<story><title>Why the American shoe disappeared and is hard to bring back (2019)</title><url>https://www.npr.org/2019/06/19/731268823/why-the-american-shoe-disappeared-and-why-its-so-hard-to-bring-it-back</url></story><parent_chain><item><author>tfehring</author><text>&amp;gt; &lt;i&gt;For a shoe-factory job paying $12 an hour, the actual cost of shoemaking — when adding benefits — grows to $16 an hour, compared with about $3 an hour in China, said Mike Jeppesen, head of global operations at Wolverine Worldwide, which owns brands like Merrell, Sperry and Keds. And that cost quadruples after wholesale and retail markups, he said, ballooning into a $50 price difference between a pair made in the U.S. versus in China.&lt;/i&gt;&lt;p&gt;This strikes me as a naive way to think about pricing (though it&amp;#x27;s probably consistent with the way finance people think about it). The only reason to charge that same ~4x markup on the additional labor cost is to keep gross margins (as a percentage) unchanged, but that would actually &lt;i&gt;increase&lt;/i&gt; profit (as a dollar amount). If you just want to keep the same profit you&amp;#x27;d get from offshoring, you can probably increase the price by much less - $13 if demand were perfectly inelastic, somewhat more in practice.&lt;p&gt;Also, that sentence shifts from cost per hour to cost per pair without an explanation. Is 1 pair&amp;#x2F;worker&amp;#x2F;hour a realistic estimate? That seems way lower than I&amp;#x27;d expect. Surprisingly I couldn&amp;#x27;t find a good answer to this in 30 seconds of searching.&lt;p&gt;After learning how many manufacturers essentially use slave labor for their products, I&amp;#x27;ve stopped buying clothes manufactured outside the US and EU. I&amp;#x27;m sure there are better ways to do this, but that&amp;#x27;s the simplest reliable one - even e.g. Patagonia, which seems to be trying its best to maintain an ethical supply chain in developing countries, has had its share of issues. The price difference hurts a little bit when I actually make a purchase, but clothes are cheap enough to begin with that the difference ends up being a pretty negligible piece of my overall spending, probably something like $100&amp;#x2F;year on average.</text></item></parent_chain><comment><author>throwaway91321</author><text>&amp;gt; Also, that sentence shifts from cost per hour to cost per pair without an explanation. Is 1 pair&amp;#x2F;worker&amp;#x2F;hour a realistic estimate?&lt;p&gt;I did some work with manufacturers who were in the process of moving manufacturing overseas some years ago. From my experience, the way the article presents the issue is detached from what really happens.&lt;p&gt;For instance, people look at a labor difference of $3 and $12, and assume that if these things were manufactured in the U.S. they would cost five times as much. But the thing is, labor is just one part of the cost. You also have things like R&amp;amp;D, advertising, raw materials, transportation, machinery, the cost of the manufacturing plant, etc. Some of those (like advertising) are going to stay the same no matter where you make your product, some would probably cost less overseas (real estate needed for factories), some would cost more overseas (transportation cost). There are also other issues that come up (like quality control issues) that come up when moving operations overseas that can be quite costly.&lt;p&gt;Here&amp;#x27;s the thing, though - let&amp;#x27;s say that a manufacturer makes a product for $10 and sells it for $12.50 - they&amp;#x27;re making $2.50 per unit sold. Now let&amp;#x27;s say that moving things overseas, when everything is taken into consideration, they can now make a product for $9.50, of which they keep 25 cents and pass the remainder 25 cents forward. Now they&amp;#x27;ve increased their profit 10%, which is pretty big for them.&lt;p&gt;But what about the consumer? For simplicity, let&amp;#x27;s say that the 25 cents goes directly to them and the middlemen don&amp;#x27;t take a cut. And let&amp;#x27;s say that the final retail price doubles (the results would be even more extreme if they quadrupled like the article says). So the price goes down from $25.00 to $24.75 - they save 1%.&lt;p&gt;Now, obviously things are a lot more complex, and things are going to vary greatly depending on what&amp;#x27;s being manufactured. But from my experience, moving manufacturing overseas can often be profitable for companies while being only negligibly beneficial - or even detrimental (for instance, with poorer quality control) - for the consumers.</text></comment>
<story><title>Why the American shoe disappeared and is hard to bring back (2019)</title><url>https://www.npr.org/2019/06/19/731268823/why-the-american-shoe-disappeared-and-why-its-so-hard-to-bring-it-back</url></story><parent_chain><item><author>tfehring</author><text>&amp;gt; &lt;i&gt;For a shoe-factory job paying $12 an hour, the actual cost of shoemaking — when adding benefits — grows to $16 an hour, compared with about $3 an hour in China, said Mike Jeppesen, head of global operations at Wolverine Worldwide, which owns brands like Merrell, Sperry and Keds. And that cost quadruples after wholesale and retail markups, he said, ballooning into a $50 price difference between a pair made in the U.S. versus in China.&lt;/i&gt;&lt;p&gt;This strikes me as a naive way to think about pricing (though it&amp;#x27;s probably consistent with the way finance people think about it). The only reason to charge that same ~4x markup on the additional labor cost is to keep gross margins (as a percentage) unchanged, but that would actually &lt;i&gt;increase&lt;/i&gt; profit (as a dollar amount). If you just want to keep the same profit you&amp;#x27;d get from offshoring, you can probably increase the price by much less - $13 if demand were perfectly inelastic, somewhat more in practice.&lt;p&gt;Also, that sentence shifts from cost per hour to cost per pair without an explanation. Is 1 pair&amp;#x2F;worker&amp;#x2F;hour a realistic estimate? That seems way lower than I&amp;#x27;d expect. Surprisingly I couldn&amp;#x27;t find a good answer to this in 30 seconds of searching.&lt;p&gt;After learning how many manufacturers essentially use slave labor for their products, I&amp;#x27;ve stopped buying clothes manufactured outside the US and EU. I&amp;#x27;m sure there are better ways to do this, but that&amp;#x27;s the simplest reliable one - even e.g. Patagonia, which seems to be trying its best to maintain an ethical supply chain in developing countries, has had its share of issues. The price difference hurts a little bit when I actually make a purchase, but clothes are cheap enough to begin with that the difference ends up being a pretty negligible piece of my overall spending, probably something like $100&amp;#x2F;year on average.</text></item></parent_chain><comment><author>lowercased</author><text>Most of the players in the chain in terms of percentages.  &amp;quot;We need to make x% profit&amp;quot; and &amp;quot;we have to sell at x% markup&amp;quot;, etc.  If I buy something wholesale for $27, I want to retail it for $54 (or more)... because... ?  Rather than &amp;quot;I need to make at least $10 per item to be profitable&amp;quot;, it&amp;#x27;s percentages.  At least... that&amp;#x27;s the little I&amp;#x27;ve seen.</text></comment>