Nike is arguably one of the most popular names in the footwear market today, and for good reason. They make shoes for various purposes, have had collaborations with some of the biggest names out there, and have an excellent marketing team that sees that the Nike name is plastered everywhere, especially in the world of sports.
How has the Nike brand become one of the biggest shoe companies in the world, though? Many people may assume that it’s because they are charging consumers a hundred bucks or more for a product that is only costing them a few dollars to manufacture in factories. They think Nike has been overcharging us or straight-up ripping us off for athletic footwear, but as it turns out, this isn’t necessarily the case.
So, just how much does it cost to make Nike brand shoes? The answer may surprise you.
What is the Cost Breakdown for Nike Shoes?
Let’s take a look at how much it costs Nike to make a shoe that they charge around $100 for in stores. Here is the cost breakdown when it comes to manufacturing, the supply chain, and more.
Factory Free on Board (FOB) Cost – $25.00
The first major cost to Nike is the Factory Free on Board (FOB) cost. The shoe is made in a factory, typically overseas, and then Nike buys the finished product. Since their factories are so far away, the shoes will need to be shipped to their destination. FOB means that the seller is in charge of getting the shoes onto a ship Nike has chosen. This usually costs them about $25.00.
Sea Freight and Insurance – $1.00
Once the shoes have been loaded onto the ship by the factory, they begin their journey by sea. Sea freight, and the insurance that comes along with it, cost Nike about $1.00.
Duty – $2.50
When the shoes finally arrive in the US, they have to be imported legally into the country. The import duty for Nike sneakers is about $2.50.
Total Landed Cost – $28.50
The FOB cost, sea freight and insurance, and duty make up the total landed cost to Nike, which is $28.50.
How Much Profit Does Nike Make Off Their Shoes?
So, it costs the Nike brand approximately $28.50 to make a pair of shoes that retails for $100. Does that mean they are making $71.50 each time a customer purchases them?
As it turns out, their profits are actually significantly less than $71.50. See, Nike sells their shoes to retail stores for only about $50.00 a pair. This markup leaves them with a $21.50 profit margin per pair of sneakers.
Even after they sell them to stores, Nike still has expenses to pay with that profit. A good chunk of the $21.50 goes to SG&A, or Selling, General, and Administrative Expenses. After all of these additional costs, and, of course, taxes, this leaves Nike with only about $4.50 true profit per Nike sneaker sold. Not really the profit margin you were expecting, huh?
Wait a Minute – If Nike is Selling Their Shoes to Stores at $50 Per Pair, Why Do They Cost Me $100?
Photo by K X I T H V I S U A L S on Unsplash
Well, the retail markup for a Nike shoe is often around 100%. So, the store profit per pair of shoes sold would actually be more than Nike, about $50. However, like Nike, they still have expenses of their own that will take up a certain percentage of that product.
Stores still have to pay for things like their rent, utilities, insurance, and employee salaries with the profits that they make on their products.
However, they may make quite a bit less than this when they have sales. For example, if they sell a Nike shoe for 50% off, their profit is almost next to nothing.
So, Is Nike Ripping Us Off With Their Sneaker Prices?
When you consider the full picture, it certainly doesn’t seem like sneaker companies or even retail stores are ripping off consumers with their sneaker prices. Perhaps shoes just cost more than you think.