not on anyone's financial statements. Really this should be Footlocker makes $6 on selling a $66 sneaker, for a margin of ~9%.

yes. but any arguments you see in favour of onshoring manufacturing would use undiscounted list prices, so it makes sense to start from that place.

You can buy shoes directly from Nike here in Australia. Is that not the same in the states?

Well, Since I am close to a Shoe Palace, I just walked in and talked to the sales man. He likes selling New Balance, and the price ranges from $34 to $167, and the $167 is a discount of 33%. I talked to him long enough that the assistant manager came over, and both of the really were ashamed at shoes made in Vietnam, and Cambodia, they got it, and I told them that

https://allamerican.org/investigation/new-balance/

I work in marketing for a large number of e-commerce brands across a variety of verticals, including shoes. Brand direct on Nikes website is bugged, but is absolutely dwarfed by sales in brick and mortar retail stores. Think about target/walmart/dicks/big5/etc and then think about just Nike.

You can, but most people go to a shoe store and check out different brands. Most people that end up buying Nikes aren't the people that only buy Nike and know what they want without trying on a few pairs.

Like unless you just know you specifically want some Nike shoe you aren't likely to visit Nike.com to buy shoes.

    > BTW, both Footlocker and Dick's have gross margins ~30% but Dick's has an operating margin around 12% while FL is 1-2%. Clearly FL is an inferior retailer.

ELI5: What is the difference between gross margin and operating margin? Is operating margin the same as profit margin?

Maybe easiest to explain from a software perspective.

So if you build a SaaS app, your company will incur a number of costs. You need to pay AWS for hosting, your support team, your sales team, your annual team retreat to Mexico, etc.

When you start measuring your profitability you then will separately measure the profitability of your product vs. your business.

The profitability of the product is your gross margin - essentially your revenue minus your cost of goods sold (COGS). Not all of your business expenses fall into here - only the costs that directly relate to supporting the product.

So… - Your annual team retreat won’t hit your gross margin: this cost isn’t essential to supporting the product - Your AWS costs will hit your gross margin (if you turned off AWS tomorrow, your product stops working) - Your Slack bill does not hit gross margin - Your product & engineering team normally doesn’t hit gross margin, but DevOps does (because DevOps is seen as essential to supporting the product while R&D is not)

Now in reality it does get a bit more messy. Businesses might allocate a % of engineering costs to GM to account for essential maintenance and bugfixes.

So the way to look at it is: what costs are essential to the continued delivery of the product and what are nice-to-have?

And then operating margin essentially considers all of the non capital costs. It’s a more comprehensive view of all the businesses revenue and costs.

For a smaller business it’s very normal for operating margin to be razor thin or even negative. Because just one or two engineers could cost more than your entire revenue.

But this entire concept is why software companies have historically been able to be unprofitable for so long. A business that’s losing a ton of money every month might only be losing that money because it’s investing very heavily in R&D. Or maybe it just moved into a new

As you scale the relative impact of a lot of those costs will go down significantly - e.g. your engineering team cost will stop being 300% of your revenue and will start being 20% (you don’t hire engineers linearly with growth).

So the theory is that if you can find a software that has: - a big market - great gross margin

Then with just some upfront cash investment you can provide the business enough runway to grow the revenue to the point where the impact of some of these expenses becomes very small. At a certain scale, a product with 50%+ gross margin will be producing so much cash that it can pay for the rest of your operational expenses without further investment.

I agree, isn't most selling online nowadays?

This also doesn't make sense because buying shoes from Nike.com costs roughly the same as Footlocker. Is Nike taking that 50% cut in this case? Article definitely hand waves away a ton of the complexity around tariffs and global trade.

My favorite line is: "Asian manufacturing in Asia produces US jobs. You go to Footlocker to buy a pair of $100 shoes because you can afford them. This creates jobs for the Footlocker employees".

It feels like people have completely flipped their views on offshoring manufacturing in the last 6 months. If you go back 10 years ago we were barraged with stories about Foxconn, corporations exploiting workers in developing nations, and scenes of abandoned manufacturing cities like Detroit. The popular view was that we needed to build our manufacturing base back up and that using developing nations to pump out cheap disposable goods was bad for everyone except giant corporations.

Now we are getting told that corporations offshoring all their labor to developing nations is good, and that the USA should not do manufacturing. This article even asserts that we will lose jobs if we produce things domestically.

I don't agree with the ham-fisted bullying approach Trump is using, but I do agree with the philosophical underpinning. Offshoring all our manufacturing is not a good long term strategy and will slowly erode the value of labor and our economy.

The quoted article from the thread is from 2016, so yeah more selling is online and direct from the manufacturers.

Nike Sales DTC versus Total

  Fiscal Year | DTC Sales (in billion USD) | Total Sales (in billion USD) | DTC as % of Total Sales
  ----------- | -------------------------- | ---------------------------- | ----------------------
  2020        | 12.4                       | 37.4                         | 33%
  2021        | 16.4                       | 44.5                         | 37%
  2022        | 18.7                       | 46.7                         | 40%
  2023        | 20.3                       | 47.6                         | 43%
  2024        | 21.5                       | 48.2                         | 45%

45% of Nike's sales in 2024 were DTC, see chart above.