***Pics of shoes have nothing to do with the post, just for your eye candy***
There is a lot of confusion in the consumer’s eyes on what you should expect from a pair of shoes and I was hoping to clear that up for some of you as it is important to know what you will get from what you will pay for in a pair of shoes. So let’s break it down.
I have stated this before and I will do so here again but there are 3 components that you pay for in a pair of shoes and that is:
- Leather used (or not used)
- Cost of labor
- Mark Up
Let’s now look at these more closely.
Leather Used (or not used)?
This is what really separates many of the price-points of shoes. You see, when you buy leather you buy it in hides but it is priced in either meters or square feet. One large hide can cut between 6-8 pairs of shoes (depending on the size of course). So let’s break this down now and see how vastly this can vary. An expensive leather would be €100 per meter squared. A common hide is about 1 meter by 1.5 meters, so let’s say its value is €150 per hide.
-If you cut one pair from that hide this shoe has €150 worth of leather in it (not counting the other components of the shoe like sole leather, heel block etc)
-If you cut 3 pairs from that hide, the shoes have €50 worth of leather in them
-And lastly, if you cut 6 pairs from that hide, the shoes have €25 worth of leather in them.
So, a factory making the same quality of shoe but either cutting 1 or 6 pairs can have an extremely different pricepoint at the end, as well as an extremely different looking shoe due to where the pieces were cut on the hide. For example, it was once reported that a very famous shoemaker would buy 3rd-grade leather only and cut one pair from each hide. Because from a 3rd-grade hide you can at least cut one perfect pair. They were smart in doing this as they saved money in buying the leather in bulk and then most likely used wastage for other things like factory shop shoes or selling to 3rd world markets (yes, this actually happens).
Cost of Labor
Each country pays its laborers differently and in each city, you get a different wage too. For example, if your factory is closer to Florence, Italy, you might get a higher wage than a factory that is in Marche as the cost of living will be different. For example, in Almansa an apartment of 3 bedrooms cost like €300-€400/month. In Kettering, UK (where G&G are), that same apartment might run you around ?600-?700. Therefore, G&G will most likely pay their workers more than a factory in Almansa. Get the drift? Now, you really start to think about how much laborers make in places like Vietnam or China or other 3rd world countries that make shoes. Therefore the same quality of shoes can be more expensive based on its location of production, and cheaper too if made in a place with low cost of living. Hence why Spain generally has shoes of lower pricepoints than England.
This naturally is the most important one and really what you are paying for. In the shoe industry, the common mark-up is between 2.5-3x the cost/wholesale price. Therefore, the greater the cost to make the shoe, the greater the mark up you are paying. For example, if a shoe costs €100 to make and there is a 3x mark-up, you are paying €200 in mark up. If the shoe costs €150, you are paying €300 assuming a 3x mark-up. And so it goes on. Now, this is not so simple either as some brands/companies will have wholesale markups too. For example, if you are a brand and intend to sell to other retailers, you will need to add a small wholesale mark up to the price you pay for the shoes. So if you pay the factory €100, you will most likely wholesale those for €120-€130 and then add your 3x mark up to get the retail price as the wholesaler will at least want a 2.7 mark up and you cannot undercut them and vice versa.
Mark up can also be egotistical too. A country that feels their shoes superior might have a higher mark up simply for the sake of the value of how they perceive their shoes to be with respect to another country.
And lastly, mark up is greatly depending on the micro-industry with the larger shoe industry. For example, that mark up of 2.5-3x is for the welted shoe industry. You won’t believe what blake stitched and glued shoes have as mark ups. And don’t even get me started on fashion shoes that sell for +$900 and most likely have an ex-factory price of $150 maximum (ex factory means the price the factory sells at, not the actual ‘true cost’ which no one but the factory will know). That would be a 6x mark up.
There is a lot to a shoe’s price that you will never know or think about. Here I hope to at least shed some light on the behind-the-scenes of how the price is initially built.
Next, I will start to break down the different shoe price points and how they get to that in order to dispell the reality of the marketing jargon that many brands use that might confuse you on what you can actually expect from that price point and thus the shoe that you are paying for.
Cost of living and cost of labor are two different things. Cost of labor has to do with the overall education and professional skill set in a locality. For example, US Federal Government locality rates are based on cost of labor, not cost of living. Houston is higher than almost everyone outside of the SF-OAK Bay area and New York, because of the space industry and the oil and gas industry. Meanwhile, Houston has relatively neutral cost of living compared to the US average.
I understand that they are different. But cost of living/housing/rent/real estate will all help to dictate cost of labor.