The “profit” from each stage to the next is ONLY that income that is not directly associated with one unit of product.

If, by unit, it costs $10 to purchase a shoe, 0.50 to pay for the warehousing and inventory, 0.50 for management, 1.00 for advertising, promotional material, etc, and 0.25 for “executive” level expenses, then the single unit of shoes cost 12.25 to hold. Selling the shoe for $20 then gains a profit – before taxes – of $7.75.

Now, if the shoe suddenly costs $15 to buy, the other, indirect costs are not directly affected (being indirect – the warehouse crew still wants their pay, etc) the single unit of shoes costs 17.25, or a profit of $2.75. There’s still a profit there, just not as much. I’m guessing at costs; I don’t know that the indirect cost of a unit of shoes comes to $2.25. If it’s higher than that (say, $4.50 all told) then there might be no profit, or only $0.50 per shoe, at the newer purchase cost.

What I’m driving at is, just because the retail cost is $40, and the estimated cost to Crocs is $10, that Crocs itself has $30 in the bank. At most, Crocs would have $10 and the retailer have $20, but the retailer’s costs are going to be higher than only what they bought the shoes from Crocs.

Likewise, this is why any retailer – whether or not they are a corporation – effectively “pays no taxes.”
Retailer can buy merchandise for $10, they want to make $5 in profit, after all expenses including taxes. Thus, they’re going to sell the merchandise for 10+5+EIT. If that comes to $20, that’s good for them. If that comes to less than $20, they’ll probably still charge $20 (boosting profit) because that’s the doubling point. But, if it comes to $24, they’re not going to slash their profits to $1, they’re going to raise their retail price to 24 or 25 – based on what the market can bear. If the market can only bear $20, and it costs them (less profit) $19 to have the merchandise for sale, and they need $5 per item (for their shareholders, kid’s college expenses, a new AR15, medical expenses, or whatever) then they might not carry that particular item but a lower-costing (to them) one. It takes, generically, as much effort to sell a $19-costing item ($1 profit) as it does a $12- or $14-costing item ($8 profit and $6 profit, respectively).

Crocs only earned no more $10 per pair, as indirect costs come out of that half of the sale. Likewise, Dick’s earned much less than $20 per pair as *all* of their budget, except purchase costs, (related to Crocs) come out of their $20.

Mfgr – Makes for $5 – Sells for $10
Dist – Buys for $10 – Sells for $20
Rtlr – Buys for $20 – Sells for $40

If the MFGR charges $15 suddenly, and the Distributor can’t raise prices, they’ve “lost” $5 on the differential.

For Nike, if they’re the Manufacturer and Distributor all in one, they still determine the MARKET price, halve it, and sell at the half price to the retailer.
When Nike sells at a Nike-owned store (NOT COUNTING THE STORE’S COSTS), Nike may make for $13 and sell for $210. But, from the differential, all the indirect costs (salaries, storage, utilities, taxes, rents, etc) of every level need to get paid.

It’s good to be vertically integrated, and I can’t believe I’m having Business School flashbacks. Oy.

SRSLY?

Whoa…

-materials
-labor
-packaging
-shipping from overseas
-labor for handling in our distribution center
-shipping to retail outlet

…cost around $13. We would sell them to retailers at around $120 a pair.

So, I concur. How can you lose money doing this?