Wednesday, October 29, 2008

Nike does the "green shoe" shuffle

In another example of how large multinational are embracing the cachet of "green products" Nike today announced an increase in their "green shoe" range.

Clearly this is part of a profit maximising strategy but equally it shows how individuals and green pressure groups and encourage producers to change.

One fear is that the global recession will make consumers a lot more cost conscious.

The rather depressing aspect of this press release is that it is really just spin. Nike acknowledge that "Going Green" will INCREASE costs and that any increase in margins is just a result of cutting costs elsewhere. Sigh.

Nike Unveils New Products In Environmental Push [PlanetArk]

NEW YORK - Nike Inc unveiled a line of more eco-friendly products on Tuesday which aim to use more sustainable, recyclable materials that should also translate into better profit margins for the future.

That strategy will help the world's largest maker of athletic shoes and apparel keep its stride as consumers worldwide cut back on spending on worries about a deepening financial crisis, its top executive told Reuters.

The new "Nike Considered" products are made with more efficient design patterns that use less material and are easier to recycle, adhesives made from water instead of toxic chemicals, and sustainable items like cork and organic cotton.

There is still a problem here - surely environmentally friendly inputs mean expenses and costs will go up? Now we learn that this entire press release is just spin and that the real cost cutting comes from supply chain changes.

We're trying to reduce costs and improve margins," said Chief Executive Mark Parker in an interview. "To make the company more profitable while reducing the footprint we have on the planet."

Parker said streamlining the supply chain will offset increased costs from the environmentally-preferred materials, which tend to be more expensive.

As a result, sustainably-designed shoes and clothes will carry the same price tags and profit margins as others, he said, noting that over time, margins will improve.

This is just bad economics. Why will margins improve over time? What if supply costs cannot be stripped out? Then green shoes are more expensive. Green shoes are only 15% of Nike's range. Does this mean the supply costs will translate into CHEAPER mainstream shoes? This means that the green shoes will be RELATIVELY more expensive.


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