Nike is still No. 1 in revenue, but for the first time in recent memory, both Adidas and Under Armour are grabbing market share from The Swoosh.
Source: Nike still in the lead, but losing ground to Adidas, Under Armour | OregonLive.com
The Source link above is one of the best posts on the Big 3. If you take the time to click through and read, then there is a lot of clarification on Nike’s position and the growth of adidas and Under Armour. To further clarify the discussion I wanted to get into a quick post on the perception that NMD and UltraBoost is saving adidas. I’ve been a victim of Kanye logic and stating that adidas is winning because of NMDs and UltraBoosts. I can argue this all day, but the influence of an endorser can’t be quantified no matter how much I want to say, people are rocking adidas because of Ye and Pharrell. What has to be analyzed are the numbers.
Yesterday, I made a statement that the margins on the UltraBoost are bigger than the Superstar for adidas. Matt Powell corrected me quickly and it forced me to look at potential numbers, then I realized why I was wrong once I reminded myself of my own footwear production.
When I made my last ARCH shoes they were made in one of the factories that makes adidas. Because this factory had a long relationship with adidas, they had adopted some of the molds for smaller brands. As long as the logos were removed, I could create my footwear at a fraction of the cost due to what was basically throw away outsoles. I simply had to redesign my upper.
Shoe Dog time, if I were to design my own mold as I did with my basketball shoe, the cost would have been between 1000 and 2500 for the creation of the mold for the outsole. Size 7-12 outsole is typically created utilizing the same mold and the sizes above and below those are typically an additional expense. Stay with me… Creating a new shoe from the bottom up can run about 3000, at the low end for a sample and any changes can become costly. My typical cost for a pair of shoes is around 32 bucks shipped and landed in the US. When I used the outsole of an Adidas ZX700 (New Balance 574 also components of the NB are made in China), my cost dropped to 28 and 30 dollars shipped and landed. I only made 120 pair of shoes. Had I made 1200 my cost per pair would have dropped to 22 dollars per pair. Are you following? If I produced 12,000, the price reduction would have been considerable. Now apply that to this information:
Adidas sold 15 million pair of Superstars alone in 2015, making it the best-selling sneaker of the year “by far,” according to former CEO Herbert Hainer.
Think about that. How much do you think Adidas paid to produce a shoe that they made originally in 1969? Adidas simply had to redesign uppers and the shoe probably cost about 12-15 dollars per pair. My statement yesterday was based on the cost of the UltraBoost. I didn’t think before I spoke. In my head 180 for an UltraBoost is always going to create better margins than 90 dollars for a Superstar. Matt also corrected me that margin isn’t directly reflected by price. My thinking was wrong, but it shouldn’t have been had I thought about my own shoe production. Why is the Superstar more important than the UltraBoost? This is the problem.
The Superstar Breakdown (these are estimations on both the Superstar and UltraBoost).
Costs of Production: 15.00
Retail: 90.00
Profit: 75.00
Margin: 83.33%
The UltraBoost (Made in smaller quantities, using a more complex outsole technology and more expensive fabric in Primeknit) This estimation is much more difficult. I know that the cost of production on traditional rubber and EVA outsoles is around 15 bucks. I’m not certain of the cost on UltraBoost. I do know that fabric costs are minimal, but tariffs and duties are higher on certain materials. I would have to say that the Boost outsole costs at least 25 to manufacture, with a layer of rubber at about 5 and a different bonding setup at 10 with higher duties and tariffs at 5 and promotion and advertising, I am going to average the cost at 45.00/pair.
Ultra Boost
Cost of Production: 45.00
Retail: 180.00
Profit: 135.00
Margins: 75%
I think the most important point in this analysis is that the mass production of shoes and when they sell very well will always be more influential because the numbers can be measured. We can’t measure the value of an athlete or endorser so when we rely on the numbers, numbers don’t lie.