A dear friend of mine asked if I know how much it is to make a pair of shoes.
The info is from the 90s so I am sure the cost is much higher these days, but I think the idea and the cost structure should be similar. Please correct me me if I am wrong by emailing me.
Some people complain that Nike spends too much money on promotion and advertising, and not enough on R&D. But what they are overlooking is the fact that without the promotion and advertising, the products won’t sell as well.
Imagine taking the Jordan logo or Kobe logo out of a shoe and not advertise/promote the shoes at all, do you still think it would have sold just as well ?!
The R&D cost for this particular model (which is shown as $0.25) appears to be very low, but my guess is since this is a retro (pegasus came out around 1983), the cost obviously will be much lower than say, creating a new model.
If you are interested in seeing how the Pegasus shoes evolved over the past 28 years, click here
The cost of a US$70 pair of Nike “Air Pegasus” shoes is broken down into its component parts. The data was compiled by researchers at the Washington Post newspaper using information from Nike, the US Customs Service, a large national retail chain, the Athletic Footwear Association, industry consultants and executives. All costs are in US dollars. (Washington Post 1995)
Other researchers have done similar breakdowns and come up with much the same result (see for example Brookes and Madden l995: 9). Note that the cost of production labour is only $2.75 or 4 percent of the price paid by the consumer. So wages for production workers could be significantly increased without adding much to the cost of the shoes.
Even if wages were doubled and the extra cost passed straight on to the consumer, it would add no more to the price of the shoes than the cost of a pair of shoelaces. It would add 4 percent, or in Australian terms, A$4 onto the cost of a A$100 pair of shoes. Consumers would hardly notice, but it would make an enormous difference to hundreds of thousands of production workers and their families.
Production labour $2.75
Rent, equipement 3.00
Supplier’s operating profit 1.75
Cost to Nike $20.00
Research and development 0.25
Promotion and adversiting 4.00
Sales, distribution, admin. 5.00
Nike’s operating profit 6.25
Cost retailer $35.50
Retailer’s rent 9.00
Retailer’s operating profit 9.00
Cost to consumer $70.00
It should be noted that Nike spends nearly twice as much on promotion and advertising as it does on production workers’ wages. In March 199S for example, tennis starAndre Agassi was paid a reputed A$140 million to promote Nike shoes and clothing.
Source for the picture used on top