How much does it really cost Nike to produce a flashy pair of Air Jordan XXXI’s? Does Nike make big bucks on every pair of shoes they sell? Why does a basketball shoe cost $185? What is the real cost to make such high-end sneakers?
The article then reveals a Cost to Produce Air Jordan XXXI graphic, stating that retail price for the shoes is $185. Wholesale price is about 50% off retail, around $90-$92.50. Retailers might negotiate a 3-5% discount or free freight. Retailers, having employees to pay, rent to cover, and other expenses, take 50% off the top. The article concludes by asserting that although the Air Jordan XXXI will sell out quickly, the store still has other shoes to sell at a discount.
How Much Money Does Nike Get?
So, how much money 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. Nike ships most of its shoes by ocean freight from China, Vietnam, or Indonesia to the USA. An ocean container can cost $4000 to ship and will hold around 3000 pairs of high-top shoes. Shipping plus other fees can cost about $1.50 per pair.
When the Air Jordan XXXI arrives in the USA, it must be 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 to pay Michael his royalty for being the greatest basketball player that ever lived and for being on their shoe.
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…