Nike shoes are a bargain at $220 a pair. They must be, else why would hundreds of people have showed up Thursday at a Greenwood, Indiana, mall, according to the police report, “panicking to get to the front of the line” for the limited release of the $220 Foamposite Galaxy. The next day in Orlando it took a hundred deputies in riot gear to subdue a crowd waiting for the new Galaxy.
Similar riots attended Nike’s December release of the latest in the Air Jordan line, the $180 Air Jordan XI Concord.
The Air Jordans cost Nike about $16 to produce, giving Nike a gross profit of $164 a pair, or about 90 per cent, before marketing expenses. Shareholders have done well, as the stock price has increased over one hundred times in the last 25 years—in contrast, the Dow Jones average has gone up a factor of seven in that period.
The workers in Indonesia who make Nike shoes haven’t done nearly as well: they earn $4 a day—not enough to provide food, shelter, transportation, and health care. And they can only dream of someday being able to buy a pair of Nikes for themselves.
Nike could easily afford to pay a living wage—labor costs account for only $2.50 a pair. If Nike doubled the average pay their per-pair profit would drop only from $164 a pair to $161.50.
Is Nike’s practice ethical or unethical? The answer is a slam-dunk: unethical. Nike could afford to pay a living wage with no significant effect of their bottom line. That they don’t is shameful.
What about Apple? My friend Jim Keady charges, “Apple is following Nike’s playbook of CSR [corporate social responsibility] bullshit to the letter.” I’m not so sure.
Two things make me more sympathetic toward Apple than toward Nike: first, Apple workers in China make more than four times what Nike workers make; and second, labor costs are a much bigger part of Apple’s costs than of Nike’s.: they’ve been estimated at 5%-10% of the cost of an iPhone, compared to about 2% of the cost of a pair of Nikes. So a proportional pay raise would be much more costly to Apple than to Nike.
For now I’ll give Apple a pass on ethics, pending more information from Jim Keady.
Tags: Air Jordan, Apple, corporate social responsibility, CSR, ethics, Foamposite Galaxy, Indonesia, iPhone, Jim Keady, living wage, Nike, stock price, sweatshops
Ethics Bob 
February 28, 2012 at 2:44 am |
These are easy targets. But any corporation that is profitable could pay its workers more. Are such corporations unethical? Or is it a matter of degree, as you suggest?
February 28, 2012 at 7:09 am |
Great questions. Most ethical questions can be said to be a matter of degree. In Nike’s case, there is a company which first rejected ANY responsibility, saying, “We don’t make shoes.”
If a corporation follows the law, treats its workers as valued parts of the enterprise, and attends to their human needs as well as it attends to those of its bosses, then there are no ethical complaints. E.g., Starbucks is an ethical company, even though it obviously could afford to pay its workers more.
February 28, 2012 at 6:31 pm |
Bob, here are two points of critique. First, just because workers in China are paid more means nothing. The question to be asked is, “What does that wage afford a worker in the local marketplace?” Only when you have that local market data can you assess if the wage is good, fair, just… Second, I got the following data on the iPhone. “Labor costs related to Chinese iPhone 4G manufacturing is $6.54 dollars (4.6 euros) per unit, which means it’s 1.1% of its selling price, according to market research firm iSuppli.” Double check this as I have not. Peace, Jim Keady
March 1, 2012 at 11:43 pm |
Jim, the real wage in China is much higher than in Indonesia. My source is The Economist’s Big Mac Index (http://tinyurl.com/76vp5z8) , which is probably the best single measure of relative costs of living. It shows Indonesia is almost exactly the same as China. So the real income of Apple workers in China is roughly four times the real income of Nike workers in Indonesia.
Facts on the ground may be different, but until you go to Shenzen and live for a month on the local wage, I’ll continue to think that Apple workers are much better paid than Nike workers.
April 2, 2012 at 12:11 am |
[…] written before that Nike’s business practices are unethical, while Apple seems to be trying to do right by the […]
May 6, 2013 at 2:00 pm |
Ethics Bob, I am a student foing a project on Nike products and this is a site that I am looking to use for facts but my teacher doesnt think that this is a reliable source… could you please tell me your credentials?
May 6, 2013 at 2:22 pm |
Sure–Adjunct prof of business at the University of Redlands, teaching business ethics, co-author of “The Ethics Challenge>” More at http://ethicsbob.com
October 29, 2013 at 4:39 pm |
Hello! Could you possibly tell me where you found the $16 production cost for Air Jordan’s, I’ve been looking everywhere and I haven’t found any actual data on the topic
Thanks!
October 29, 2013 at 10:49 pm |
I don’t remember, but I’m sure I had a good source. I wouldn’t have made it up.
August 9, 2014 at 1:28 pm |
Sorry Bob, you have you facts and figures are off. This shoes does not cost $16.00 to make.
Also of the $220 dollar sales price the retailer will take about $110.
So working backwards. $220 sale price
The store Price from Nike will be around $110-$120
Expect the Nike margin from The $110 to be 55%
So call that $64 in Profit.
The shoe will cost $2 to ship
20% import Duty
Figure 8% R &D expense
So Nike roughly paid about $35.00 to make it.
of that Factory Profit is less the 10%
Material about 50+% of the Cost – Say $20.00
Labor, Overhead, Etc…..
So Figure $64 before Marketing etc. etc.
As Nike is a public company we can look up there Net Margin.
It’s about 14%. Nice but not stunning.
http://www.stock-analysis-on.net/NYSE/Company/Nike-Inc/Ratios/Profitability
ask_a_shoe_dog@sneakerfactory.net
August 9, 2014 at 2:01 pm |
Thanks, Waalid, for your numbers and analysis. Your assessment, that the shoes cost $35 to make, strengthen the case for paying workers a living wage. Doubling wages would add about $2.50 to the cost per pair–only seven percent.