In this article, I will cover the general economics of shoes most of us find in stores. It is from seeing the price of shoes in stores, after all, that we develop a familiarity with the price of shoes.

Mark up and Mark down

In the world of retail, the price of a shoes will typically double each time it changes hands. The number of hands a pair of shoes passes through on their way to your feet has a big impact on the price you pay. Let’s say a finished pair of shoes cost a factory $10 to produce, they will need to make some money on them, so they deliver them to the contractor for $20. From there they go to distribution where distributors will pay $40 for the pair. When the stores pick them up for inventory at $80, of course they will want to sell them for more than they paid. Prices may vary, but this is the game. You can see there is some room to mark the price up or down and still make some money.

Effects of Mass Production on Pricing

To have shoes produced in a factory, minimum orders are required. A footwear brand may have good relationships with the contractors who manage manufacturing contracts, or they might have a good relationship with the factory itself, which might allow them to start with smaller orders or spread them out over time, but a simple way to understand the most common type of shoe contract is to consider it in terms of 100,000 pairs of shoes.

The logic behind this kind of production is to accept the fact that a large number of those 100,000 pairs will not sell, but the ones that do should generate enough profit to make it worthwhile enough to go through the cycle again. They won’t sell because they don’t fit -  too big, or small, or too wide or narrow. They may not sell because they don’t look good to the buyer.

100,000 pairs of shoes is a big commitment, so companies become conservative about the kinds of shoes they would produce in that number. 100,000 pairs of shoes requires a lot of material, and in most cases uniformity of the material is the highest priority. In attempt to lower the risk of this kind of purchase, a lot of effort is made to make sure the cost of materials and labor are as low as possible.

The trade off for such large orders is leverage on the price of any individual component. The cost of individual components is orders of magnitude less on a large order than they would be for a small order. Some materials simply can not be procured in small quantities – just try to get an injection mold made for your one-off custom trainers…

Currency Policy and Pricing

From the perspective of the average American shoe consumer, most shoes are made overseas. Of those shoes, the majority are made in China. China has made itself the premier manufacturer of shoes by keeping material and labor costs low. One way this is achieved is by producing the materials needed to make shoes in China, and near the shoe factories themselves. Tanneries, plastic component manufacturers, rubber soling manufacturers, etc. are all conveniently located near the factories. A tight local supply chain provides many efficiency gains that result in a low cost of basic materials. Another way is through currency policy.

The US Dollar has declined significantly against major world currencies, especially since the Fall of 2008. China has adopted a policy of matching the dollar’s decline by lowering the value of their own currency. That means, for instance, as an American buying from Europe, the prices have been getting more expensive as the dollar buys less, but buying from China prices remains the same. See Paul Krugman’s article in the New York Times: http://www.nytimes.com/2010/01/01/opinion/01krugman.html and James Fallows: http://jamesfallows.theatlantic.com/archives/2010/01/krugman_protectionism_and_the.php

On the one hand this would appear good for American shoe brands who can continue to bring in their products at the same prices and keep their profits up, but it artificially keeps the price of shoes low. It allows Chinese manufactured goods to avoid charges of “dumping” – selling them at less than cost, because the currency policy is set at a national level. Indeed, it’s difficult to see that anyone other than the body setting the exchange rate could be held accountable for this price disparity.

Where the Rubber meets the Road

My good friend Matt Menely at Mountain Soles has long maintained that there is a conspicuous disparity between the price of materials required to repair shoes and the price of new shoes. In the case of repair, we can experience the direct effect of the leverage of the 100,000 pair contract on an individual pair of shoes. To buy a replacement rubber sole from a distributor here in the US to be used in repair can costs more than the shoe originally cost to produce in China. Add to that the labor cost of removing the old sole and putting on a new one and mark it up so there’s some profit and the consumer is faced with a big dilemma. For the low cost and low quality shoes, repair is simply not economically viable. Toss the old shoes in the landfill and feed the cycle by buying new shoes or pay more for a quality shoe that can be repaired. Not and easy choice.

I provide some information here on my site to understand how shoes are made, but it takes a very keen eye to spot a quality pair of shoes. It’s a skill most shoe consumers don’t yet possess. Currency manipulation and leveraging large contracts also distorts our standard benchmark for quality – price. It is often repeated that consumers demand higher quality and lower prices, there are reasons that these don’t go together well in the world of leather shoes, as you will see in part two.

Ankle boots can be made on the same lasts as low shoe lasts, but there are some tricky dynamics as the upper extends beyond the top of the last. I’m continuing to avoid eyelets as the leather upper is more than up to the task of holding the laces. Also, for custom shoes, those eyelets don’t see as much stress.

The veg tan cow upper is also fully lined with veg tan cow. They are build using a welted construction and stitched to a mid-sole using braided stitching. A Vibram Gumlite unit sole is glued on over the mid-sole.

ExIT Shoes at the SF Bike Expo (Photo by Richard Masoner)

I had a great time at the SF Bike Expo. I’d like to thank Phil Segura and Gwen Lutz for making it a great place to show ExIT Shoes. I’d like to give a special thanks to Mia from Momentum who helped me out of the dark corner of the Cow Palace.

Cyclelicious has some great photos (like this one on the right) and comments about the Bike Style fashion show in their Cat Calls section.

I received a lot of positive feedback about the ExIT Cycle shoes. There was some interest in getting the shoes in larger sizes (like from the guy from Xtracycle who wears size 50 shoes).

There was strong interest having custom shoes made both for cycling and for general use.

Finally, the ladies 2″ heel version of the ExIT Cycle shoes was probably the biggest hit.

ExIT Shoes will be in the South Hall of the Cow Palace near the Fashion Stage in Booth #39. (The Opposite end of the hall from the Cross Mud Pit – think about it…) Come say hello!

Anyone who’s been around me or my shop over the last several months knows these have been on my mind. Finally today they are finished. These shoes have the same general styling colors as the ExIT Cycle™ shoes, but done in a 2″ heel.

Making high heel shoes is especially challenging for the small shoemaker because it requires a lot of specialized material, or a lot of engineering on the shoemaker’s part. While these were no  picnic to produce, I’ve gotten positive feedback from all the testers who took tried them out. Many wished it was currently picnic weather so they could wear them some more.

These shoes are unlined and feature the same Italian vegetable tanned upper  as the ExIT Cycle™ shoes, but with a killer firefighter Vibram sole . When you’re burning some rubber on your bike, or stamping out your camp fire, you’ll need these soles to protect you. (Hello firefighters…) Note the 100X on the heel. That’s because they are 100X cooler than any other ladies bike-styled shoes!

If you missed the show you will get another chance to see them on November 21 in Momentum’s show at the SF Bike Expo.