To Get What You Pay For
A collaborative article between Julie Wiegand and Caitlin McCall
The price of shoes, across the spectrum of footwear, has the special power to elevate a product to sheer heights of ridiculousness and coveted-ness. There is a quality to designer sneakers, such as the $3300 pair of beige sneakers Louboutin sells through Barney’s, that is chuckle-worthy. Sneakers for most people, even sneakerheads, have been a practical commodity first. They are the recreational shoe, the casual shoe, “get me from point a to point b because I don’t mind them getting dirty” shoe, the running shoe, the sports shoe. How do these figuratively gold plated sneakers work? “Oh, we are taking the subway? Let me throw on my Louboutins, I don’t want to scuff up my Choos.”
To speak of actual gold-plated sneakers, in 2012 Nike and collaborator Kenneth Courtney produced 5 pairs of 24k gold dipped shoes called “Indulgence №5”. The shoes are priced at $4750 on the Gnr8 website. More recently, Nike in collaboration with Kanye West put gold in its place. The unexpected release of a limited number of Air Yeezy 2 Red Octobers doubly capitalized on FOMO and scarcity. The initial release of Yeezy 2 in 2012 at a retail price of 245 saw resale prices upwards of $4000. A pair of size 11 Red Octobers are currently available to purchase for $5750 on Flight Club, a full grand more than the “Indulgence №5” of questionable function.
An interesting aspect about Yeezys are some of the top questions other Google users have searched, such as: “Are YEEZYS Nike or Adidas?” To summarize an illuminating Wikipedia article, West signed a deal with Adidas after Nike did not pay royalties to the artist for the Yeezy Line. Adidas, hungry for Nike’s ample market-share, was quite happy to compensate Kanye West for his celebrity status. In this scenario, Nike and West both portray their god-complexes. The current model of Kanye x Adidas, the Yeezy Boost 350 retails for roughly $200, a considerably more affordable price over the $350 pair of Yeezy Boost 750s. On Flight Club, the 750s are reselling for $2750 and the 350 v2 are reselling for $1000.
Celebrity status addiction aside, the far-reaching Athleisure trends are boosting prices of traditional athletic apparel and shoe collections of Adidas, Nike, Under Armor and Puma in the wake of new collaborations, designs, and innovations. $260 for a pair of Adidas women’s running shoes, or $320 for women’s cleats feels steep, but the engineering that has been poured into these shoes offers far more than “a signature red inset.” In other words, there really is a practical shoe worth upwards of $250.
In 2014 Nike successfully changed its pricing strategy from a cost-plus model (the cost of manufacture + margin) to a value-base model in which the price of shoes is generated from the perceived value the customer places on the shoes, with no relation to actual material or production cost.
Adidas and Under Armor similarly utilize a value-based pricing strategy for their products. On one hand, this may seem like a chance for companies to gouge consumers with outrageous brand-name prices. The price increase is not lost on the general public. As new shoes are released, or new headlines hit sneaker or business blogsites, there remains in the comments a lingering sense of the overseas labor wage controversies over the heads of these major brands. While it is true that the shoe and apparel industry utilizes factories that practiced inhuman wage and labor policies and provided little to no safety in the workplace, Nike and Adidas have publicly changed their policy for their overseas manufacturing partners. In which case, some of these user comments are currently unfounded and exaggerated. Earlier this year, SoleReview published an extensive piece on the cost of athletic shoes, and the margin that the leading brands Nike and Adidas make.
In short, Adidas makes 2.05% margin on wholesale and potentially 4.1% margin on their shoes sold through their own stores, however this figure is quite complicated, as some of that margin would get parsed to marketing and overhead. Nike makes 5.3% margin on wholesale, and potentially 10.7% margin on shoes sold through their own stores. To break this down to a dollar amount per shoe, considering Adidas Yeezy Boost 350 v2 and Nike Zoom LeBron Soldier, Adidas makes $4.51 per pair and Nike makes $7.42 on wholesale respectively. Given this information it becomes clearer how important a consumer base is to the brand, and makes a case to attract new customers. Though this ultimately comes with higher marketing expenses. It brings up the question of how does one create better margins without committing crimes against humanity.
Consider now the absurd profit shoe re-sellers make from Yeezys and Jordans, as well as a number of other sneaker brands issuing limited release designs. These companies don’t see any of that money, and it seems like a terribly obvious missed opportunity to set up native resale sites to make better margins. This, on one hand, would be uncouth if not unethical. The act would be something like trespassing on sneakerhead territory and would undermine a rich and organic culture. Furthermore, there is the patient and zen opportunity for lucrative, free brand marketing and promotion on these resale sites, among a consumer group that need no further persuasion to buy sneakers. Diadora experimented with this, releasing a limited edition shoe from a collection previously released in the 90’s. The brand saw nearly an immediate increase in brand credibility among the younger consumers they were attempting to reach.
The retail price hike in athletic shoes and apparel is not breaking news. These prices have been steadily climbing since 2009, when yoga was beginning to make wellness waves through urban lifestyle culture, and these four top traditional athleticwear brands have retained or increased their following despite the price increase. In the case of Adidas, Nike, and Under Armor, Price is not necessarily the preferential P of the marketing mix.
An interview last Friday with Bob Chillemi, VP Channel Director of Adidas (US), confirmed as much for the shopping preferences of the Adidas consumer. According to Chillemi, the ranking of P’s from the traditional marketing mix through the lens of the Adidas consumer are as follows:
Product is king. It starts with the iconic silhouette, aesthetics, the logo and innovative technology. Promotion follows, including collaboration with celebrities, athletes, and professional teams. Place is third, followed by Price and Participation.
Participation is a relatively new P in the pod implemented by the Social Media aspect of marketing. While it currently ranks last on the list for the Adidas consumer, Adidas would like to see the consumer social media participation with their brand increase, with the goal in mind of 30% brand content posted by users. As Adidas is also focusing on experiential Marketing in six key cities, it may be a good time to look up Snapchat for advertisement opportunities, or even a unique app collaboration.
From the rise out of the 2008 recession, it has been endearing and heartwarming to see what entrepreneurs and organizations could achieve with urban pop-ups. An empty storefront is given a breath of life; a shuttered park is briefly re-illuminated. When big brands flex in the same space, the resonance is something to behold; and one should argue, “it’s about damn time.”
In the letting go of some of its athletic sponsorship, Adidas is moving towards experiential marketing. Early in 2016, London experienced the initiative with the Adidas X Popup in Victoria Park. Thomas Hobbs authored the article, “Adidas UK marketing boss on why its marketing is no longer just about ‘showing off product’” that covered the event. Barry Moore, the UK Marketing Boss for Adidas, described the X shaped training space as a method to evolve a relationship with the active community. The X provided a space for the community to run and train for 10 days during the winter season while the park’s jogging paths were closed. Moore, as quoted in the article, reported, “We’ve seen a significant rise in brand sentiment after three popups — from people sharing the event on their walls to reposting it to their friends…Social Media is crucial to our brand’s future.”
Adidas is not the only one trying to engage the next generation of users. Nike is as well. The competition between these two is nearly crystalline. Comparing the 2015 Adidas Financial Statement and the Nike FY14–15 Sustainable Business Report, both Adidas and Nike are focused on innovation and both outline sustainability initiatives in their reports. Both have measures in place to ensure and uphold a standard for all workers, including the factory workers that produce their shoes. Both are implementing some measure of Open Source, as in “the practice manifested by software hackers turned healthy collaborative growth”, a beautiful and exotic choice of strategy for these two large corporate entities to implement.
Nike’s report delves heavily into the company’s goals to double growth while cutting down their carbon footprint and slowing global warming. Given the title of their report, there is a heavy focus on sustainability, as well as a focus on employee well-being. They detail their commitment to a better workplace for their factory workers, by creating an initiative for factory managers to exceed the baseline standards Nike requires of their manufacturers, including standards for labor conditions and emissions. There is a section geared towards community outreach and engaging with the next generation through community based programs, but the tone is not succinctly that of marketing. The missing marketing agenda may have something to do with the report’s intended audience:
We conducted a survey of report readers to find out how they identify themselves and to ask for feedback, including what information they are most interested in. Of those who chose to respond, a high number identified themselves as students and consumers…Although we have tailored our reporting for the primary audiences mentioned, we know that many others who are interested in our sustainability journey might access this report. With that in mind, we have worked to provide the information required by key stakeholder groups, while making the content accessible, relevant and easy to understand. (Nike FY14–15 Report).
The report in and of itself is essentially a marketing tool, available to the curious and well-read advocates of corporate sustainability and social responsibility. It may also be the case that Nike is putting its nose, and budget, to the Sustainable Innovations grindstone because (who could resist), “there will be no Shire” in 2050.
Adidas also focuses on a strong commitment to environmental sustainability and innovation (they also have a sustainability report as a separate publication), including the collaboration with the organization Parley For The Oceans to turn Ocean Plastic into 3D Printed mid-soles. However, their report differs from Nike in that it has an equally heavy focus on marketing strategies and trend research to increase the brand’s reach and consumer base (and hopefully contribute to growth). Adidas has for a long time struggled with margin. A lot of Adidas’s gross income is poured into marketing, which is necessary in gaining traction against Nike in the United States. Marketing tactics such as collaborations with Stella McCartney, an unquiet line of Yeezys, and experiences like “Jump with Derrick Rose” at the D Rose Jump store in London are chipping away at Nike’s lead.
As a number of online consumers have pointed out- shoes that don’t also owe a paycheck to Kanye West would be a lot cheaper. While scaling back on celebrity endorsement might make room for better margin, it is unlikely that Adidas would drop their high-profile collaborations (or the price of their sneakers), as they are a hallmark of the brand. However they are looking to utilize the emergent talent of social media influencers to promote the Adidas brand, which on one hand cut marketing cost by capitalizing on word-of-mouth marketing, and on the other will build a strong Adidas Brand Community.
As the Athleisure trend lives out and new apparel and sneaker trends emerge, such as the emerging Adidas buzzword “Futuercraft”, the price of shoes might yet steadily climb in the years to come. If there is anything else one could take from between the lines of Adidas’s Sustainability Report or the unabashed Sustainable Business Report from Nike, the price of all goods will rise with the warming climate.
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Thank you for reading! This post was created as part of the Textile Technology and Apparel Management Program at the NC State College of Textiles. All thoughts and opinions are my own. #NCStatetextiles.
Adidas Financial Report 2015
Nike FY14–15 Sustainable Business Report