Annabelle Liang
Journalist
Alamy
The Nike Air Jordan 1 is, in some respects, the emblematic American shoe. It is a line of popular sneakers of a large American brand, created four decades ago for the legend of local basketball Michael Jordan.
But although Nike sends most of its products in the United States, almost all of its shoes are made in Asia – a region targeted by the salvo of President Donald Trump’s prices against foreign countries which he accuses of “tearing” the Americans.
Nike’s shares fell 14% the day after the prices announced, on the fears of the impact they may have on the company’s supply chain.
So, what does it all mean for the price of Nike’s shoe?
It depends on the share of the cost increase that Nike decides to transmit to customers, if necessary, and how long they think that the prices will really be in place.
“ Competitive industry ”
Goods from Vietnam, Indonesia and China are faced with some of the heaviest American import taxes – between 32% and 54%.
Hopes remain that Trump could be willing to negotiate these lower rates. On Friday, he said that he had a “very productive” call with the chief of Vietnam, helping Nike sharing to recover land after their steep Thursday falls.
But most analysts believe that business prices will have to increase.
Swiss Bank UBS estimates that there will be an increase of 10% to 12% of the prices of goods from Vietnam – where Nike produces half of his shoes.
Meanwhile, Indonesia and China represent almost all the balance of its production of shoes.
“Our point of view is that, given the extent of the list of prices, the industry will realize that there are few ways to mitigate the medium -term impact other than increasing prices,” said UBS analyst Jay Sole in a note.
David Swartz, a main action analyst at Morningstar, should be likely, but says that any significant price increase would reduce demand.
“This is a very competitive industry. I guess it would be difficult for Nike to increase the prices of much more than 10 to 15%. I don’t think that could compensate most prices,” he said.
Many other Western brands such as H&M, Adidas, Gap and Lululemon will face the same situation.
Nike already faces a tight net result.
He had about $ 51 billion in sales during his most recent exercise. The cost of manufacturing products, including shipping, third -party profits and warehouse costs, only consumed about 55% of income, which gives it a healthy gross margin of more than 40%.
But this profit is reduced once you have added the cost of other commercial operations. A third of its income, for example, is consumed by sale and administrative expenses.
As you take interest and taxes, the Nike profit margin fell to around 11%.
It is on all its products, because they do not break down the costs separately for its various articles.
Rahul CEE, which has set up the website of the Race Shoes Revue website, says there are other ways that Nike could maintain low retail prices.
Mr. CEE, which formed as a shoe designer and worked for Nike and Vans in India, says that one of the means could be to demote the level of technology in the shoe.
“Thus, instead of using foams and constructions with high performance intermediate sole, respect the EVA molded by injection (ethylene-vinyl acetate),” he said.
Another option would be instead of releaseing a new design every one to two years, to update the design cycle every three to four years.
Reuters
Nike is based heavily on American consumers
Things could change quickly
Simeon Siegel, director general of BMO capital markets, says most of the companies were considering Wednesday’s announcement as “still far from the final conclusion”.
“I don’t think many people believe that these figures are engraved in stone for the moment,” he said.
Theoretically, Nike is such a big brand that it should be able to put prices without it reaching its sales, “he says,” but adds: “Do they have it right now and have it through their product offer is another?”
Even before the announcement, Nike faced a collapse of sales that had slowed down his ability to order the full price for his shoes.
The finance chief Matthew Friend also cited prices as an example of developments that affected consumer confidence.
And Nike is based strongly on American consumers, the market contributing to around $ 21.5 billion (16.4 billion pounds sterling) of its sales – almost all that it sells on its largest market in North America.
In the United States, feeling is an “important concern” for Nike because it directly affects the demand for shoes, explains Sheng Lu, professor of fashion and clothing studies at the University of Delaware.
But ultimately, he says that companies can be forced to transmit the cost of levies to consumers.
“Nike is very likely to increase prices if the pricing war persists. There is no way for brands to absorb a 30% to 50% increase in supply costs.”
He adds: “The way in which American trade partners react against the reciprocal tariff policy will also have a major impact.”
China has already retaliated with a rate of 34%.
Part of the justification for Trump’s pricing policy is because it wants more companies to manufacture their goods in the United States.
However, Professor Lu does not see Nike or other companies considerably reshape his supply chain as soon as “due to the complexity involved in the manufacture of shoes”.
This includes the time necessary to “consider a long list of factors when it decides where to obtain their products – quality, costs, speed on the market and various risks of social and environmental compliance”.
Matt Powers of Powers Advisory Group says that the lack of American textile mills will make “difficult and expensive (for Nike) to bring production to the United States”.
Mr. Powers added: “This transition, if it was prosecuted, would take years and require significant investments.”
Nike did not respond to the requests for BBC comments for this article.
We also contacted 30 suppliers in Asia, but none responded.
Additional Natalie Sherman report in New York
