Ethics and
Sneakers
by Louis Corrigan
(RgeSeymour)
"It's murder, gentlemen. No rhyme, nor reason, just murder.
For sneakers. For jackets. Get it Spike? Murder."
--Phil Mushnick, columnist for the New York Post, 1990
In the spring of 1990, Nike's latest edition of the wildly popular Air Jordans
and Reebok's new "high-tech" Pump basketball shoes hit the stores with a
then unprecedented retail price of $175. Around the same time, the media
went wild over a handful of gory inner-city tragedies: kids shot down in
cold blood by other kids who wanted their fancy sneakers or flashy team jackets
and would literally kill to get them. What blame should be meted out to a
company (like Nike), a star pitchman (like Michael Jordan), and a hip director
turned ad maestro (like Spike Lee) who could create such an iconic aura around
a pair of shoes -- mere rubber and leather, after all -- that customers would
either pay more for them than they could afford or maybe just blow someone
away to enjoy a piece of such transcendent cool?
Then again, maybe the critics were confusing cause and effect. Spike, rarely
at a loss for words, put it this way. "The real question that needs to be
asked is what it is about these kids' lives that is so bleak that they need
a pair of sneakers or a Georgetown jacket to give them self-worth?" Of course,
one could easily imagine a series of perhaps equally haunting stories looking
at the troubling lengths to which Upper East Side professionals have gone
to afford their Lexuses and summer beach houses -- and the families ruined
as a result.
The problem Nike encountered was one that had a socioeconomic specificity
unrelated to the company's multimillion-dollar image-making. That is, the
problem of urban poverty and its attendant ills was already there, but usually
ignored. On the other hand, Nike's supreme success in marketing the romance
of sport and the ascendant glory of His Royal Airness irrefutably contributed
(and still contributes) to an ethos in which we are all constantly told to
want what we cannot really afford and what may not necessarily be good for
us.
What are the ethics of a company selling athletic shoes for $175? Are they
any different from the ethics of any company selling commodities as dreams?
For many Nike investors, there's no doubt one easy answer: there are no ethics
involved -- unless, of course, the company could charge even more. The right
price, they might reasonably argue, is the one that maximizes short term
profits while also maintaining the long-term value of the Nike brand as...
just a bit out of reach for some folks. Indeed, retailers say that in many
instances, Nike actively practices the art of scarcity in order to maintain
its cachet.
Where does all of this money go? Consider the dated example of the Carnivore,
Nike's high-performance cross-training shoe introduced in 1993 with a retail
price around $130. According to Donald Katz's corporate biography Just Do
It (1994), the numbers broke down this way. Nike paid $29.50 per pair to
its South Korean subcontractors. Of that, about $4.50 (15%) went to pay the
workers on the line and about $18 (60%) went to purchase shoe components,
such as the synthetic leather uppers. Of the rest, 5% went to indirect labor
and handling and 10% to factory costs, administration, and overhead. The
remaining $2.95 was profit for the factory owners.
On leaving South Korea, the Carnivore picked up another $1.40 in shipping
costs and a whopping $5.90 in U.S. Customs duties, making for a total cost
to Nike of $36.80. Retailers would pay up to $70 for the shoe, though most
would get volume discounts. Of the $25 or so Nike walked away with, more
than $4 went to taxes and $15 to running its U.S. operations. The company's
profit was around $5.50 per pair, according to Katz.
Of course, Nike has continually moved its manufacturing to the lowest cost
countries. In the period ended May 31, 1996, the majority of its contract
suppliers were in Indonesia and China, which combined accounted for 72% of
Nike brand sales. In 1993, Nike's South Korean workers were making about
$800 a month, whereas workers in Indonesia and China got paid as little as
$100 a month.
Nike has also pushed its share of the U.S. athletic shoe market to a dominant
43%. A stronger market position and lower labor costs mean Nike has become
more profitable than the Carnivore example suggests. Its net profit margin
last year was 8.5% and has been rising as gross margins have nudged higher
to nearly 41%. The reason Nike isn't making even more money is because its
R&D spending increased 63% last year to $46.8 million, and spending on
advertising and promotions soared to an astonishing $643 million in FY96,
a figure that exceeds U.S. athletic shoe sales for every company other than
Reebok.
Are the premium prices, then, unethical? Not exactly. If you can't afford
the Lexus of athletic shoes, just say no. Still, one could argue that the
pricing is indeed unethical since it fails to provide a fair wage for the
line workers who make the shoes. And if that's the case, it's even possible
to imagine, among other more obvious options, that the shoe prices are too
low!
Ultimately, there's no escaping the fact that when you buy a pair of Nikes,
you're largely paying for a fantasy embodied by the Nike brand. That is,
you're paying to see (endlessly) some of the world's most powerful and polished
advertising that will then connect you to astonishing moments that capture
the romance and emotion of sport, of being alive, even in spite of our cynical
awareness that we have been taught by the advertising itself to feel as we
do and that the performances are just as choreographed and paid for as our
favorite summer blockbuster.
"It's all about desire," Michael Jordan said last week, shortly after his
heroics in game five of the NBA championship series against the Utah Jazz.
"We wanted it real bad. I was really tired. I was weak at halftime. I told
Phil [Jackson] to use me in spurts, but I somehow found a way to stay strong.
I wanted it bad."
Michael's performance was ennobling. Yet at the same time, the mass-marketed
way in which we can be like Mike is all too obvious and, indeed, repeated
at every commercial break. "So what's new?" you say. And is charging $175
for a pair of sneakers unethical or not? When we're talking about sneakers
or soft drinks or any of a thousand things people don't literally need to
survive, the ethics can't be in the price alone but in who's getting paid,
who's not getting paid, and whether the dreams we're buying help our real
dreams come true.
On to Lesson # 6 -- Catching
a Tiger by the Tail |