What's the wholsale price of clothing?
October 3, 2011 2:55 PM   Subscribe

This weekend I picked up of a nice pair of shorts marked down from $69.99 to $39.99. I felt great getting a "bargain," then realized that even at the lower price the store still made a nice profit. This is not to say I felt duped. I know what I pay is what the item costs me, and that what it costs the store is irrelevant once I've made the decision to buy, but still I wonder: how much do my $150 jeans cost Nordstom, is my $79 Lacoste pique polo identical to that sold at JC Penney for $14.99?
posted by BadgerDoctor to Shopping (15 answers total) 25 users marked this as a favorite
You are looking at this incorrectly. The margin on that specific product can be (say for example) anywhere between 15% to 65% (depending on whether it is their own label or if it is a brand that they carry). The store's margin (or the wholesaler/distributor's margin to the store) on that specific product can be quite high. But that doesn't do much. Most of the large retailers aren't selling any of their lines in great quantities (at least at the retail price). Then they will have several other overheads (in terms of brand advertising, distribution etc) that they may not apply to the cost/profit centers associated with the product per se. At the end of it all, the great retailers of year years are making very little money.

There are very few highly successful "national" retailers in North America. Apple at the high end and Wal-Mart at the low end (I am using these words very loosely ..) are successful examples. But most large retailers are struggling to stay relevant.

There is certainly (almost always) a quality differential and big looks differential between a $150 pair of jeans and a $40 pair of jeans. But there is another way of looking at things - to consider what exactly do you think you are buying :-). I forgot the names and the references ...but one acquaintance of a CEO of Rolex apparently asked him - "How is the watch business?", He is supposed to have replied, "I am not in the watch business, I am in the lifestyle business." ....
posted by justlooking at 3:33 PM on October 3, 2011

Best answer: This really depends on a lot of factors.

First of all, stores like Nordstrom can return unsold merchandise to the manufacturers, for the most part. Or more specifically, to the designers, since many of them don't actually own any manufacturing facilities. In that sense, clothing stores are sort of like consignment stores, but a lot of goods work this way: music, some electronics, books, periodicals.

Most big clothing companies operate on a "cut to order" basis. This means they design a bunch of stuff, they get a bunch of samples made, and then a buyer from Nordstrom comes to visit their showroom (or they go to meet with buyers or go to some sort of trade fair) and the buyer from Nordstrom says, "we'll take 100 of these tops, 200 of these pants," etc. Even at this stage, a lot of this is about marketing the brand rather than making money directly from the sales of clothes. The designers will say, "this jacket is one of our key items", but it will be extremely costly to produce, and retail at a high price (read: won't sell many), and so they won't make much money on them. The idea is generally to use the existence of that jacket to sell more branded premium-price t-shirts, for example. In some sense, the clothes are an ad for other clothes. (As an aside, this is also why so many designers refuse to cut clothes in a wider range of sizes, even though it seems to the rest of us like, 'why would you want to exclude such a huge percentage of the buying public?')

Then, the designer/marketer turns around and calls the factory and says, "Ok, 200 more pants for Nordstrom." Sometimes, they drop ship right to Nordstrom, other times, the designer will receive the goods and filter out the crap (there is always crap: shirts with three arms, etc.) They "sell" these goods to Nordstrom and are paid about half the retail price, generally. I say "sell" because while Nordstrom agrees to pay for the goods, they also retain the right to return unsold goods, so the risk remains with the designer.

There are between 4-8 drops a year, normally, though this is increasing, especially at "fast fashion" retailers like Topshop, where they want to have new stuff all the time. After some time has passed, and the retailer has discounted stuff at the end of the season, they ship it back and get credit on their next order. I'm not sure if they can actually literally get cash back. The designers can also do discounting directly, and say, "Hey, if you mark these at 20% off, we'll eat that 20% and you can keep your same profit margin."

Each week, the big chain stores like Nordstrom collate sales figures and forward them on to the designers, so whoever made your shorts knows how many sold, in what sizes, and colors, and wear. They use this to adjust further production and to estimate how many returns there are going to be, as well as where and how to discount.

The designer's gross margin on the items is highly variable. It's like a restaurant, where you make a lot money on the pasta and soda but not too much on the steak. Generally, though, they will wholesale clothes to the retailers for about 2-4 times their production costs.

So your shorts that MSRP'd for $70 and you paid $40 for were probably sold to the store for $35, and probably manufactured for something like $7-15. But that doesn't count all the costs that go into designing, shipping, and distributing that stuff to the retailer, its just what the designer pays the factory. It doesn't count the salary of the person who sold them to Nordstrom, or the person figuring out all the discounts, or the designers, or the advertising, etc. For something like your Lacoste polo, a basic polo made in Asia would cost about $7 from an asian supplier if you buy cheap fabric for $2 a yard. But you could easily spend a couple times that on nicer fabric, or run into higher costs from color control, etc. There's less than 2 yds of fabric in a polo. Obviously, costs go up a lot if you go outside of Asia for manufacturing. It could be around triple in the USA.

At this point I'd like to point out that what I'm describing is a common arrangement, but its by no means the only arrangement: some brands have store-in-store arrangements with retailers, they have different pricing schemes for smaller retailers they think are important to their brand, they have their own stores, etc.

As to your Lacoste polo, I'm not sure if you mean "are all polos identical?" or "is a Lacoste-branded polo I buy at a discounter the same as a Lacoste-branded polo at Nordstrom."

The answer to the second question varies depending on the designer and the retailer, and, well, circumstance. When the Nordstrom gives up on selling the rest of the shorts like the ones you bought for $40, they might get sent on to a Century 21-type company and retailed at a steep discount, or they may end up in an outlet store. However, most clothes that are sold at outlet stores are not just clothes that didn't sell at normal retail. Outlets and other discount lines ended up being such a bonanza for upmarket (upmarket meaning Ralph Lauren, not like...Brunello Cucinelli or something) designers that most of the huge apparel brands actually cut different lines for outlets. Partly, this is brand protection. Companies like Vans that sell to "lifestyle" markets have learned that protecting that lifestyle association means survival, so Vans employs an army of secret shoppers that travel around the country investigating retail accounts. Cool stores are offered the coolest Vans shoes. Lame stores are only offered a limited array of shoes. It sounds crazy, but failing to do this is basically what killed off brands like Airwalk. Vans is an extreme case, but you can see how it's not exactly in Lacoste's interest for you to be able to drive outside of town and buy the exact same Lacoste goods at an outlet for 25-50% off. Partly, though, it's a matter of (1) hitting the price point and (2) realizing from sales data that the outlet Polo customer is not on average the 5th Avenue Polo customer, and so they buy different products. Lacoste's game here is to balance extracting the most money from the Lacoste brand at discounters or outlets without actually damaging Lacoste's ability to remain Lacoste and sell products at their "normal", higher prices.

If you just mean "are all polos the same", no. All polos from one brand aren't even the same. When, say, Polo/Ralph Lauren makes polos for discounters, they use different fabrics, designs, cuts, etc. Sometimes its simple cost control, like using a single stitch where the better product might have two, or using less-expensive materials. Sometimes they are just different. They don't sell P/RL polo in terrycloth at any non-outlet/discount retailer. The stuff you can buy, with a Polo horse and everything on it, at a Polo outlet isn't even listed on the Polo website.

But of course, sometimes, you are paying for the name on the label. I'm not trying to argue the whole thing is a direct reflection of manufacturing costs. It really depends on the product and the brand, and there are plenty of cases where you are just being charged for advertising, especially in things like underwear and fragrances, and, well, polos.

I felt great getting a "bargain," then realized that even at the lower price the store still made a nice profit.

It's entirely possible that this is not true. They may have recovered some of a potential loss or broke even on this particular deal. It's not like department stores have been making a ton of money over the past few decades, and they are always going broke. There are huge parts of the apparel industry that barely make any money, normally. Couture is almost always done at a loss. All sorts of licensed goods or even high-end designed goods are run at breakeven. The brands mostly make it up on underwear and fragrances. This is not universally true, but it's true a surprising amount of the time.
posted by jeb at 3:37 PM on October 3, 2011 [232 favorites]

It's tough to say how much the store actually paid for your $150 jeans at Nordstrom, but more often than not there is a profit margin somewhere between 40-85% on clothing, depending on how new the clothes are, the style of clothing, the materials used, and the brand name attached to them. Being Nordstrom, odds are the $150 jeans cost Nordstrom around $40-60/pair. But remember that Nordstrom has to make a good chunk of cash to keep the store open, pay the employees, shipping, supply chains, etc.

The $79 Lacoste pique polo that is $15 at JC Penney is likely the same one. JC Penney might be using a cheap price like that as a loss leader, or it could be that there was a surplus and a buyer for JC Penney got a boatload of them in at a steep discount. Some manufacturer's will discount product for bigger volume customers as well (this happens even at the department store level.)

The lessons to be taken away are many. Paying full retail is rarely worth it, especially on things like clothing, electronics, household products and other "consumer goods." Stores rarely sell the loss leader items as they are exactly as it sounds: a loss. The reason Nordstrom can sell a pair of jeans for $150 and six months later they are at Nordstrom Rack for $60 is the six months. Nordstrom is banking on the fact that you want the stylish jeans now and not then, and you are paying $90 for the privilege of wearing them now.

The same thing happens with electronics. My LCD TV I purchased 1.5 years ago was $900 retail and sold for $850 in the stores immediately. The price the retailers paid on it was probably around $450. I bought it through an online retailer for $650. Six months later it was available for $550, and then for a few months it was down to $450 to clear out the stock. I never saw it for my TV, but often whoever is stuck holding on to the very last few of a specific model will sell them to someone/another company at a loss just to clear the stock and get it off of the books. Big Lots and stores like them are often that customer who pays $200 for the TV and sells it at $350.

Last thing: there are entire college majors dedicated to these things. It's complicated as all hell and there is no one set way of the prices coming about.
posted by Mister Fabulous at 3:42 PM on October 3, 2011

You might be interested in these pages on Suggested retail price and The Meaningless Discount

Disagree re. "almost always a quality differential and big looks differential between a $150 pair of jeans and a $40 pair of jeans" -- there are lots of differences in garments in the stores, but price is not a reliable indicator of quality or good aesthetics.
posted by kmennie at 3:43 PM on October 3, 2011 [2 favorites]

Profit = revenue - cost; so what is profit? The consumer can see the revenue easily because that what he/she is paying; but cost is more obscure. The wholesale price of the product is not the only cost for the store, there is rent, labor, advertising, utility, etc... all of which went into making that purchase happens. When you buy the product, you "consume" all the other ancillary services and pay for those with your purchase. And while it is irksome to be paying for the "service" of multi-millionaire CEOs, that service was rendered and accounted for nonetheless. Discount retail scrimped on many other costs (including wholesale cost), so you get less there along with the lower price.

I guess, the only true "profit" in this whole enterprise is the dividend paid to stock-holders of the retailer; and from what I've seen so far, it was very little to none.
posted by curiousZ at 4:00 PM on October 3, 2011 [1 favorite]

is my $79 Lacoste pique polo identical to that sold at JC Penney for $14.99?

Are the both the Lacoste brand? If they aren't (Lacoste vs. JC Penney's store brand), then obviously not. Even if they are, Lacoste has different "lines" of clothing, as many designer retailers do. The first is entry level-- you pay a premium for association with the brand/lifestyle, even though it doesn't give you much beyond the logo. The next steps up go higher in quality and fit, with the top line being their "flagship" line.

I doubt the $19.99 Lacoste you find at JC Penney's is much better than a store brand you can get for $10-$15 at Costco or Target. But the polos at the Lacoste boutique in Georgetown, even though they're very expensive, are probably much higher quality and quite nice (make your own call about whether that quality is worth the premium they're charging).

The real question is whether you can find a polo that's as good quality as your $79 Lacoste for less money by another brand. The materials and labor in making the polo are probably a smaller contribution to the cost than the cost of paying the designers, marketers, and distributors, so perhaps there's a small market polo-designer that can approximate the same fit and quality for $50. On the other hand, Lacoste has economies of scale that might make it cheaper for them to supply higher-quality clothing than for a small-market polo designer.
posted by deanc at 4:27 PM on October 3, 2011

I can't answer this question better than other people already have done, but if this is the sort of stuff you find interesting then you might enjoy books like The Undercover Economist and Discover Your Inner-Economist.
posted by K.P. at 4:45 PM on October 3, 2011

A similar but slightly OT question (OK if you can't answer; I'll save it for later)

Have the prices of clothes in major American thrift stores dropped to the original cost of manufacture, or below it?

E.g. the same Lacoste shirt, a year or two out of season, now costs $3.99 at Goodwill.

You do have to check for stains and pulled seams, but much of the clothing at Goodwill, the Salvation Army, etc. is still wearable. I have also observed Target dumping unsold stock on Goodwill.

Then the items that do not sell at major thrift stores are sold by the pound by used clothing wholesalers (these used to operate in Greenpoint-Williamsburg in Brooklyn before the area went upmarket) and shipped to places like sub-Saharan Africa.

Some retailers try to keep their clothes out of the offpricer/resale chain, e.g. H&M's destroying its unsold clothes.
posted by bad grammar at 4:49 PM on October 3, 2011

Just wanted to add, here in Australia I've noticed a lot of stockists are now sourcing from the same suppliers. I bought a knitted vest from Portmans (mid range) for $39.95. Within the next two weeks I saw the exact vest (but with marginally different buttons each time) again at Ojays (name brand) for $69.95 and Tempt (cheap & nasty) for $24.95. I had a really close look at all of them and they were obviously made in the same place. So, in my opinion, pricing has a lot more to do with brand/the store experience than quality.
posted by Wantok at 8:58 PM on October 3, 2011

The reason Nordstrom can sell a pair of jeans for $150 and six months later they are at Nordstrom Rack for $60 is the six months. Nordstrom is banking on the fact that you want the stylish jeans now and not then, and you are paying $90 for the privilege of wearing them now.

Also, the most popular styles and sizes may be sold out by the time the rest of the clothes are sold at a lower price.
posted by iviken at 1:49 AM on October 4, 2011

To add to what Jeb said,

A friend of mine dated a guy whose dad ran a workshop that made Calvin Klein products in Peru. We have very, very good cotton and fabrics, and I know for a fact that all of the clothes that were made in that workshop travelled to Europe, while the Calvin Klein stores in Peru had really flimsy clothes taht were mostly from Malaysia, and the quality was really, really bad.
posted by Tarumba at 6:32 AM on October 4, 2011 [1 favorite]

Great answer in similar thread.
posted by teg4rvn at 9:23 AM on October 4, 2011

It's not like department stores have been making a ton of money over the past few decades, and they are always going broke.

This is a whole rabbit trail of a thread on its own. There used to be dozens of department stores, now they're just down to a handful, and even that depends on how you define them (i.e. does a Kohls really qualify in the same category as a Macy's). Its quite an interesting case study to see how the classic department stores really ushered in their own ultimate demise when they decided to go the route of locating the majority of their stores in mall complexes, thus creating a central point of consumer traffic around which their competition (Abercrombie et. al.) could locate their own stores at relatively cheap rents.

Then the items that do not sell at major thrift stores are sold by the pound by used clothing wholesalers (these used to operate in Greenpoint-Williamsburg in Brooklyn before the area went upmarket) and shipped to places like sub-Saharan Africa.

Slight correction. They get shipped to NGO's who themselves do their own level of sorting and then get shipped off to places like sub-Saharan Africa. After a life on the front end of the retail chain, I moved to working on the arse-end of the donated product chain, so that's what I do for work now.
posted by allkindsoftime at 5:57 AM on October 10, 2011

The $79 Lacoste pique polo that is $15 at JC Penney is likely the same one.

Disagree. High end manufacturers aren't stupid - they are naturally incentivized to keep their designer appeal and high price points in a limited number of selling outlets. Lacoste does not sell their polos to JC Penny and their ilk for just that reason - same goes for other designers. Some designers may differentiate brands a bit to try and play different market sectors (i.e. Ralph Lauren vs. Polo), but there's still going to usually be a quality difference associated with the price point difference.

This isn't to say that a private / generic brand version of a polo might not be manufactured in the same exact factory of the same exact fabrics as the Lacoste, but the last thing a Lacoste needs is to be caught trying to sell that polo and their own - I would argue that the likelihood of the two being the same is very low.
posted by allkindsoftime at 6:03 AM on October 10, 2011

next time you are out shopping take a closer look at the construction of different brands. How many stitches hold on a button? Are all the seams straight? Turn a shirt inside out, look at the precision of the way the excess fabric inside is trimmed. A surger is a machine that cuts fabric and sews a stitch at the end to hold it--Look at the amount of material left, look at the number of stitches, look at single vs. double stitching and bar-tacking. Generally, the more expensive items that are Worth the extra expense pay for higher quality control standards at the same factory that can produce an inferior product for another brand using looser standards. Less precise sizing? cheaper. Cheaper buttons? cheaper item. It is a long complicated process to mass produce clothes and the attention paid to and the standards required for each level determine how much an item costs. I work for an apparel and equipment manufacturer, and have seen data for pricing different things...every little thing makes a difference. Down to the number of stitches per inch and how long it takes to ship something and get it through customs and to our warehouse.
posted by th3ph17 at 4:07 PM on October 29, 2011

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