Discussions about the fashion industry thread

[cb200]

I think you’ve got to set prices so that your wholesale pricing makes sustainable margins first. You can’t use the “cutting out the middle man and passing the savings on to you” pitch if you’re selling the same product into the two the different streams.

If you had the SKUs you could offer a limited selection DTC at a lower price points but you'd need to be super strategic not to cannibalize sales from other vendors or other products you sell. Getting good differentiation would be hard here unless it was a whole new category separate from your mainline.

Overall don’t forget- you’re a retailer too. There are costs and inventory risks that you need to be compensated for. Those bonus margin points can erode quite easily when selling direct and acting as a retailer.

 

[Epaulet]

I think you’ve got to set prices so that your wholesale pricing makes sustainable margins first. You can’t use the “cutting out the middle man and passing the savings on to you” pitch if you’re selling the same product into the two the different streams.

@cb200 entirely correct. Although, a shocking amount of European brands that are doing both wholesale and direct have never figured this out. It would seem to be obvious that you need to think like a retailer, avoid undercutting them, and see their margin needs if you're going to effectively sell them at wholesale.

Then how would you guys suggest a high-end / artisanal brand should do with markup and margin that is fair to both customers and wholesale accounts/retailers?

A typical wholesale markup for higher-end merch is going to be between 5 and 6 times the initial cost of production. Small brands will be closer to 6 if you're producing abroad, as you won't get the economy of scale with large-scale sea shipments.

Let's use Barneys as a retailer example.. they're going to ask for a 60% margin on most goods.

Domestic Product or Import with minimal per-unit fees
Cost=$20
Your Wholesale to Barneys = $40
Barneys markup to customer (wholesale/.4) = $100

This markup is going to be necessary for them, as they know many customers won't buy the goods until there's a perceived 30% discount. In this way, the price goes from $100 to $70, and they still clear $30 margin per unit.

If you're producing small batches abroad and dealing with significant costs to get the items into your hands, then you probably need 6x markup to get you the profit that you need.

Small Producer with significant per-unit fees
Cost=$20
Your Wholesale to Barneys = $50
Barneys markup to customer (wholesale/.4) = $125

 

[NGOStudio]

@cb200 entirely correct. Although, a shocking amount of European brands that are doing both wholesale and direct have never figured this out. It would seem to be obvious that you need to think like a retailer, avoid undercutting them, and see their margin needs if you're going to effectively sell them at wholesale.



A typical wholesale markup for higher-end merch is going to be between 5 and 6 times the initial cost of production. Small brands will be closer to 6 if you're producing abroad, as you won't get the economy of scale with large-scale sea shipments.

Let's use Barneys as a retailer example.. they're going to ask for a 60% margin on most goods.

Domestic Product or Import with minimal per-unit fees
Cost=$20
Your Wholesale to Barneys = $40
Barneys markup to customer (wholesale/.4) = $100

This markup is going to be necessary for them, as they know many customers won't buy the goods until there's a perceived 30% discount. In this way, the price goes from $100 to $70, and they still clear $30 margin per unit.

If you're producing small batches abroad and dealing with significant costs to get the items into your hands, then you probably need 6x markup to get you the profit that you need.

Small Producer with significant per-unit fees
Cost=$20
Your Wholesale to Barneys = $50
Barneys markup to customer (wholesale/.4) = $125

Great insight. However I doubt it's practical for me to work with Barney when my production cost could easily exceed 1000 mark; and I have moved production oversea to optimize cost. Another problem is my desire to make items from different interesting leather, instead of what might be more sellable. Doing custom work per appointment seems suitable for me atm.

 

[cb200]

$1 or $10,000 - your costs are your costs. If you know that the market wouldn't touch your product at the retail price it needs to be at in a wholesale margin structure... then you don't have a business that can work on wholesale distribution. Good to know this upfront. Sweating and stressing for bigger deals that don't make much - or any - money, only then to chase accounts for payments? Tis isn't a fun way to spend your days. Wholesale for brands is good when it helps distribute and scale, but it has to make sense on a margin level. Just scaling without being able to command sufficient margins is not a sustainable model for most businesses... outside of Amazon.com.

But if you really wanted to shoot for wholesale and use exotics, I'd consider a high - mid strategy in product differentiation. Have your exotic pieces limited to distribution. Only do these as custom work that you do direct to consumer. Then have a wholesale channel that would be be bulk production built with more common materials and less exotic trims. Price point would need to be fairly well differentiated as would the product. If you're using exotics for one product line, this kind takes care of the differentiation for you. You'd need to figure out the price differentiation yourself and what corresponding margins would need to be.

Say, an exotic skin jacket could be $10K, but you only may make one. A goat skin version of the same piece might be $2k, but you make 100. Retailers could bark at this arrangement but you could consider offering a commission for any referrals for custom work. Just a thought. You get to play with the exotics. Build some brand equity with higher price point items that then frame the wholesale pieces as a "value" purchase. Wouldn't be easy but the apparel business isn't one that is easy.

 

[gdl203]

Agreed. Find some like minded B&M retailers and organize regular trunk shows for custom orders - like classic tailors do, or Stoffa in the less tailored world

 

[NGOStudio]

$1 or $10,000 - your costs are your costs. If you know that the market wouldn't touch your product at the retail price it needs to be at in a wholesale margin structure... then you don't have a business that can work on wholesale distribution. Good to know this upfront. Sweating and stressing for bigger deals that don't make much - or any - money, only then to chase accounts for payments? Tis isn't a fun way to spend your days. Wholesale for brands is good when it helps distribute and scale, but it has to make sense on a margin level. Just scaling without being able to command sufficient margins is not a sustainable model for most businesses... outside of Amazon.com.

But if you really wanted to shoot for wholesale and use exotics, I'd consider a high - mid strategy in product differentiation. Have your exotic pieces limited to distribution. Only do these as custom work that you do direct to consumer. Then have a wholesale channel that would be be bulk production built with more common materials and less exotic trims. Price point would need to be fairly well differentiated as would the product. If you're using exotics for one product line, this kind takes care of the differentiation for you. You'd need to figure out the price differentiation yourself and what corresponding margins would need to be.

Say, an exotic skin jacket could be $10K, but you only may make one. A goat skin version of the same piece might be $2k, but you make 100. Retailers could bark at this arrangement but you could consider offering a commission for any referrals for custom work. Just a thought. You get to play with the exotics. Build some brand equity with higher price point items that then frame the wholesale pieces as a "value" purchase. Wouldn't be easy but the apparel business isn't one that is easy.

Agreed. Find some like minded B&M retailers and organize regular trunk shows for custom orders - like classic tailors do, or Stoffa in the less tailored world

Indeed. And I already have something similar in mind. Good thing that I have enough to create collection samples without answering to anyone else. The business side is not fun but at least I get to do something I love this time.

 

[jah786]

It really is all about giving more tools for customers to make their decision the way they prefer to make it. Some people don't care at all about measurements, they just always get Medium for example. Some people ask for sizing recommendations (email, chat, call) and they typically share what size they wear in other garments for that. Some people look at measurements. It's really up to the customer to use those tools the way they prefer.

Now, the sizing systems don't work IMO when the retailers asks the brand for sizing grids, loads them in the system and thinks it's OK. In any industry using calculation/prediction models, we call this: "garbage in, garbage out". Our experience is that actual made-up garments measurements often differ wildly from sizing grids, so the system only works if the retailer takes the time and effort to measure the pieces.

agree 100% to all of this. Measurements are also useless for puffers and outerwear. the external measurements of a puffer jacket are irrelevant - it really comes down to the designer making sure that a medium fits size 40 or whatever it's supposed to fit and the merchant measuring the garment to confirm that a medium fits a size 40 or whatever.

 

[smittycl]

Wall Street bets Amazon will doom department stores, retailers.

http://money.cnn.com/2017/09/15/investing/retail-stocks-amazon-macys-jcpenney/index.html

 

[LA Guy]

Wall Street bets Amazon will doom department stores, retailers.

http://money.cnn.com/2017/09/15/investing/retail-stocks-amazon-macys-jcpenney/index.html

Frankly, ones of the easiest calls. Department store sales overall have been steadily dropping for over 15 years.

 

[cb200]

Certainly some retailer's time is over. Too many stores. Too much crap. But I think the market has soured against retail overall. This sentiment has pushed down, and will continue to push down, the market cap of almost all retail stock. Some will be past the point of rationality as everything gets painted with the same brush.

Not everyone is going out of business. Strong players will get by and I'd expect some to see some stock bumps in a few of the distressed players in retail. Sure, looking at the short term it's currently justified to hate retail stocks in the retail apocalypse that is 2017. That said, I'm not sure if we're at the blood in the streets point yet.

I think EV- EBITDA is an interesting lens to look at how the market values companies relative to each other. This morning, Urban outfitters is trading a 5.36, Abercrombie & Fitch at 4, Korger at 6.2, JC penny at 6.3, Under Armour is at 15.9, Nike 15.8, Adidas 18.75. Amazon's not looked at in the same light and is trading at 34.69. For reference Facebook is at 25.36, Google 17.95, and Apple 11.49.

 

[dieworkwear]

An usual video to post on StyleForum, since this is about sneakers, but I thought this interview with John McPheters from Stadium Goods was great. Still about sneakers, to be sure, but some info on why, for example, an online shop such as theirs went into B&M. Nothing groundbreaking here, but if you follow various sneaker accounts on social media, you can see how well having a B&M plays into their marketing. Even for people like me, who have never been to their store. Helps keep the brand name alive in people's mind.

 

[LA Guy]

An usual video to post on StyleForum, since this is about sneakers, but I thought this interview with John McPheters from Stadium Goods was great. Still about sneakers, to be sure, but some info on why, for example, an online shop such as theirs went into B&M. Nothing groundbreaking here, but if you follow various sneaker accounts on social media, you can see how well having a B&M plays into their marketing. Even for people like me, who have never been to their store. Helps keep the brand name alive in people's mind.

I think that if course there is a marketing advantage. However, it's a cost center in many cases, and the calculation is how much value it adds.

 

[dieworkwear]

I know this has been beaten to death elsewhere, but Supreme getting valued at $1 billion is still insane to me

https://www.highsnobiety.com/2017/10/09/supreme-stocks-billion-carlyle-group/?

 

[nahneun]

marketing and hype is apparently valued at 999MM

 

[double00]

tulipmania. just imagine how barbara kruger feels.