The Price Of Nike Products Is Lower Than That Of China?

The average purchasing power of Americans is much higher than that of China. Why is the price of Nike products cheaper in China than in China? Is Nike's market discrimination?

A familiar person

High prices and high profit margins can be said to be twin brothers. The high profit margins of Nike products in the Chinese market are even at the top of Nike's global market.

The fourth quarter financial report released by Nike in June shows that as of May 31st this year, the Greater China region has earned 464 million US dollars, and the pre tax profit (EBIT, profit before interest deduction and income tax) was $187 million, and the pre tax profit rate reached 40.3%. Compared with that, the pre tax profit rate of Nike in the North American market was 24.2%, the Western European market was 20.2%, the Eastern European and central European markets were 25.3%, the Japanese market was 23.4%, the emerging market was 20.5%, and compared with second of the Eastern European and central European markets, the Greater China area was more than 25.3% percentage points.

A Nike shoe manufacturer in China told reporters yesterday that the price difference is related to China's taxes, business environment and consumption habits. Apart from sales staff salaries, other related expenses in China's retail industry are no less than those in developed countries or regions overseas.

Huang Xiangyan, the newly appointed Nike China spokesman, also blamed the higher tariffs and logistics costs. She said: "Nike sells a lot of products in China, including shoes, clothing, accessories, etc., and some products are higher than those in the United States, and some are not."

Huang Xiangyan said that tariffs in China have a greater impact on product pricing.

Nike pursued light asset strategy. In addition to R & D and sales, it does not produce itself, and its products are produced by foundries all over the world.

In the 2009 fiscal year, the total number of Nike's global foundry enterprises was 618, and as of June 1, 2009, Nike had 136 foundries in China.

Huang Xiangyan said that Nike had no domestic sales rights in China's foundries. The products produced in China must be exported to third places and then returned to China in the form of imports. Tariffs, especially import tariffs, have increased the cost of Nike products.

The head of Nike's above mentioned factory also said that there are three ways to sell the international brand shoes, such as Nike and Adidas, which are sold in China. One is to sell directly after China's production, one is to export from China to overseas, and another to sell in other countries or regions.

No matter which way it is sold in China, it can not avoid higher taxes and fees.

The taxes and fees of different shoes are not the same, and the duty of importing leather raw materials is generally 10%. The total tariff of imported shoes is 15%, plus 17% of value-added tax, the cost of taxes and fees is obviously higher than that of overseas.

In addition to tariffs, Huang Xiangyan said that higher logistics costs were also the reason why some of Nike's products in China were higher than those in other countries. She said: "Beijing, Shanghai and other tier cities are easy to pport, and the logistics cost of products after entering China is relatively low. However, China has a vast territory and the cost of pporting products to the mainland is much higher."

However, insiders pointed out that some of Nike's foundries are located in the bonded area. The products can be exported and imported in the bonded area before they can be completed, and in fact, there is no need to go abroad.

Insiders pointed out that the light asset model adopted by Nike decided that its products had to go through many links in reaching the final consumers, and Nike, foundries, logistics and sales channels all needed to make profits, and the price of products rose naturally.

Moreover, the consumption habits of different countries and regions also affect the pricing of shoe enterprises.

For example, Americans often throw their shoes dirty, and Chinese people often wear out before they lose them. The average annual consumption shoes 6~7 pairs, the 1~2 consumption per capita consumption shoes and the amount of consumption in the United States affect the operation cost and pricing strategy.

Another industry insider said that in the United States, Nike belongs to a functional product, mainly to meet the sports needs of consumers, so its pricing is not high.

But the Chinese market is different. Chinese consumers regard Nike's products as a fashion. Nike is a synonym for high-end and luxury goods, even if the price is high. This is the social foundation for Nike's high pricing strategy to be based in China.