So, how much does it REALLY cost Nike™ to make a flash pair of Air Jordan XXXIs? Nike must be making big bucks on every pair of shoes they make, right? Why does it cost $185.00 to buy a basketball shoe? What is the real cost to make a pair of these high end sneakers?
Cost to make Air Jordan XXXIs
I don’t have any inside information from the Nike costing department, I don’t know anybody from inside the factory that can pass off secret information, but we can work the price backwards and make a few guesses.
Let’s start with the US retail price of $185.00. The shoe store buys the shoe from Nike in bulk at the wholesale price, which is about 50% off retail. Thus, the wholesale price is around $90 to $92.50. If this is a big retailer maybe they got a 3-5% discount or free freight to their stores. Because we are talking about Nike Air Jordan XXXIs maybe Nike does not need to give any discounts to retailers? To the same point, the retailer may be looking for a better profit margin because this shoe is in such HIGH demand.
There it is! WHAM! The retail store just took 50% of the Air Jordan price right off the top. Why does the retail store get to make all that profit? Remember, the store must pay their employees, rent the store space, pay to keep the lights on and they may have borrowed the money to buy the shoe from Nike. So, the store collects 50% but has lots of expenses to cover. While the Air Jordan XXXI will sell out fast, the store will have other shoes they need to sell at a discount.
So how much does Nike get? Remember, Nike does not actually own the shoe factory. Of all the major shoe brands only New Balance owns a shoe factory. So what did Nike pay the factory for that $185.00 shoe? They paid roughly $25.00 USD per pair.
How can Nike sell a $25.00 shoe for $92.50?
Once Nike buys the Air Jordan XXXI from the factory in China they need to ship it. Most shoes are shipped by ocean freight from China to the USA. An ocean container can cost $4000 to ship and will hold around 3000 pairs of a high top shoe. Shipping + fees can be around $1.50 per pair.
Once the Air Jordan XXXI arrives in the USA, it must be legally imported. In the case of a textile and leather sneaker, the US government requires an import duty of 20% of the F.O.B. price. So add $5.00 to the cost.
Now the shoe is in the warehouse: $25 + $1.50 + $5.00= $31.50
Now they need pay Michael his royalty for being the greatest basketball player that ever lived.
It’s hard to know exactly what that royalty amount is. The Jordan brand is selling about 2.6 billion dollars of product and Michael is paid about 100 million. To keep it simple we can figure he gets 5% of the wholesale price. Maybe $4.63 per pair, maybe more.
So, to make the Air Jordan XXXI, ship it, and pay Michael, the total comes to about $41.30.
The $92.50 wholesale price minus $41.30 leaves Nike a profit of $51.20 or about 55%.
This is pretty standard for shoes. Fashion shoes may be more, discount shoes a bit less.
Of course, from their $51.20, Nike brand has to pay the designers, product managers, developers, sales managers, marketing managers, administrators, floor sweepers, advertisers, quality control staff, athletes etc…
To learn more about the cost to make a basketball shoe and the rules for importing shoes check out Chapters 14 and 15 in the book
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