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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 | 2 comments | 09 Apr 25 12:58 UTC | HN request time: 0s | source
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phkahler ◴[09 Apr 25 19:06 UTC] No.43636256[source]▶
I've always wondered why the supply chain has exponential price increase at each step. The example given (guessed at) is the factory produces the shoe for $12.5 and sells it to Nike for $25. Nike then sells it to Footlocker for $50 and they then sell to a customer for $100. Everyone expects to mark up their costs by about 100 percent. Why is that the case? Even if we say the markup isn't 100 percent, why is it a percentage of cost at all? If the shoe factory can make $12 then why can't Nike and Footlocker both make $12 and retail the shoe for $50?

I'm not saying things should be different, just wondering why it is the way it is. If Footlocker was also selling some cheapo shoe for $50 presumably they do the same amount of work to bring that to the store. Are they only paying $25 for those? Why does it cost half for them to handle a cheaper shoe?

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1. hattmall ◴[10 Apr 25 03:43 UTC] No.43640417[source]▶
It's more of a work backwards thing. The price is set by demand, what the market will bear, etc. Then for well established supply chain / commodity goods overhead tends to rise to meet COGS. The reason is that there exists profit taking at every level of "overhead" but when the cost of revenue exceeds the cost of goods it becomes a marker of inefficiency. In the same way when manufacturers recognize that their cost are less than the retailers overhead to generate sales they see room to raise costs so markets trend to 50/50.

But consider Footlocker sells a lot of other shoes for much less than Nikes. Those shoes don't cost any less to manufacturer and depending on the brand are just as well established so the 50/50 ratio still applies. It's just that at each level the overhead adjusts to meet the ratio over time.

For fringe brands the retailers markup can be huge 10x or more.

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2. mcosta ◴[10 Apr 25 15:00 UTC] No.43644509[source]▶
> when the cost of revenue exceeds the cost of goods it becomes a marker of inefficiency

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