What happens to unsold items at a store?

Discussion in 'Classic Menswear' started by MilanoStyle, Dec 22, 2004.

  1. johnnynorman3

    johnnynorman3 Senior member

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    $1000 suit costs $500 wholesale and $250 at cost
    Huh?? Wholesale IS cost to most stores. For some with gigantic buying power like RLPL, the wholesale price they pay might be lower, but I'm not sure what you mean by this wholesale/cost distinction...
    I didn't quite get this either. What I took away from it is that the "wholesale" cost that they claim is somehow higher than the actual cost of goods sold, with "wholesale" being a misused term of art.
     
  2. imageWIS

    imageWIS Senior member

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    (A Harris @ 22 Dec. 2004, 12:50) Quote $1000 suit costs $500 wholesale and $250 at cost
    Huh?? Wholesale IS cost to most stores. For some with gigantic buying power like RLPL, the wholesale price they pay might be lower, but I'm not sure what you mean by this wholesale/cost distinction...
    I didn't quite get this either. What I took away from it is that the "wholesale" cost that they claim is somehow higher than the actual cost of goods sold, with "wholesale" being a misused term of art.[/quote] A, yes, sorry...I stated Mr. Sid because everyone was going in that direction, but my math was based on the previous Polo thread. Jon.
     
  3. imageWIS

    imageWIS Senior member

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    What's why it was stated that all this is clearly oversimplified...obviously a store's operations consist of many more complex calculations.

    Jon.
     
  4. topcatny

    topcatny Senior member

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    I will try and explain the cost issue.  Wholesale cost is the cost to stores, but not to the manufacturer, which in this case is actually the same company.

    For a Polo suit that is $1000 at retail and sold to Saks Fifth Avenue, the most Saks paid for it was $500, the wholesale price.  Since Polo doesn't actually produce the goods themselves, they had to get a factory to produce it for them.  So they designed the suit and Corneliani produced it for them and they more than likely paid them about $250 for it.  Then Polo sells the goods at the wholesale price to their accounts

    In my experience with different brands the retail stores operate as a separate entity within the company and the goods are actually sold from the wholesale division to the retail division and in the process go through a similar markup as if they were sold to an outside company.

    The actual cost for Polo to produce a suit was about $250 and their retail stores are selling it for $1000, the same price as a department store would be selling it for.  If you find the same item in a full price Ralph Lauren store and Saks, i'll bet they have the same retail price.
     
  5. imageWIS

    imageWIS Senior member

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    There is something I don't understand:

    If in retail-speak a 50% markup means that $1 is sold for $2 at retail, then what would a 100% markup be, if cost is $1? Would it in fact a 100% markup of $1 mean that the store sells it at $4?

    Jon.
     
  6. johnnynorman3

    johnnynorman3 Senior member

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    Congratulations, Jon. You just discovered why so many apparrel groups go bankrupt -- because they don't know math. I posed this exact same hypothetical to my grandfather, who was adamant that the 50% markup math is correct. [​IMG]
     
  7. topcatny

    topcatny Senior member

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    In retail speak, 100% markup is impossible, unless the goods were actually free.

    The term markup in retail speak actually refers to the percentage of the selling price that is profit.  So something that cost $1 and retails for $4 has a 75% markup.

    The formula is... Retail Price / (Retail price - Wholesale price)
     
  8. nightowl6261a

    nightowl6261a Senior member

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    Most retailers/wholesalers will sell to a jobber, we buy from some, like the Grensons...they came via a jobber handed down the exclusive rights from the company, and we happen to be a large client.
     
  9. imageWIS

    imageWIS Senior member

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    Wait, are you saying that I don't know math? And if so, what was wrong with it? Jon.
     
  10. von Rothbart

    von Rothbart Senior member

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    So if Saks buys the suits directly from Corneliani under Saks' private label, will it cost Saks the same $250 as it costs Polo? In that case, Saks is selling the suit at 4 times its cost?
     
  11. imageWIS

    imageWIS Senior member

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    Ah, but apparently traditional math does not apply to retail...so the question is: what exactly is the correct calculation?

    Jon.
     
  12. discostu004

    discostu004 Affiliate vendor Affiliate Vendor

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    my understanding is:
    retail store sells a suit for 1,000, the bought it around 400, so even at 50 off they are squeaking by, but presumably have sold some at 1,000
    when they job it out, they sell it for whatever they can get (20% was discussed), so they take a 200 loss per 1,000 suit but in my discussions with a big store i won't name, but people here would definitely know it, they said that the loss they take in jobbing out is part of their business plan. they know some things won't sell and plan accordingly
     
  13. topcatny

    topcatny Senior member

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    As quoted by von Rothbart "So if Saks buys the suits directly from Corneliani under Saks' private label, will it cost Saks the same $250 as it costs Polo?  In that case, Saks is selling the suit at 4 times its cost?"  (I still haven't figured out how to quote a previous post)

    Maybe and maybe not.  Saks may not be able to put together a large enough purchase to get the same price as Polo.  Polo is buying suits for its retail accounts and its own retail stores.  Saks would be only buying for its own 60 - 70 stores so that may not be a big enough order to get the same price.

    To an extent stores private label brands can offer a good value.  In my experience department stores do not take all of that markup for themselves.  If they had the same quality suit as Polo they would probably price it a little less than the Polo's retail.  A Sak's brand suit does not have the same perceived value as a brand name suit, to the average customer.  (The member's of this forum are much more aware of garment construction and fabric quality than the average consumer and even many members of the retail trade) So they would bring the retail price down to compensate for that.  

    But, the private label brands typically have the highest gross margin of all of the brands a store carries.  They cut out the middle man and pass on some of the savings to the customer.  Private label brands also allow stores to run Sale ads and offer even greater savings.  This helps them in 2 ways. 1. Most major brands will not financially support a "Sale" ad that advertises their product.  That is not to say retailers never do it, but it is frowned upon by the vendors and the retail stores do not want to damage the partnership they have developed with the vendors. 2. Even though they have their own private label brands 25% or 33% off they are still making a profit similar to what a branded item would sell at regular price.  So they can offer a great perceived value to their customer and still make a healthy profit because their initial markup is higher than normal.
     
  14. Heron

    Heron Well-Known Member

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  15. ernest

    ernest Senior member

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    50% makeup means 1$ is sold 1.5$.
    100% means 1$ is sold 2$

    But I am just a guy who studied economics...so my predictions...
     

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