derek guy Profile picture
Apr 8 19 tweets 8 min read Read on X
How much do you think it costs to make a pair of Nike shoes in Asia?

I'll show you. 🧵 Image
In 2014, Steve Bence served as Nike's Program Director in Footwear Sourcing and Manufacturing. He pulled back the curtain on manufacturing in an interview with Portland Business Journal. He said that, if a sneaker retails for $100, it generally costs them about $25 to manufacture Image
This is the FOB cost. In the industry, "free on board" is the shoe's cost at the point when it's loaded onto a vessel at the port of origin. "Free" refers to how the factory will pay to deliver a finished product up to the point when it boards a ship—the rest is your problem. Image
Tariffs are calculated on the declared value of the import. In this imaginary case, if Nike paid a factory $25 to produce a pair of sneakers, then their tariff cost is $26. This roughly doubles the cost of making a pair of shoes in Asia and bringing it into the US (landed cost). Image
"OK," you say, "so that leaves them with a $49 profit. $100 retail minus $25 manufacturing cost and $26 tariff. That's still good."

Not so! There are other costs associated with getting that shoe into your closet. You are not collecting that sneaker at the port.
In 2016, Sole Review took a look at Nike's income statement and came up with this breakdown. On an imaginary $100 shoe, they estimate manufacturing cost is $22. Add freight, insurance, and import taxes, they estimate it costs Nike $27 to bring that shoe from Asia to the US. Image
They also looked at Footlocker's income statement/ 10k filing and came up with this model. On the same imaginary $100 shoe, Footlocker makes $6 after expenses.

Of course, Nike can retail the shoes themselves, but then they'll also take on similar business costs. Image
The actual costs associated with shoes will vary depending on the design, sourcing, and other specifics. The imaginary shoe above is set at $100 to make things easier as a percentage. For completeness, you can read Sole Review's story here:

solereview.com/what-does-it-c…Image
Image
Image
From this model, you can see a few things.

First, adding $26 tariff at the port doesn't just add $26 to the final price. Everything here works off of percentages. In this simple model, we say Nike has a landed cost of $25, sells it to Footlocker for $50, and they retail at $100 Image
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. Image
The second thing we see is that 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, Nike designers, marketing teams, and other US people throughout this chain. Image
The third thing we see is that Nike only paid the factory about $25 to make these sneakers. How much did it cost the factory to produce them? I don't have numbers on that, but if we assume the usual turnkey model, then maybe $12.5? And how much of that went to the worker? Image
Again, it's a popular misconception that all overseas production is sweatshops. Production can be done ethically abroad and still be relatively cheap because the cost of living is not the same everywhere. I encourage you to note assume that every Asian worker is a slave.
We have some idea of how much it would cost to make sneakers in the US. Victory/ Hersey (before they closed), SAS, and certain New Balances are made here. They retail for about $220.

Note, many of these rely on imported materials (up to 30%). So they will go up with tariffs. Image
Image
I think making shoes is a perfectly fine job, although it suffers from the same problem as other manufacturing jobs. As the US has switched to a post-industrial economy, a lot of the wage growth has been in knowledge intensive services—medicine, law, engineering.
That means the Nike designer and marketer typically see more wage growth year-after-year than someone working on the manufacturing line (especially if they're not unionized and can leverage collective bargaining power). Image
Image
Tech optimists think that technology will make factory jobs easier and better for workers. I'm less sanguine. I think some tech improves productivity and wages; other types of tech deskills and eliminates jobs (look at AI with illustration art).

I raise this only because I see some people suggest that it only costs Nike $2 to make a pair of sneakers in Asian sweatshops, which retail on the shelf for $150, and this is $148 profit. And if we move this back to the US, American workers can capture some of that money.
I think the truth is much more complicated. Manufacturing overseas can create certain jobs here by offering a more affordable product. In the end, you may actually see a *loss* of US jobs as fewer people pay for $220 sneakers, both at home and abroad. Image

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with derek guy

derek guy Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @dieworkwear

May 15
Anthony Constantino, CEO of Sticker Mule, says that he would use a US manufacturer for his company's t-shirts. However, he feels the US company doesn't meet his quality standards and they "must maintain quality."

So what constitutes a quality t-shirt? Let's find out. 🧵
For reference, I'm comparing Sticker Mule's t-shirts (made in Nicaragua) to Bayside Apparel (fully made in the US from fiber to finish). Sticker Mule charges $19 for their t-shirts. Organizations that print on Bayside blanks sell their merch for $27. Image
Image
I should state at the outset that to properly determine quality, I would need to send these t-shirts to a lab, which I'm unable to do because I don't own a Sticker Mule t-shirt. Additionally, quality can be subjective, as it depends on your preferences.
Read 20 tweets
May 10
It's very hard to find a suit jacket that can be worn with jeans, assuming you mean the kind of suits that would be worn for business. Let me show you. 🧵
What do we mean by "suit?" The term suit simply means that the jacket and pants were cut from the same cloth. You can have corduroy suits or linen suits. But when most people say suit, they mean the kind of outfits that would be worn for business, funerals, and court. Image
Image
Such materials are typically dark in color and slick in feel. Historically, men wore these things with white dress shirts, dark ties, and black oxford shoes to do business in London. This history is why this outfit telegraphs "I'm here for serious business." Image
Read 12 tweets
May 9
I disagree. In this thread, I will tell you what's wrong with Stephen Miller's outfits. Hopefully, this will help you judge whether a suit fits when you're shopping for one. 🧵 Image
For context, here is the video that @FischerKing64 is responding to. Can you spot the issue with this suit?
It appears that Miller has spent a considerable sum upgrading his wardrobe since his time in Trump's first administration. I suspect these are all made-to-measure suits because they look new and come in a wide variety of materials. Unfortunately, all of them exhibit a collar gap. Image
Image
Read 16 tweets
May 7
Sure. I'll give a breakdown of why most people think the right pant is better. 🧵
For reference, the reply is in response to this video, where it appears the majority of people like the right pant better on this person. Why is this?

IG justin__kwan
Most people approach clothing in terms of trends. If skinny or baggy clothes are fashionable at the moment, they go with the crowd. Trends certainly play a role in how we perceive things. Even Prince Philip, the Duke of Edinburgh, wore slimmer trousers toward the end of his life. Image
Image
Read 19 tweets
May 5
pretty great Image
Image
Image
Image
Image
the tassels on lewis hamilton's outfit appear to be hand knotted, an old technique that's somewhat disappearing, even in the world of bespoke Image
Image
Image
Read 17 tweets
May 3
There are lots of misconceptions in the replies to @mattyglesias's post below. Will address some of them in this thread. 🧵
"We no longer make clothes in the US."

Not true! US-made clothing has always existed. However, the quality stuff struggles because people are often not willing to pay what it costs to produce these items. These items will only get more expensive with tariffs, not less.Image
Image
Image
Image
"Tariffs will get rid of cheap, crappy clothing."

Also not true! The US makes a lot of cheap, crappy clothing, some even in sweatshops. This system is made possible because US garment factories run on the piece-rate system, where workers are paid per operation, not time.Image
Image
Image
Image
Read 11 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(