“Markets are basically like people who have taken cocaine. Overreact to everything, and have short term memories,” Shenoy posted on microblogging site X (formerly Twitter) on Friday, using Nike as a case study to show why the real effect of new import duties is limited.
Shenoy’s comments come in the wake of U.S. President Donald Trump’s “Liberation Day” announcement on April 2, unveiling a 10% base tariff on all U.S. imports and sharply higher “reciprocal” duties on goods from major trading partners. Vietnam — where Nike manufactures about half its shoes — will be hit with a 46% levy starting April 5.
Nike shares fell more than 7% in extended trading after the tariffs were announced, amid broader concerns that the world’s largest footwear and apparel companies could face major disruptions to their supply chains. Nike and Adidas AG have made big bets on Vietnam over the past decade. According to regulatory filings, around 50% of Nike’s shoes and 39% of Adidas’s are made in the country — a supply source that generates more than $20 billion in combined annual revenue for the two brands.
Using Nike as an example, Shenoy pointed out that a sneaker like the Nike Air Force 1, which retails at $115 in the U.S., costs just $18 to manufacture in Vietnam. Even with the new 46% tariff, the added cost per pair is just $8.28 — or roughly 8% of the retail price.
“Nike can increase the price to $124… No one will care,” Shenoy said, emphasizing that consumers are paying for branding and marketing rather than the underlying product. “You’re buying the advertising, not the shoe.”A report by Reuters suggests that consumers should expect a 10–12% increase in prices for Vietnam-manufactured goods as companies pass on part of the tariff burden. But Shenoy believes the overall business model will remain intact.Shenoy noted that Nike’s core strategy is built on brand ownership, marketing and R&D — with most of its expenses based in the U.S. Despite a 44% gross margin, Nike’s net income margin is around 10%, driven largely by non-manufacturing costs like salaries, shipping and advertising.
“The problem with Nike isn’t this margin thingy. It’s the fact that their growth sucks,” Shenoy said, highlighting that profits have grown just 40% cumulatively over seven years. With a price-to-earnings ratio of 18.5, he questioned whether the stock’s valuation is justified given annual profit growth below 6%.
Shenoy concluded that Nike is unlikely to relocate production out of Vietnam, where labor and manufacturing costs remain highly competitive. A modest price hike, he said, is unlikely to dampen demand from American consumers.
“Media will make it sound like it was tariffs that cratered the stock,” Shenoy said. “I’m sorry to bring facts to a nice story.”
Also read | This is no fire sale. Don’t rush into markets, wait for stronger signals: Deepak Shenoy
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