The iconic Nike Air Jordan 1 is set to face a price hike due to the US tariffs imposed on goods from Vietnam, Indonesia, and China. The 32% to 54% import taxes will significantly impact the production costs of shoes made in these countries, which account for almost half of Nike’s shoe production.
Analysts predict that prices will increase by 10% to 12%, with Swiss bank UBS estimating a rise of 10% to 12% for goods from Vietnam. However, not all analysts are convinced that price rises will be drastic, with Morningstar’s David Swartz suggesting that a 10-15% increase would be more realistic.
Nike is already facing challenges in maintaining its profit margins due to rising costs and administrative expenses. The company’s recent fiscal year showed a gross profit margin of over 40%, but this has shrunk to around 11% when factoring in interest, taxes, and other business operations.
Some experts believe that Nike could reduce costs by downgrading the level of technology used in its shoes or slowing down the design cycle. However, Simeon Siegel from BMO Capital Markets notes that it’s uncertain whether these measures would be effective in offsetting the impact of tariffs.
As the situation evolves, US consumers are a significant concern for Nike due to their importance to the company’s demand. The retailer relies heavily on North America, with $21.5bn of sales coming from this market alone. Ultimately, firms may be forced to pass on the cost of levies to consumers.
China has already responded with its own tariff increase, which will further exacerbate the situation. While some experts predict that Nike and other companies will not significantly reshape their supply chains in response to tariffs, others argue that it’s uncertain whether this will happen due to the complexity involved in footwear manufacturing.
Source: https://www.bbc.com/news/articles/ce3qlz2y3gyo