Sneakernomics

Summary

Down to Business English – Episode Summary

Episode Title: Sneakernomics
Hosts: Skip Montreux & Dez Morgan
Date: February 20, 2019

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Episode Overview

This episode delves into the business behind sneakers (trainers in the UK), exploring the economics, new trends in sneaker design, and the evolution of the market. The hosts break down the cost structure of sneakers, emerging brands like Allbirds, the rise of "athleisure," and how online sales and digital marketing are transforming the sneaker industry. Throughout the episode, they introduce and explain key business vocabulary and discuss cultural differences in language.

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Key Discussion Points and Insights

1. Language Differences: “Sneakers” vs “Trainers”

• Brief initial conversation highlights regional vocabulary:
  • UK: “trainers” vs North American: “sneakers”
  • Other examples: “bonnet” vs “hood” (car); “pavement” vs “sidewalk”
• [01:07] Dez: “Another example would be you say the hood of a car and we say the bonnet or the American sidewalk versus the British pavement.”

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2. The Business of Sneakers – Cost Breakdown

• Deep dive into where money from sneaker sales actually goes.
• Surprising Profit Margins:
  • Manufacturers get only 5% of the final price.
  • Breakdown ([02:54]):
    • Manufacturing: 22%
    • Staff, warehousing, office, patents: 11%
    • Marketing & advertising: 5%
    • Freight & insurance: 5%
    • Taxes: 2%
    • Manufacturer’s profit: 5%
    • Retailer: 50%
• Notable quote:
  • [02:41] Skip: “Nope, dead wrong. Out of the purchase price, the manufacturer only gets 5%.”
• Insight: Although the retailer keeps a large share, they also bear significant inventory and operational costs.

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3. The Retail Model vs. Direct-to-Consumer

• The traditional model favors retailers but online sales are growing.
• Manufacturers, especially big brands, are moving to direct-to-consumer models online to capture more of the profit.
  • [04:28] Skip: “That is increasingly what’s happening. In 2017, Nike announced that their five year target was to generate 30% of their sales directly online.”

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4. Quality & Material Innovation: The Case of Allbirds

• Allbirds is spotlighted as a disruptor using sustainable materials (wool, tree fiber, sugarcane resin for soles) and online-focused sales.
• [05:12] Dez raises the question if manufacturers cut material quality to maintain profit margins.
• [05:53] Dez (humorous): “What are you talking about? A pair of shoes or a walk in the forest on a cold day while eating a candy bar?”
• Innovation:
  • Woven uppers reduce labor costs versus traditional leather construction.
  • [07:05] Skip: “The main advantage is woven shoes are cheaper to make. Sneakers made from leather require many small pieces to be stitched together, which is very labor intensive.”

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5. Athleisure and Market Trends

• Athleisure: Sneakers designed for casual wear rather than sport.
  • Term in use since 2015.
  • [08:07] Skip: “According to a Forbes survey conducted in 2016, only 25% of sneakers sold are actually used to play a sport.”
• Market Growth:
  • Sneaker market is growing at 2.85% annually ([09:00]).
• Consumer behavior is shifting – casual dress and “athleisure” drive growth, even in workplaces.

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6. Celebrity Endorsements and Digital Marketing

• Huge endorsement deals still exist (e.g., LeBron James and Nike, $1 billion lifetime deal, [09:36]), but:
  • Importance is diminishing in the digital era.
  • Online marketing allows brands to target niche audiences more efficiently:
  • [10:05] Skip: “Internet marketing allows the big sneaker makers to market products just to the niche that they are targeting. This is a much more efficient way to spend the marketing budget.”

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7. Price Paradox and “Limited Editions”

• Despite lowered production costs (knitted uppers), limited edition sneakers (like Adidas Yeezy Boost) sell for significantly more.
  • [10:55] Dez: “$599. Just a minute. Aren't they supposed to be cheaper to make than leather sneakers?”
• Scarcity and “niche” appeal drive up the price.

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Vocabulary and Business Expressions Explained

[12:02 – 16:54]
Segment devoted to useful business language from the episode, with explanations and relatable examples:

• Paltry: Very small or meager.
  • [12:02] Dez: “Only a paltry 5%. I am surprised.”
• Sole:
  • As noun: bottom of the shoe.
  • As adjective: the only one.
• Labor-intensive: A process that requires a lot of human labor/time.
  • Example: Leather sneaker construction.
• Endorsement: Approval, often paid, from a notable person for a product.
  • [14:40] Skip: “LeBron James, the famous basketball player, had a lifetime endorsement deal with Nike.”
• Niche market: Targeting a specific, small segment of consumers who are often willing to pay more.
  • Dez gives the example of an “owl cafe” in Tokyo—a café for owl lovers.

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Notable Quotes & Memorable Moments

• [02:41] Skip (profit margins): “Nope, dead wrong. Out of the purchase price, the manufacturer only gets 5%.”
• [05:53] Dez (on Allbirds materials): “What are you talking about? A pair of shoes or a walk in the forest on a cold day while eating a candy bar?”
• [08:07] Skip (athleisure): “Only 25% of sneakers sold are actually used to play a sport.”
• [09:36] Skip (endorsements): “The last megadeal was the deal between Nike and the basketball player LeBron James... a lifetime endorsement deal that was rumored to be worth $1 billion.”
• [10:55] Dez (on limited edition pricing): “Just a minute. Aren't they supposed to be cheaper to make than leather sneakers?”

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Important Timestamps

• [01:07] — Regional English vocabulary for footwear.
• [02:22 – 03:57] — Sneaker economics: Cost breakdown.
• [04:28 – 04:40] — Rise of direct-to-consumer sales.
• [05:12 – 07:42] — Allbirds, material innovation, and impact on labor & cost.
• [07:48 – 08:24] — Athleisure: Definition and significance.
• [09:00] — Market growth statistics.
• [09:36 – 10:21] — Decline in reliance on celebrity endorsements; rise of niche marketing.
• [12:02 – 16:54] — Business vocabulary highlights.

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Episode Tone & Style

Conversation is light-hearted, with frequent humor and banter, but underpinned by detailed, practical business insights and accessible explanations of vocabulary. Hosts emphasize clarity for ESL learners.

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Final Thoughts

• The episode underscores the complexity and innovation in the sneaker business—from cost breakdowns and retail strategies to cultural trends like athleisure and sustainable design.
• Listeners not only gain up-to-date business knowledge but also valuable business English vocabulary and real-world application examples.
• The growing impact of direct sales and online marketing is highlighted as a key trend to watch.

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For more episodes or script downloads, visit: downtobusinessenglish.com

Transcript

[A]

From Tokyo, Japan and Abu Dhabi, uae, this is down to Business English Business news to improve your business English with your hosts, Skip Montreux and Des Morgan.

[B]

Hello there, Des.

[C]

Hi, Skip. A warm welcome to you. How are things?

[B]

Not too bad. Well, it's been a fairly busy time at the office as of late, but I'm managing to stay on top of things.

[C]

Well, that's good to hear.

[B]

And I've been trying to find a little time to fit in. A bit of exercise. Haven't been too successful, though.

[C]

I know what you mean. I don't exercise near as much as I used to and I have no excuses. Really. Well, just a minute. Actually, I do have one very poor excuse.

[B]

Oh, yeah? What would that excuse be?

[C]

Well, I need some new trainers, or as you call them in North America, sneakers.

[B]

Hey, that's a pretty good example of one of the differences between UK and North American vocabulary. You say trainers and we say sneakers.

[C]

Another example would be you say the hood of a car and we say

[B]

the bonnet or the American sidewalk versus the British pavement.

[C]

Yes, there are many, many examples. But regional language differences isn't our topic today is.

[B]

No, I just thought our listeners might enjoy a few of those examples.

[C]

I'm sure they have, but let's get back to trainers.

[B]

Sure.

[C]

Should I get a pair of Adidas or Nike?

[B]

Well, that would depend on which sport you will be doing.

[C]

If I'm honest with myself, probably just a bit of walking.

[B]

Well, in that case, I guess it doesn't really matter that much. Still, sneakers, trainers, running shoes, whatever you want to call them, they are a big business. And on today's show, I would like to explain how that business works.

[C]

Sounds great. So let's do it. Let's get D2B down to business with the economics of sneakers, some recent changes in sneaker design, and how and where sneakers are moving into in the future.

[B]

Let me ask you this, Des. Do you think sneakers are overpriced in many cases?

[C]

Absolutely.

[B]

Okay, now, of the final purchase price, how much do you think the manufacturer gets?

[C]

What is their portion? Hmm, a third, maybe 33%.

[B]

Nope, dead wrong. Out of the purchase price, the manufacturer only gets 5%.

[C]

Really? Only a paltry 5%. I am surprised.

[B]

If you break down where all of that money goes, you will see that manufacturing accounts for 22% of the purchase price. Staff, warehousing, office rents and patents use up 11%. Marketing and advertising, another 5%. Freight and insurance, 5%. Taxes, 2%. And the manufacturer's profit is, as we said, 5%.

[C]

So that adds up to 50%.

[B]

That's right. And that remaining 50% all goes to the retailer.

[C]

So the bulk of the purchase price stays in the retailer's pocket.

[B]

Yes, but keep in mind that the retailer has a lot of expenses of their own. They have to pay for staff and rental of their premises. They have to carry all of the sizes in their inventory and any product that they can't sell has to be moved at a pretty big discount.

[C]

I guess the retailer does have a lot of risk on their end then.

[B]

On the other hand, online retailers are able to reduce some of those expenses, especially in the area of staff salaries and expensive rent. But even they have to hold enough stock of the mini sneakers they actually sell.

[C]

Just a minute. Why don't the manufacturers sell the sneakers online directly to the consumer and cut out the retailer completely?

[B]

That is increasingly what's happening. In 2017, Nike announced that their five year target was to generate 30% of their sales directly online.

[C]

With retailers taking such a big slice of the pie, that seems like a very prudent step on Nike's part.

[B]

Absolutely.

[C]

Getting back to the traditional business model of selling through a retailer, I'm wondering if the quality of the product is affected if the maker is only getting a small 5%. I mean, do they invest in quality materials or do they try to squeeze out a few more percentage points by using inferior materials?

[B]

That is a good question. There is a new startup company by the name of Allbirds. They claim that the big manufacturers do indeed cut the quality of materials to keep the cost of manufacturing down.

[C]

And I'm guessing that Allbirds uses only the best materials and sells their products only online.

[B]

Well, not only online, but for the most part, yes, online. And according to their website, they only use the highest quality of materials.

[C]

As in good quality leather?

[B]

No, they use wool, trees and sugar.

[C]

What are you talking about? A pair of shoes or a walk in the forest on a cold day while eating a candy bar?

[B]

I'm talking about shoes. The upper part of all bird shoes are made of woven wool or the fiber from a eucalyptus tree. The same eucalyptus tree that koalas eat from.

[C]

Where does the sugar come in?

[B]

Sugar is for the sole of the shoe which is made from a resin that comes from sugar cane.

[C]

I'm going to guess again that all birds claim that the materials they use are the finest.

[B]

They do. Plus they make another very bold claim, which is they claim their shoes are the most comfortable in the world. So pretty bold.

[C]

Well, pretty good marketing if you ask me. Because now I really want to try a Pair to see just how comfortable they really are.

[B]

Making the upper part of the shoe from woven material has another key advantage.

[C]

Sure, it would keep your feet cool in hot weather. It really fits closely to the foot and could probably be produced in a wider range of colors.

[B]

All of those are more than likely true, but for the manufacturer, the main advantage is woven shoes are cheaper to make. Sneakers made from leather require many small pieces to be stitched together, which is very labor intensive.

[C]

Makes sense. The woven upper can be made by a machine and then just attached to the sole also by a machine, I would guess. Easy to see how that would reduce labor costs.

[B]

And that is exactly the reason why up all birds are cheaper to make.

[C]

And are all birds designed to play any particular sport, like tennis, for example?

[B]

No, they're not for any specific sport, but rather for the athleisure market.

[C]

Sorry, sorry. The what market?

[B]

The athleisure market. This is what the footwear industry have started to call the market for sneakers that are never really used for sport. I see.

[C]

The shoes are just for leisure activities, like taking a walk.

[B]

Precisely. According to a Forbes survey conducted in 2016, only 25% of sneakers sold are actually used to play a sport.

[C]

Athleisure. I like it.

[B]

The term started to be used around 2015. Now, another question for you, Des. Do you think the sneaker market is growing or. Or shrinking?

[C]

In one sense, I would think that it's shrinking because older people are less likely to spend as much on clothing. But in another sense, dress is more casual nowadays. So I would suppose athleisure is more common even in the workplace.

[B]

Okay, so what is your final answer?

[C]

I'm going to go with growing. The sneaker market is definitely growing.

[B]

Okay. And you would be right. The market has, in fact grown at a rate of 2.85% a year over the last three years, which is a trend analysts expect to continue.

[C]

Does that surprise you?

[B]

No. It makes sense for the reasons you pointed out. If anything, I would have thought that the growth rate would have been larger.

[C]

Me too. So if the athleisure market is growing, then endorsements from famous sports stars should be less and less important. Is that true?

[B]

The last megadeal was the deal between Nike and the basketball player LeBron James. Get this. It was a lifetime endorsement deal that was rumored to be worth $1 billion. However, those kind of deals, although still important in promoting a brand new, are becoming less important. The Internet has really changed how sneakers are marketed.

[C]

In what way?

[B]

Internet marketing allows the big sneaker makers to market products just to the niche that they are targeting. This is a much more efficient way to spend the marketing budget given the fact that most shoes will never see a soccer pitch or basketball court.

[C]

You know, Skip, I'm looking at the Allbirds website right now. I think I might get myself some of those knitted shoes. They do look pretty comfortable.

[B]

Well, do shop around. It's not just Allbirds who make them. All of the big sneaker companies are now making a knitted shoe. Nike, Adidas, Puma, Asics, the list goes on. I personally like the Adidas Yeezy Boost and if I choose one of the limited edition colors, they only cost around $599.

[C]

$599. Just a minute. Aren't they supposed to be cheaper to make than leather sneakers? Yes, but they're more expensive to buy.

[B]

Yes. I don't understand limited edition color. However, the regular ones are only around $240.

[C]

Right, but even that is more expensive than a leather pair.

[B]

Welcome to the wonderful world of snd.

[C]

On that note, I think it's time for us to get D2V down to vocabulary.

[A]

Down to Business English audio scripts are a great learning tool. Be sure to visit the D2B website and download your free audio script of Today's podcast, Downto BusinessEnglish.com that's www.downtobusinessenglish.com.

[C]

Let me start off today with the adjective poultry, which means very small. In the story, I used poultry to show that I was surprised that the profit margin for sports shoe manufacturers was so small.

[B]

You could use this word at work to show that you are disappointed with how small something is. For example, I was so busy in the office last Thursday that I only had a paltry 20 minutes for lunch.

[C]

Poor skip.

[B]

It was just an example. I usually go out for a good hour and get something really tasty to eat. There are some great lunch restaurants near my office.

[C]

The food is one thing that I really miss about Japan. Where I work we only have Subway sandwiches and Starbucks. Not a great selection.

[B]

You must eat a lot of sandwiches then.

[C]

I certainly do.

[B]

Okay, next up is the noun sole. A sole as it was used in today's report refers to the bottom part of the shoe. In the story I said that the sole of an all bird sneaker was made from sugar cane resin.

[C]

But when you use soul as an adjective, it has a different meaning. It means the only one.

[B]

That's right. It has the same pronunciation and same spelling as the noun, but a completely different meaning. I'd say it is used A lot in business English.

[C]

An example would be if a company was the sole distributor of a certain product.

[B]

You know, there is a Canadian made chocolate bar that I really like available here in Tokyo, but the sole distributor is a small shop very, very far from where I live, so I don't get to eat one very often.

[C]

Good example. Moving on, I'd like to talk about the business expression to be labor intensive. Something that is labor intensive is a process that takes a lot of input from a worker to complete. In the story, Skip describes the stitching of leather sneakers as being labor intensive. In other words, it takes a worker a lot of time to stitch together a leather sneaker.

[B]

Although most factories today are highly automated, the service industry is still labor intensive. Think about hotels and medical care. They all need people to look after customers or patients.

[C]

Even though you could automate checking in and checking out of a hotel, people seem to prefer the personal touch.

[B]

I know that I do. Next up is the noun endorsement. An endorsement happens when a person approves of a certain product or item. In the story, I reported that LeBron James, the famous basketball player, had a lifetime endorsement deal with Nike.

[C]

In other words, he agreed to wear Nike clothing and shoes for the rest

[B]

of his career and he was paid a lot of money to do so.

[C]

Endorsement is the noun form of the word, but we can also use the verb form to endorse. It's often used in politics to show that a candidate has been endorsed by a famous figure, often a former leader or official.

[B]

We hope that our listeners endorse down to business English.

[C]

I feel certain that they do.

[B]

And although we talked a lot about the shoemaker Allbirds today, I want our listeners to clearly understand that we are not endorsing that company. Neither DEZ or I have actually worn a pair of Allbirds, so are only reporting what we have seen on their website.

[C]

Good point.

[B]

Do we have another word on the list?

[C]

Yes. Our final word today is the adjective niche, which is used to describe a market that is aimed at a very small number of customers. In the story, Skip said that the sports shoe companies now advertise their products to an exact target or niche market.

[B]

And usually the customers in a niche market are willing to pay a higher price for something that is designed specifically to their liking. There's a coffee shop near my house where a cup of coffee sells for 1500 yen, about $16 a cup.

[C]

What? Are they at least putting whiskey into the coffee?

[B]

No, it is an Owl cafe. When you are sitting at your table sipping your cup of stuff, steaming hot Coffee. You are surrounded by live owls sitting on perches around the shop. This cafe, it's for owl lovers.

[C]

An owl cafe? Yes. That certainly sounds like a niche market.

[A]

Would you like to support down to Business English? Be sure to visit the D2B page in iTunes and subscribe. Subscribe to this show. While you are there, why don't you leave a rating and a comment. This will help D2B reach more people wanting to improve their business English skills. Down to Business English Business News to improve your business English.

[C]

Thanks for that report on Sneakonomics, Skip.

[B]

My pleasure, Des.

[C]

It's something you don't usually think about.

[B]

I had a lot of fun researching the topic. And you know what?

[C]

No, what?

[B]

Even though I don't really need a new pair of shoes, I suddenly have the urge to go out and buy something.

[C]

Resist that urge, Skip. Spend your money on something. You need good advice.

[B]

And speaking of advice, I have a sole piece of advice for our listeners.

[C]

Okay, and what would that be?

[B]

My advice is is to support down to Business English by becoming a D2B member.

[C]

Yeah, and I endorse that piece of advice.

[B]

If you find our podcast useful in your English studies, I strongly encourage you to visit our website and become a D2B member. Benefits include member only podcasts, access to the Entire library of D2B audio scripts, and automatic delivery of audio scripts of newly released episodes.

[C]

Not to mention, your support helps us produce even more useful content for your English studies.

[B]

Yes, producing D2B tends to be quite labor intensive after all.

[C]

But enjoyable.

[B]

Absolutely. Thanks for listening everyone. See you next time. Bye Bye.

[A]

Have a comment or question about today's show? Don't be shy. Visit the D2B website or the Facebook page and post any comments or questions there. Skip, Des or Samantha will be sure to leave a reply. Want to get even more down to Business English? Sign up for the D2B Newsletter and receive updates on some of the stories covered on down to business english. That's www.downtobusinessenglish. com. Down to business English Business News to improve your business English.