Come on, how much does it really cost to make a pair of sneakers? Nike must be making big bucks on those flashy sneakers. Why does it cost $100.00 to buy a shoe? What’s the actual cost of a sneaker?
Here is how shoe pricing really works.
If you are looking for information about the costs to design, develop and build shoes READ MORE HERE
The cost to make a pair sneakers
Starting with a basic sneaker: US retail price $70.00.
The retail store buys the shoe from the shoe brand in bulk at the wholesale price, which is about $35. If this is a big retailer they may get a 3-5% discount or free freight.
There it is! BAM! The retail store takes 50% of the price right away. But, then they have to pay the employees, keep the lights on, advertise, and pay the rent. The store may also have to put the last few pairs on sale. If the shoe is a slow seller, many of them may go on sale. When you see a “40% off sale” that means the store is not making any money, in fact, after covering the overhead, it is a loss for the store.
Okay, what share does a shoe brand like Nike get? Remember, the shoe brand does not actually own the shoe factory. Of all the major sneaker brands, only New Balance has its own shoe factory. So, what did the brand pay for that $70.00 shoe?
The real cost to make shoes
The real cost to make a $70.00 shoe is about $15.00.
Once the brand buys the shoe from the factory, the shoe needs to be shipped. Most shoes are shipped by ocean freight. Ocean freight from China to the USA is about $.50 per pair. A 40-foot shipping container, the size of a semi-truck trailer, holds about 5000 pairs of shoes. 5000 X $.50 = $2500.00
That price will get a shipping container from China to California.
Once the shoe arrives in the USA it must be legally imported. In the case of a leather sneaker, the US government requires an import duty of 8.5% of the F.O.B. price. So, add $1.32 to the cost. Also, add another $.32 for customs and insurance.
Now the shoe is in the warehouse: $15.00 + $.50 + $1.32 + .32 = $17.10
What is the shoe store profit?
Next, it’s time to sell it to the stores:
$35.00 wholesale price – $17.10 = profit of $17.90
Actually, the profit is less than $17.90. The salesman gets a commission based on the wholesale price, usually about 7%. That’s about $2.45 on a $35.00 dollar shoe.
Now the profit is down to only $15.45 per pair.
But wait, what if this is a big retailer that negotiated a 5% discount? Take off another $1.75 to make the total profit about $13.70.
So, what makes a shoe cost $15.00? You need to know the anatomy of the shoe. Here is a rough break down of the cost to make a sneaker.
The cost of shoe parts
Shoe Upper 34%: All the upper parts, hardware, foam, logo printings, tongue, laces, etc…
Leather 16%: The leather outer of the shoe
LOP 27%: Labor, Overhead, and Profit
Outsole 14%: The shoe bottom unit
Packing 6%: Shoebox, case box, and hang tags
Mold Amortization 3%: If there is new tooling it can be paid to the factory per pair instead of buying the new molds all at once.
The footwear costing sheet
Once the shoe design is confirmed, the factory will take the specification sheets and detail the cost of each line item. This is the costing sheet.
The costing sheet will include every part of the shoe, including the packing box, stuffing paper, the silica gel pack, hang tags etc. Everything in the shoe box must be listed.
Each item will be listed with the cost per unit and the usage to make that part. The waste percentage will also be added. The waste percentage, or cutting loss, is the amount of scrap material left over once the parts are cut.
Yes! You have to pay for the scrap that is thrown away. For mesh fabric the loss is very small, less than 5%. But in the case of fine leather for an expensive shoe, the factory can’t use any leather with cuts or scars from the animal. The cutting loss can be up to 20%!
After listing the usage and waste percentage you will finally see the total cost per part.
With each part listed, the costing technicians can check the material price for each part and measure the material usage. This is time-consuming work, but if the production run is 500,000 pairs, pennies can add up fast. A diligent costing technician can save many thousands of dollars and more than their entire salary.
Shoe costing sheet
The shoe parts are listed on the left with a brief note of the material spec.
To the right side is the factory costing calculations per pair. In this case, the first component is the toe cap. It’s made of suede at a price of $1.25 per square foot.
The shoe requires .950 sq. foot to make the pair. When the leather is cut, 10% is lost to waste. The total for the pair of suede toe caps is $.8177.
A costing sheet is a critical tool for the shoe developer and designer if they are designing a shoe to meet a price.