If you haven’t noticed, the price of your running shoes is going up. There are so many things that attribute to the cost of your shoe that it’s not one thing driving it up, it’s everything. The brands for their part are desperately trying to keep the prices down. However, as soon as one of the big brands flinches there is a big sigh of relief in the others because they can now match that higher price and improve on their margin for a short time.
In this post I’ll try to explain why your shoes cost more today than before and what the brands are doing to stay competitive. It helps to know the process of shoe building and what goes into the cost of your shoes first.
Running shoes are just like any product on the market. I think what makes them somewhat different is they are built for highly passionate people and then there’s that size thing. Most of the products of the world don’t come in sizes. Your IPhone doesn’t come in different sizes to fit your hand. The sizes make building a running shoe really difficult. But like any other product on the market there is a schedule that has to be kept. For running shoes that schedule starts 18-24 months before you ever get a chance to purchase the shoe. It takes that long to design, develop, test, re-test, produce, ship, receive and then deliver to your retail choice. Along the way any short cut or misstep can be dissastorous.
The simple process goes like this:
Produce Brief – Written by the Product Manager the brief is a detailed decsctiption of the shoe to be built. As much detail as needed goes into the brief including like products from other companies.
Product Design – 8-10 weeks.
Product Developement Start– For our example we are talking about a totally new project. You’ve seen it often “New upper on the same midsole” or “totally new version” I will address the new upper in the comments.
Blue Print – Every midsole/outsole is drawn first in a blue print. There is a review process here and when the blue print is signed off the mold shop can start work. Often times developers will add a step in the process and have the mold shop build a wooden model of the midsole/outsole before they start cutting the mold. These are no longer made out of wood, they are laser cut resin. From here the developers can see how all the pieces in the blue print fit together. The mold is similar to any mold you have in your house today. You have a mold for Jello or for a bundt cake. It’s essentially the same. For your shoe the mold is cut out of a block of aluminum that is roughly the size of your full size ice chest.
Mold – Every individual piece of the midsole/outsole gets a mold. The foam midsole is by far the most complicated mold. Measured down to the millimeter. A millimeter off here or there will make your shoe feel totally different. If there is a tpu bridge it gets a mold. All the rubber on the bottom gets a mold. In round numbers the cost of this is $10,000. That’s right the brand is already $10,000 in the hole for your shoe. The more pieces the higher the price. The less pieces the lower their price.
The example above is the Asics Kayano.
- Two types of rubber, two rubber molds
- tpu foot bridge – tpu mold
- midsole is multiple pieces which adds process to the molding.
This is the Saucony Kinvara.
- One type of rubber – One rubber mold
- One piece midsole – One Mold
Upper – At the same time the mold shop is working on the mold, the assembly factory has started on the upper. This is of course true if it’s a tradional upper with mesh and overlays. In this case the designers and developers have picked out a mesh from a supplier, and have picked out any synthetic leather as well usually not the same supplier. If there are welds on the upper these are also in design work at this time. The big change in upper construction is the knitting process. Nike Flyknit is the most well known but virtually every brand has joined in. Flyknit was created to make better fitting uppers. Through the knitting they can engineer support which means overlays which can cause fit issues don’t have to be used. An added benefit to Nike and you, is knitting takes a large group of sewers off the assembly line which saves big on labor costs. Labor is the #1 cost in assembly. This is why we are seeing knitted uppers on shoes below $100. Generally the brand will get a first pullover of the upper before the bottom unit is done. Developers get that pullover on a last and then on feet to see how the lines of the upper work when on foot. They make adjustments give those back to the developers so they direct pattern changes at the factory.
Once they have an approved upper the mold shop is usually done and they can see there first sample.
Suppliers – Probably one of the biggest unknowns in running shoes is the number of suppliers at work on any one shoe.
- Mold Shop
- Sole Supplier – These are the chemists who develop the EVA and then actually blow mold the EVA into midsole parts.
- Rubber Supplier – Usually can do the mold and rubber.
- TPU Supplier
- Tech supplier – sometimes it’s the sole supplier but if it’s Gel or Air there is a totally different supplier.
- Upper mesh supplier – Most shoes have 2-3 forms of mesh on any one shoe which usually means 2-3 suppliers.
- Upper liner supplier
- If the brand is using a special foam like memory foam in the collar that’s a separate supplier.
- Synthetic leather supplier.
- Welding supplier
- Insole supplier
- Lace supplier
- Heel counter supplier
Brands always want to control their suppliers. Factories want to use their own suppliers (they negotiate their own deals) – the bigger the brand and or higher the volume the more control the brand has on suppliers. Small brands have very little leverage in the factories and it’s been a common practice for factories to switch suppliers without telling the brand.
Test and re-test – For the next 6 months the shoe is refined. 2-3 sample rounds to get the shoe right. Hopefully during these sample rounds the shoes are on feet of runners not associated with the brand. Ideally 100’s of miles on a sample is good. I say not associated because inside the walls of the brand it’s difficult to get good feedback. That was true from the big brand or the small brand. During this time the brand will also expand into different sizes to test for commercialization. Ideally the size 12 men’s shoe fit’s the size 12 foot the exact same way the size 9 fits the size 9 foot. This is very difficult and the smaller the brand the harder it is.
Color – Every brand has a designer or a group of designers that are in charge of color. Everyone has an opinion about color. Every country, every sales person, every retailer it’s simply amazing how many people impact the color of your shoe.
Production – The last sample is the sign off sample. When that sample is signed off by design, development and the big bosses then production can start. First step is opening the remainder of all the molds. Depending on the size of the brand this can be $70,000 for smaller brands or $120,000+ for the larger brands. The more demand on a product especially from a width perspective the higher the mold costs. We’ll get down to the actual cost of your shoe but this is the part most runners don’t know. When you see somewhere that your $150 shoe cost $20 to produce in Asia remember there is this up front cost. When you are wondering why a particular shoe doesn’t come in widths this is the reason as well.
Just prior to production every supplier delivers all of the raw goods for production. Most factories won’t start building shoes until everything is under their roof.
The delivery date to retail never waivers. Any delay in materials or actual production will add cost to the shoe. At some point expedited shipping comes into play. Spring 18 is currently in the final stages of development. If Spring 18 is scheduled for January 15, 2018 in store the first production has to be on the water no later than November 1, 2017. Anything beyond that and the brand is flying product in. Big bosses never like to fly product.
The material costs of your running shoe.
|Midsole Foam 1||$3.50|
|Midsole Foam 2||$2.50|
The simple math for US retail pricing looks like this.
Cost to the retailer: $59
Suggested Retail: $120
Why is your $120 shoe going up in price?
- That $10 labor price continues to go up. Add 10% or $1 to the labor and the brand bean counters get nervous. $1 for each of 700,000 pairs.
- The market is demanding new foam. Boost, Lunar, Everrun are more expensive and they are very costly to develop and protect.
- Duties – The politics affect the price of your shoe.
- The retail market in the USA – All of the big sporting goods closings are not helping. I mentioned leverage in the factories. You gain leverage with volume and consistency. An assembly line can assemble roughly 2000 pairs of shoes a day (with knitted uppers that number is probably going up). Factories like to keep their assembly lines busy all the time. If your brand can deliver 700,000 pairs of a single shoe to a factory you are gaining leverage. The store closings are really making this difficult. It’s a good thing that most of the brands are global and that China is the fastest growing athletic shoe country in the world. With as many marathons as there are in China today there are runners and where there are runners there is a need for quality shoes.
How are the brands addressing this?
- We talked about knitting uppers. A knitted upper which is done by computer stitching takes multiple hands that typically do cut and sew work off the assembly line.
- Minimalisim and Nike – they drove TPU midfoot bridges out of shoes. Removing $3 from the shoe and you the runner don’t notice it.
- Making Molds last longer – The mold cost has to go somewhere. Usually that goes into the price of the shoe. The longer they can use the mold the more pennies pull out of the cost of the shoe. This is why most of the running shoes you run it are built where they use the bottom unit for 2 years and change the upper each year (new upper on same bottom).
- Moving to other countries – Look at your Made IN label – very few in China today. They are constantly searching for cheaper labor without giving up any quality.
- Brands are selling more and more product directly to you. When they do that they make more margin. This adds to their bottom line of course but it also keeps the retail prices in balance.
This is just an example. Most of the figures in the spreadsheet are not 100% accurate. The general weight of this is correct.
In the US we demand lower prices. In fact we’ve had the benefit of lower priced running shoes for decades. Your $120 running shoe is $140 (converting for the Euro) in Europe or more. That doesn’t make the increasing prices any easier and it sure makes the brands nervous. It’s basic economics at play. If price is too high demand goes down.
There is no end in sight for this. 10 years ago $160 shoes were counted on one hand maybe even 2 fingers. Today that’s not the case. $160 seems like a reasonable price for a shoe to some. Let’s hope there are still $100 shoes 10 years from now.