I was recently asked if I was available for an interview on BBC Radio 5 Live Breakfast to discuss the pricing of the new Nike England football kits.
Unfortunately, by the time Iād seen the request and replied to the producer, I was a little late and Iām guessing they found somebody else
However, this topical discussion point is an interesting one and no doubt one that has many people making the same assumptions and asking the same questions. I therefore felt it appropriate to use my notes to write this blog article with my understanding of the industry and what considerations go into the model of pricing.
The common āmythāā¦
āThe new England shirt is Ā£124.99ā – A media headline writers dream! Whilst not incorrect, the necessity to focus on the highest available adult shirt price is the lazy approach to journalism that most looking for clicks and sensationalism will focus on, fueling the furore of the narrative.
This is, of course, the launch price point of the technical, on-pitch ‘authentic’ spec of the adult shirt. The āfanā shirt, the variant which should be used in like-for-like comparisons, when looking at āthen and nowā pricing, is priced at Ā£84.99 (some 32% less). This is the spec of shirt which has been sold going back years – the common āshirtā before the introduction of a second, more premium, option.
If anything, thereās significantly more justification for the authentic shirt being priced at Ā£124.99 than there is the de-specād fan shirt at Ā£84.99. After all, this is a technical garment being produced for the worldās best athlete, created using more technical fabrics, more expensive embellishment techniques and the full bells & whistles. Retail sales of this particular variant of the shirt will likely be less than 1% of overall adult England shirt sales, but donāt let that spoil a good clickbait headline!
Where the real focus should beā¦
The narrative in the conversation should be on the ever increasing price of the fan ‘stadium’ shirt. The gap in pricing between this and the on-pitch shirt is decreasing annually, with its RRP steadily increasing year on year.
The most common questions asked are; Why is the price so high, and, How can Nike/Fanatics/The FA/England get away with the price being so high?
The short answer is that ultimately, demand is allowing all brands and clubs to continually increase the pricing of their kits. Whilst demand is there, pricing will remain high. So long as the market conditions allow for prices to stay high and continue to increase, brands and clubs will continue to maximise this best-selling category revenue. It will only be when launch and early season sales drop dramatically that things start to plateau and level off, never mind decrease.
The pricing make-up of a football shirtā¦
Whilst all brand and clubs will manufacture football shirts to different quality standard and specs, the overall number of factors which ultimately make up the pricing calculation remain largely the same. The more parties involved in the end-to-end supply chain, the more mouths there are to feed.
For example, the England shirt is manufactured by Nike, however they arenāt the predominant end-retailer (although they will shift a good number themselves). That means distribution to various retailers. Just like Nike, the retailers will want their slice of the pie too. Both brand and retailer will have their own margin targets to achieve. Letās not forget the Football Association within this process either. In licensing the rights for their brand IP to be sold, they also want their split too – a licensed royalty on every shirt sold, as part of the brand rights that Nike own.
Throw in factory manufacturing labour costs and raw materials, a marketing budget to promote the new kits and sustained campaigns post-launch, shipping the kits around the world from factories to retailers and of course 20% VAT on all adult clothing and youāve got a significant amount of parties in play.
Letās have a look at how that likely plays out in terms of the ballpark breakdown of a shirt. For ease of arithmetic, letās base it on an Ā£80 shirt – a now not uncommon launch price of a top Premier League club shirt, and where these slices of the pie end up with the England kits.
Manufacturing | likely circa Ā£8-Ā£10 (roughly 10/12% of RRP). Direct cost ex-factory to Nike. Likely that Nike donāt own the factories producing the England kits, so factory owners will be making their own profit margin on each shirt too.
Marketing Budget | set by brand and applied across entire manufacturing run Ā£2 – Ā£3 (2.5/3.5%)
Shipping/Logistics & Distribution | global shipping & distribution Ā£1 – Ā£2 (1.5/2.5%). Direct cost to Nike, likely partially passed on to wholesale customer.
Brand markup/profit | (Nike) Ā£22 – Ā£24 (25/30%)
Retailer markup/profit | (Fanatics / High Street & Online Retailers) Ā£24 – Ā£26 (30/32.5%)
Club / Federation Licensing Royalty | (The FA) Ā£4-Ā£5 (5/6.5%)
VAT | Ā£16 (20%)
As you can see, every party has their own revenue stream, target profit margins and share of the consumer purchase. With each wanting to retain this level, and strengthen when market conditions allow, it leaves the consumer facing a significant RRP.
What is driving costs higher?
There are a number of economic impacts which are compounding the pricing model, and the size of the share that each stakeholder is looking to achieve. Inflation has seen direct costs rise across manufacturing, logistics and distribution. Thereās little that can be done to avoid these increases and with stakeholders unwilling to absorb these outright, that cost increase needs to be passed on elsewhere – in this instance, to the end consumer.
With brands and retailers seeing inflation squeeze profitability across their business, prices are increasing to regain margin where possible. This reflects in the wholesale distribution price charged to the retailers, which again will ultimately be passed on to the end consumer. The retailers are looking to maintain their sales margin, therefore is their cost of supply increases, their retail sales price will likely follow too.
Brands, in this case Nike, are also looking to recoup some of the huge investments theyāve made in partnership licensing deals for the rights theyāve invested.
Nike signed a 12-year contract extension to 2030, in 2018 (having had 3-years initially from 2015), worth Ā£400m (baseline figure / performance related bonuses on top). At Ā£33.3m / year, they will need to sell c.1,300,00 shirts a year to recoup this alone.
Pricing is set to allow for discounting and promotional periods to be applied too. At full price, if the retailer is achieving only 30% margin, they need to leave room for discounting once seasons come to an end or tournament exits happen! If the nightmare scenario of an early exit transpires, the retailer needs to have maximised full-price sales in order to not make a loss on the fire-sale clearance which follows.
The impact on purchasing behaviourā¦
Ultimately, the retailers must be confident that market demand still remains high enough for the continued price increases. Only time will tell on this one. At some point there will be a pivotal year where the demand dips so low to show that the tipping point has been reached and future price increases will not be tolerated by the consumer.
Those consumers that have already reached that point, are now fueling an increased demand for timeless classic retro styles. These cheaper alternatives have seen a resurgence in popularity over the last few major tournaments, likely helped by Englandās strong performances too. Offering better value for money, many see these as an evergreen lifestyle apparel staple within their wardrobe, with an abundance of choice in styles available.
The other major benefactor at a time when disposable income is tight for most, but the desire to show support for the nation remains high, are counterfeit sellers. These popular eCommerce sites operated out of the Far East are the cheapest alternative to obtaining the ānew kitā, albeit unofficial and of lesser quality manufacture.
The less said about the morality of purchasing from one of these sellers, the better. For those consumers that donāt care what the profits of these companies fund and that their shirt isnāt the ālegitā version , itās by far the most affordable solution- especially if kitting out a full family. Naturally, operating within the industry we do, weād not encourage this method of purchase, but can understand why some consumers gravitate towards it.
Will anything change?
At some point, youād imagine so. Pricing canāt keep rising year on year at the rate it is. However, as you can see from above, itās not quite as straight forward as just reducing the price at retail. It would take the whole supply chain to re-assess the cost of goods sold to evaluate where savings can be made in order for the consumer to see a saving in their pockets.
ps. Donāt get me started on the cost of replica kit shorts! š”
I was recently asked if I was available for an interview on BBC Radio 5 Live Breakfast to discuss the pricing of the new Nike England football kits.
