If you can make $5k/year by investing $100k into shoe-selling, then those profits have to rise at the same rate as base costs, otherwise, people will just invest into eggplant-selling, instead.
Another perspective is that Footlocker would sell you those $25 Nikes for $300 if they could-- but if they tried, someone else would get active in the retail business and invest into a slightly less profitable operation (with lower margins) to eat into their market share.
But if the costs for everyone rise, raising the prices proportionally (instead of by fixed amount) makes total sense because it is not really gonna cost you market share (only decrease total market volume depending on consumer price sensitivity).
Note: We just observed those exact dynamics with Covid/Ukraine driven price increases, where retailers and other middlemen actually came out really good instead of sacrificing their margins to keep consumer costs down.
You can only raise prices so much before people look for alternatives to what you’re selling or do without. What we’re going to see with tariffs isn’t just price increases. We’re going to see some price increases, some reduction in selection, some stores closing, and some layoffs.
But profit for the investor is based on what they put in and get out, no? Profit calculated against the company’s cost seems like an implementation detail for the investor.
Another perspective is that Footlocker would sell you those $25 Nikes for $300 if they could-- but if they tried, someone else would get active in the retail business and invest into a slightly less profitable operation (with lower margins) to eat into their market share.
But if the costs for everyone rise, raising the prices proportionally (instead of by fixed amount) makes total sense because it is not really gonna cost you market share (only decrease total market volume depending on consumer price sensitivity).
Note: We just observed those exact dynamics with Covid/Ukraine driven price increases, where retailers and other middlemen actually came out really good instead of sacrificing their margins to keep consumer costs down.