The Hidden Costs of Running a Fashion Business

In the past decade, prices have dropped drastically in the clothing world.

Fast-fashion companies like Zara, H&M, and Forever 21 have changed the market in a big way, and prices have plummeted.

However, the rest of consumer goods have been steadily increasing in price

This has created a view of clothing as disposable. The consumer seems to have become obsessed with price.

This is how 15€ jeans and 3.5€ tees exist:

  • Cheap fabrics
  • Disregard for regulations
  • Exploitation of labor
  • Poor working conditions
  • Unlivable wages

When the consumer doesn’t pay a fair price, someone else ends up paying for it along the supply chain.

Fashion is seen as a lucrative business, but margins are scarce after all expenses are accounted for.

Entrepreneur Elizabeth Suzzan has opened up to explain how much it actually costs to produce one of the tops (follow the link in the description to read her full article)

Are you ready for some number crunching?

Including wastage, the direct cost is approximately $63.16. With a retail price of $185, that leaves us with a gross profit margin of 66%

But make no mistake; no fashion company has such high net profit.

There’s a lot more at play than just materials and labour. After all expenses are accounted for, net profit is equivalent to around 10% of the revenue, or $18.50 from a $185 garment in question.

That 10% small green portion in the pie chart is considered the income of the business and is what can be reinvested to keep up in this uber-competitive and ever-changing fashion industry.

A healthy net profit margin can range from 5% to 15%, and anything over 20% is considered remarkable.

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Read the full article

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The Zara Way: How Inditex beats the competition (business model analysis)

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