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

> 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.

In theory, you're right, however it ignores some key points;

-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.

Additionally, their risk increases.

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...