economics of garment manufacturing

[sfnapolifan]

Hi,

First time post from an increasingly active acquirer of nicer RTW men's garments, beginning to branch out into MTM. Thus far, I've acquired a couple of Kiton and Borrelli odd jackets and an Isaia suit at astonishingly varying price points/discount levels. One at retail (a Borrelli MTM--I know a lot of people will think it dopey to spend this much on a non-bespoke garment, but to each his own), the Kitons half-off on sale locally in SF, and a couple of successful purchases online at steeper discounts (Shopthefinest and Gilt).

By trade, I am a financial analyst and I'm very interested in the pricing and markets for expiring inventory (e.g., online advertising, airline tickets). Having not had much historical experience with buying some of these nicer clothing brands, I'm wondering if the discounts which have been available over the past year or so are a historical anomaly.

Some of the things I'm wondering about:

1. Are the deals (much) better than what could be found a few years ago? I've seen posts from a few years back (back in the boom times) which seem to indicate that fairly deep end-of-season markdowns on Kiton and other respected brands were readily available, depending on one's particular flexibility as to size, cut, color/pattern, etc.

2. How do the economics of a factory in Italy work? Are workers paid an hourly wage or on a piecework basis (I'd imagine that piecework remains relevant for home workers on hand-stitched shirts, for example)? Have these factories drastically cut production or are some of them continuing to churn out pieces which are finding their way to venues such as Gilt and STP?

3. Are the items on Gilt retailer closeouts or direct from the factory? I've noticed that RLPL and Isaia make semi-regular appearances there. I would guess that the Isaia that I purchased was direct from the factory.

4. Once/if the economy improves, is the expectation that the inventory finding its way to online discounters or private sales will dry up? Or do the still fairly high prices ($1200 for an Isaia, more for an RLPL) and the obfuscation as to how much is being sold (I can't see how many of each item are actually available), etc. create a worthwhile new sales channel for manufacturers that won't be abandoned if/once sales at retail pick up?

5. What are the variable costs involved in producing an Isaia suit or a Kiton jacket, assuming a retail price tag on the Isaia of say $3K and a retail tag on the Kiton of around $6K? If I bought the Isaia for $1200, what do people speculate the split is between the manufacturer and Gilt?

Very curious and excited to become part of the discussion after months of lurking.

 

[abrocketsfan]

Great first post; I'm afraid most of us can at best make educated guesses here. For those more close to the industry, they may not want to share, but who knows...

 

[taxgenius]

Good questions.

 

[Nicola]

Various parts of the Italian production chain [thread to cloth to finished product] have been hit. I've no idea how badly this has hit the high end RTW. Those companies by definition aren't high volume. They've also been shifting focus towards China and the middle east for years now. The growth in those markets helps off set the drop in the developed markets.

Nobody makes 1st choice products for discount sale. Some companies make outlet grade [Zegna makes Gritti for example] Some might be seconds. Some will be experiments that didn't sell well. Some is very old stock. For example this week I received an email from an outlet that they are now stocked with fall/winter stock. Obviously much of this is going to be 2008 or earlier.


Retailers sell stock for scrap value eventually. New clothes can be sold by weight for the rag value. Dealers will then sort this stuff.

Some of the makers run or have agreements with outlets. So they send product directly to their company owned shops.

On the last question forget the high end for a moment. One of the local shops was selling a linen jacket this summer for 80 Euros. When the end of season sales started it hit 50. Then 25. Now 10. Remember what I said about scrap? At some point they will sell it for rags at some low price per kg. I bet the shop is losing money on anything below the 50 Euro mark. But even 10 is far more then the scrap value.

Or do this. Figure how much cloth to make a suit and check the cost of a good quality cloth. You can some times find stuff for less then the cloth cost . That means you're getting the labour and all the other costs for free.

You need to cover your costs from the full retail market and minmize how much you have to discount. Any product that you are forced to discount is a problem. Over production isn't a good thing.