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Why Are Some Sneakers so Expensive and Others Cost Practically Nothing?

Nike sneakers

Value is a complicated topic. For proof, look no further than the fact that philosophers have been expounding upon it for centuries and centuries, with an excellent example being how the concept of intrinsic value was once seen as being fundamental to the field of ethics. However, we are still very far from having a perfect understanding of value because it is one of those things that sound simple upon initial consideration but turn out to contain infinite complexities, even when it comes to something as simple as sneakers. Of course, an imperfect understanding of a concept has never stopped people from using it. Sometimes, value comes up in a very rarefied way. Just as how there were philosophers discussing ethics as well as other matters of value in the past, there are philosophers discussing ethics as well as other matters of value in the present. Other times, value comes up in a much more common context. After all, everyone has either made a value judgment at some point in time or will make a value judgment at some point in time, which makes sense because something's value is essentially something's importance.

In economics, this causes something's value to mean something's beneficial properties. Thanks to this, it becomes possible for someone to say that something is overvalued when it has a higher price than it should based on its beneficial properties and that something is undervalued when it has a lower price than it should based on its beneficial properties. Unfortunately, there is much more to this topic than this, not least because one person's understanding of something's value isn't guaranteed to be the same as the "true" understanding of something's value. Assuming that such a thing even existed in the first place.

What Determines the Price of a Product?

The price of a pair of sneakers is set through the same process that sees use for the prices of other goods and services. For those who are unfamiliar, price is a product of the interaction of supply and demand, which is one of the most fundamental concepts in the field of economics for very good reasons.

Generally speaking, the law of supply says that higher prices tend to cause more suppliers to become willing to provide units of a good or service. This makes sense because a higher price means that a supplier can make a higher profit, thus making the provision of more units a more pleasing choice. Meanwhile, the law of demand says that higher prices tend to cause more consumers to become less willing to purchase units of a good or service. Similarly, this makes sense because every dollar that is spent on purchasing one kind of good or service is a dollar that can't be spent on purchasing other kinds of goods and services, which is particularly problematic because additional consumption tends to result in diminishing benefits. For people who are struggling to understand this concept, this of it in this intuitive manner. Most people are going to enjoy their first and second slices of cake. However, most people will be sick of cake by their tenth slice. Never mind their 20th or even their 100th slices.

Of course, there are some exceptions to these rules. For instance, there are some goods and services that have very inelastic demand, meaning that higher prices and lower prices don't have as great of an effect on their consumption as on other goods and services' consumption. One excellent example would be medication that enables people to live on in spite of a serious medical condition. Certainly, higher prices will cause some of the relevant consumers to stop purchasing them to stop purchasing them for one reason or another. However, their life-saving nature means that the overwhelming majority of the relevant consumers are going to continue purchasing these medications so long as they possess the financial means to do so because they just don't have any options. Something that isn't even true for a lot of the necessities because there are plenty of substitutes within their respective categories. Besides these, it is also worth mentioning luxury goods and services, which amusingly enough, can actually see higher demand because of higher prices. In those cases, this is because their value lies in their use as a status symbol for the most part. As such, a higher price makes them more exclusive, which in turn, makes them even more of a status symbol because of that exclusivity. Something that brings in consumers who are won over by that impression.

In any case, the price of a particular good or service is supposed to reach equilibrium at the intersection of its supply and its demand. After all, this would be the point that the number of units that people are willing to provide is the same as the number of units that people are willing to purchase, meaning that there is no need for further adjustments. Having said that, it is worth mentioning that such adjustments can take quite some time, which should come as no surprise because none of the parties involved have access to perfect information about the market all of the time. Regardless, even when the price of a particular good or service has reached equilibrium, that doesn't mean that every consumer will think that the price has reached the same point as the value. There is a fair number of people who will think that the good or service is underpriced because they would have still been willing to buy it at a higher price, though their exact limit will see considerable differences from person to person. Similarly, there is a fair number of people who will think that the good or service is overpriced because they are the ones who have been priced out of the market by the equilibrium price. In other words, this whole thing is a great illustration of the fact that everyone has their own opinion about something's value, thus making it very difficult to argue for the existence of that same something's objective value without adding a lot of contextual conditions in the process.

What Are Sneakers?

Moving on, sneakers are a very popular offshoot of a very old tree. For those who are curious, the earliest known example of shoes would be a pair of sandals made out of sagebrush bark from about 7,000 or 8,000 BC. However, this pretty much guarantees that shoes came into existence at some point before that based on some pretty basic reasoning. In short, most materials can't last for millennia and millennia, particularly when it comes to the ones that are biodegradable rather than non-biodegradable. As a result, it is safe to say that the overwhelming majority of such items ever created have succumbed to the passage of time because they can't be preserved until the present save under very rare circumstances. Due to this, it is pretty much guaranteed that those shoes aren't the very first pair of shoes ever made.

In fact, there is evidence that shoes might have been invented as far back as 26,000 to 40,000 years ago. This doesn't come up much because the overwhelming majority of people in developed countries wear shoes most of the time. However, people who wear shoes on a habitual basis have very different-looking toes compared to people who don't wear shoes on a habitual basis. As a result, it is striking that the fossil record shows shorter, thinner toes becoming more and more common in that approximate time period, though their shoes were likely to have been nothing more than leather-made bags for the feet.

Over time, shoes became more and more sophisticated. By Roman times, cobblers had become a notable profession in their own right, which is perhaps unsurprising considering the sheer amount of marching that was expected of Roman soldiers. However, while cobblers could turn out huge numbers of shoes when conditions were right, the Industrial Revolution transformed the field of shoemaking in the same way that it transformed the making of a wide range of other goods. As such, the production of shoes was almost completely mechanized by the end of the 19th century, which in turn, made them more available to more people than ever before.

Rubber-soled shoes meant to boost athletic performance came into existence in the early 19th century. Initially, these were rare. However, it wasn't too long before the Industrial Revolution caused them to spread and spread and spread. Amusingly, while the term "sneaker" is value-neutral nowadays, it was something of an insult in those times because it was thought that their noiseless footfall made them the perfect choice for muggers and other sneaky criminals, thus explaining the name. However, that wasn't enough to prevent sneakers from becoming popular, so much so that there are now a staggering range of sneakers on the market. This is important because this has contributed a great deal to one pair of sneakers not being the same as another pair of sneakers. Something that contributes to their price differences.

Why Are Some Sneakers So Expensive Whereas Other Sneakers Cost Next-to-Nothing?

The cost of manufacturing sneakers isn't that high. There aren't a lot of up-to-date numbers available because this is pretty sensitive information for most sneaker companies. However, we know that Nike had a figure of $28.50 for manufacturing a pair of sneakers before bringing them over to the United States in 2014. Most of this figure - $27.50 - went to the manufacturing in a Chinese factory, whereas the remaining $1 went to the cost of shipping. Having said that, it is worth mentioning that China has been seeing rising labor costs in more recent times, so it is possible that this figure has risen. However, while higher-end manufacturing has struggled to relocate thanks to the difficulties of relocating from a place with the relevant expertise, experience, and facilities, sneaker production can't be considered an example of such. Thanks to that, we know that some sneaker companies have made moves to keep their costs under control by relocating to countries with even lower labor costs such as Vietnam and Thailand. Similarly, a lot of sneaker companies have been investing in robots as well, which have been useful for keeping costs under control as well.

Instead, much of the cost comes from the branding. This isn't exactly a new thing. After all, the Air Jordan brand came into existence in 1985. However, there can be no doubt about the fact that sneaker companies have gotten more and more competitive over contracts with superstar athletes, which in turn, means higher and higher branding costs because of the money paid out to them. For example, it is said that Under Armour pays Stephen Curry $20 million on an annual basis. Likewise, Michael Jordan managed to make $145 million from Air Jordan in the 12 months that ended in May of 2019, which is particularly notable because he didn't even manage to break $100 million over the course of his entire basketball career. Granted, some of that is inflation. However, this is nonetheless an excellent example of superstar athletes being paid huge sums by sneaker companies because of the usefulness of their image in branding.

As for why sneaker companies are so willing to pay such huge sums, the simple answer is that the value of sneakers is by no means limited to their purely functional purposes. For proof, look no further than the fact that people will wait in line to get their hands on limited editions of the latest sneakers, which if they choose to do so, they can then choose to resell for considerable mark-ups to other interested individuals. Thanks to this, there have been cases of such sneakers being resold for three times their initial sale price, which speaks volumes about their value in the eyes of consumers. On top of this, sneakers are as much a fashion statement in the present as anything else, thus opening up branding opportunities to include not just superstar athletes but also other celebrities who fall into the same cultural streams. That creates even more competition, thus making for even more competition-driven branding costs.

Some people might wonder whether this is worthwhile. If so, they should recall what was said earlier. No one has managed to come up with a way to calculate objective value. As such, one person's opinion of something's value is as good as another person's opinion of the same. At most, one can make statements based on the number of people who choose to make and choose not to make certain purchases. However, considering how sneakers can sell for hundreds of dollars, it is clear that there are many people who consider them to be worthwhile.

Garrett Parker

Written by Garrett Parker

Garrett by trade is a personal finance freelance writer and journalist. With over 10 years experience he's covered businesses, CEOs, and investments. However he does like to take on other topics involving some of his personal interests like automobiles, future technologies, and anything else that could change the world.

Read more posts by Garrett Parker

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