A bit of rubber, some EVA foam, a few swatches of leather, a bunch of nylon, couple laces. That’ll cost you… hundreds of dollars! It’s not buttery leather. It’s not exactly benchmade. The workers who made it halfway across the world get paid next to nothing. They’re not even meant to last very long (sometimes they even blowout in spectacular fashion). Yet still, they cost a small fortune. Why do sneakers cost so Goddamn much? How did they become a $58 billion industry? Let’s sneak around and look for some answers.
It’s all a markup, right? I mean, how much does it cost to make sneakers?
Here’s an exercise courtesy of The Sneaker Factory. Let’s pretend the retail price of a given pair of sneakers is $70. The cost to make them is about $15. This is also the price at which the sneaker company buys the shoe, because remember, shoe and apparel companies usually don’t own the factories anymore. They simply contract with a shoemaker somewhere in Asia to make shoes to their specifications, then purchase them from the shoemaker.
How much does the retail store buy those $15 sneakers for?
Around $35. If the retail chain is large enough, they can probably negotiate something slightly better, like free or discounted freight for the delivery of the sneakers.
That’s still a 50-percent markup for the customer!
It sure is, but in the retail store’s defense, they have a lot of overhead to pay for: Rent, electricity, insurance, yadda yadda yadda, and most of all, their employees’ wages. This is a lot of people’s individual well-being, all hinging on one pair of sneakers sold at a time for $70 (of which the store keeps $35). Another way to think of it is, if you see shoes on sale for 40 percent off, that’s technically a loss for the store — they’ve simply priced it to sell because they’re desperate to get those shoes out of their fucking store to make space for shoes they hope will sell better.
What about the shoe brand? How much does Nike or Adidas make off of this $70 shoe?
Not as much as you think, although since sneaker companies sell approximately a gazillion pairs of shoes a year, it obviously adds up. Let’s break this down: The shoe company buys each pair of sneakers from the factory in, say, China, for $15, and sells them for $35. Shipping from China to L.A. via ocean freight costs about $0.50 per pair (each 40-foot shipping container holds 5,000 pairs of shoes, so shipping comes out to $2,500 for all those shoes, in case you were wondering).
When it reaches an American port, the shoes must be legally imported. The import duty is 8.5 percent of the $15 price, which is $1.32 per pair. Then customs and insurance adds up to an additional $0.32 per pair. By the time the shoes are in the sneaker company’s warehouse, the total cost to the sneaker company is up to $17.10 per pair.
Now the sneaker company sells the shoes to the retail store for $35, for a profit to the sneaker company of $17.90. But we’re not done: The sneaker company’s salesperson usually gets a commission for each pair sold — 7 percent of the wholesale price (that’s $2.45 in this example). So the sneaker company’s profit is down to $15.45 per pair.
If that retailer was large enough to extract any kind of discount from the sneaker company (let’s say 5 percent, or $1.75 per pair), the sneaker company’s profit is now $13.70. That $13.70 per pair pays for all the sneaker company’s designers, all the marketers, all the expensive-as-hell endorsements the brand has with athletes, all the expensive advertising and sponsorships.
Of course, this is a volume industry, and it adds up: That’s why it’s a $58 billion industry!
What’s the most expensive part of making that $15 shoe that — and I’m not going to let this go — I just paid upwards of $70 for?
Here’s how the cost of the shoe breaks down: The upper (everything above the outsole — fabric, tongue, logo, foam, hardware, laces, etc.): 34 percent. Labor, overhead and profit: 27 percent. Leather: 16 percent. Outsole (where the rubber literally meets the road): 14 percent. Packaging (box, tissue paper, hang tags, etc.): 6 percent. Then there’s something called mold amortization, meaning the cost of the new hardware or manufacturing materials for a specific shoe model can be amortized (that is, the initial cost can be written off over time) per pair, rather than paid for in one lump sum: 3 percent.
And what about the workers? Isn’t it basically slave labor?
Pretty much. Many apparel and footwear companies have somewhat cleaned up their act (or at least, claimed to) after being publicly shamed about the factories they contract with and their horrific working conditions. And there are a number of industry watchdogs that have sprung up to monitor these big companies: Know the Chain and others have comparison tools you can use to look up individual companies.
It’s still terrible, though: Clean Clothes Campaign noted last year that factory workers who make Nike and Adidas shoes earn an even smaller share of the production costs than they did in the slave-labor 1990s — as much as 30 percent less. That’s because as China’s wages have risen, sneaker companies have ventured to poorer countries to make their shoes: places like Indonesia, Vietnam and Cambodia, where average earnings for garment workers are reportedly 45 to 65 percent below living wage.
Why can’t we make shoes here in the USA?
A few reasons: One, the shoes would be expensive. We’re talking about American wages of $12 per hour ($16 when you include benefits) versus $3 an hour in China, presumably with zero benefits. That’s quite a gap to bridge — making shoes in America would add $50 or more to the price tag. It still does happen, but on a small scale. Aside from some designer and boutique shoes, and ones that sell “craftsmanship,” the main shoe producers are the ones that make footwear for the U.S. military (for which there is a steady demand, and about 200 companies that do so).
Another problem with offshoring shoemaking is that the entire supply chain ended up on foreign shores, too, so even if more shoes were made here, many of the materials would still be imported.
The third reason is a loss of institutional knowledge, and even desire. There are fewer expert shoemakers now — most of them are old or dead, so job postings go unfilled, particularly with anyone under 40. It’s not a trade that one can learn overnight: Just the stitching can be difficult to grasp. Along those lines, it’s hard work to do for a lifetime, and your chances of developing arthritis are pretty damn high. It’s not exactly a desirable job for many people, as romantic as the craftsmanship of it can sound.
Are shoes going to get even more expensive?
The top end will, as brands will find ever more ways to squeeze money (hundreds, thousands even) out of designer collabs, like Nike’s done with Virgil Abloh (who’s surely done more than anyone, ever, for making zip ties and quotation marks fashionable) and many others, and Adidas has done with Kanye (who famously defected from Nike awhile back). That market, and the secondary market for designer sneakers, is booming and a whole other story unto itself.
But there are some who say that the price of sneakers is actually low! A former Nike employee named Brett James, founder of a footwear consulting agency called Concept 21, told Business Insider that sneakers are “still way underpriced.” He advocates for doubling the price of shoes in order to hold companies (and customers) accountable for the total lack of sustainability of these plastic, nylon, rubber, foamy things that the industry is mass-producing and people are collecting like crazy, yet will end up in a landfill sooner (the unsold ones) or later (all the others).
So the question is, are you ready to pay twice as much for sneakers?
As ever, at the end of the day, the best way to vote is with your wallet.
Adam Elder
Adam Elder is a writer in San Diego. He's also written for Esquire and WIRED magazines, VICE, The New York Times, The Wall Street Journal, The Guardian, newyorker.com and elsewhere.
