Polo Puzzle: What Goes Into a $155 Price Tag?

http://online.wsj.com/article/SB10001424052970204652904577195252388913754.html

by browser411 • 14 years ago

78 37 14 years ago

online.wsj.com

ahsanhilal4• 14 years ago

The hardest thing is logistics: delivering product orders on time as a small brand which outsources manufacturing is really hard. Big retailers, like Nordstrom or Macy's will give you a window of a week (maximum) and will not accept your orders if it goes over. Conversely, they also have set packaging and other compliance related requirements which will increase the cost / item. In particular they have these ERP systems that small brands cannot afford. Smaller brands end up outsourcing being plugged into their ERP systems as well which will also increase the cost of the article.

yesbabyyes2• 14 years ago

In particular they have these ERP systems that small brands cannot afford. Smaller brands end up outsourcing being plugged into their ERP systems as well which will also increase the cost of the article.

This sounds interesting, can you shine some more light on it?

ahsanhilal4• 14 years ago

https://www.nordstromsupplier.com/NPG/EDIcompliance.html

It's basically Electronic Data Interchange through which they make orders, track shipments etc.

Here is how a typical one looks like:

http://www.nordstromsupplier.com/Content/sc_manual/FLS%20810...

cjg• 14 years ago

What I found most incredible was that the shirt cost them just under $30 to produce, but would ultimately sell for $155 and this was considered a standard markup.

quantumhobbit• 14 years ago

I used to work in a clothing store and the markups on clothing, especially more fashionable items, never ceases to amaze me. Unfortunately, this article didn't really get into most of it. They explained why the shirt cost $29 to make as opposed to $1-2 for a cheap shirt from China.

What I find fascinating, is how we get from $29 to $155 at the store, or $2 to $30 for a cheaper shirt. The vast majority of the cost of a clothing item comes from putting it on a shelf in a well-staffed store.

I think this highlights why we have made a shift from a manufacturing economy to a service economy in the US. The kid who waits on you in an American mall costs much more on a per shirt basis to employ than the arguably more skilled seamstress, even when the seamstress is in the US.

DarkShikari• 14 years ago

But will this last? With the phenomenal cost of running a retail establishment, it's probably cheaper to run an online store -- even if you offer free, shipping-costs-paid returns for any item that doesn't fit!

More and more people I know are finding themselves shopping online instead. There's a whole host of advantages:

1. The selection is way better, while the retail shop often has none of the styles you want, forcing you to go to specialty stores. Of course, online, "going to a specialty store" doesn't require driving.

2. Even though many people love browsing, the shopping experience is often just terrible. Online, searching for a particular type of clothing or style takes basically O(1) time, thanks to search, while in a retail establishment, you have to cart yourself across the store repeatedly. And online stores typically have images of models wearing the clothes, giving you a better sense of how it would actually look.

3. Some sites online offer actual, specific measurements for all their clothing instead of vague sizes like "6" or "10", whose meaning isn't even constant for a given manufacturer. I've never seen anything like this in a physical store.

4. It makes impulse buying easier, since you don't have to drive anywhere.

(and much more)

If Amazon can put the pinch on retail books and electronics, can sites like Milanoo put the pinch on retail clothes and cut out the middleman? I think there's still a lot of room in the online fashion space, and the margins surely have to be better. This is a harder problem than those approached by the typical HN startup, due to the problems of dealing with physical goods, but there's nevertheless been a lot of successful companies in that space lately.

dminor• 14 years ago

It's really not much cheaper - if you look at the Zappos financials from when they were acquired, their margins were razor thin. All of that "free" shipping costs a lot of money.

The real opportunity to lower markups is in manufacturers selling direct.

dagw• 14 years ago

Some sites online offer actual, specific measurements for all their clothing instead of vague sizes like "6" or "10", whose meaning isn't even constant for a given manufacturer. I've never seen anything like this in a physical store.

But at a store you can simply look the item, and if it looks like it should fit try it on to see if it actually does fit. The actual size printed on the item isn't that important in those cases.

The other aspect is that stuff like stitching, button holes, collar construction, and general feel and quality of the material used is incredibly hard to judge online, while trivial to judge in person. Stuff like this simply doesn't matter when it comes to books and electronics.

Of course all these problems are solvable, but it is a much much harder problem than selling books online.

jrockway• 14 years ago

So they've described how American Apparel makes their $45 polo shirts. But they haven't described how $30 of materials becomes worth $155.

ahsanhilal4• 14 years ago

In clothing there is a standard wholesale markup, which is 2.0-2.5 of manf costs, and a standard retail markup which is again 2.2-2.5 of wholesale cost. This means that they are selling it to the retailers at around 60 bucks or so, and then the retailer is selling it for 155. The 30 dollars provides money for rent, warehousing, salary etc for the brand/wholeseller. For the retailer it does the same. Retailers also sell in tranches (at 10-50% off) so they have a distribution curve through which they set price bins

schiffern• 14 years ago

>The 30 dollars provides money for rent, warehousing, salary etc for the brand/wholeseller. For the retailer it does the same.

Fine, but they're shipping them out of their living-room.

The article would have been greatly improved if it gave a typical breakdown for those prices as well.

wmf• 14 years ago

I guess this explains how JCPenny can set their standard price at 40% off list (as mentioned in recent discussions).

patio11• 14 years ago

$30 for the fabric, $30 for the store's overhead, $65 for the story that you can feel a part of every time it is on your skin.

Did you know my shirt was made in America and came in an Eco-friendly laundry bag? Oh don't worry darling, the Chinese peasant did a perfectly adequate job on stitching yours.

emehrkay• 14 years ago

I have a few Polo (Ralph Lauren) shirts that i wear that I bought in the very late 90s. I'm not saying that the 300+% markup is valid, but I've worn a shirt in three different decades.

GFischer2• 14 years ago

When shopping for a washing machine, I found some articles that claimed that the reason that Americans buy so many clothes and find that they don't last as much as the rest of the world, is because:

1) they use top-loading washing machines

2) they use dryers

or even worse washing-drying combinated.

While I don't doubt that Polo chooses good cloth, it's standard here in Uruguay for clothes to last that long. I've inherited a lot of clothes from my father, and have tons of clothes to give away that are in reasonably good condition.

The reason is that they've been either hand-washed, or washed in a front-loading machine at a low temperature, and then dried in a clothesline (I've never owned a clothes dryer).

For example, this article claims that clothes washed on a front-loading washing machine last longer:

http://www.networx.com/article/choosing-a-washing-machine-to...

Edit: U$ 500 for the cheapest front-loaders? I bought mine for U$ 200 (not in the U.S. obviously, but with the humungous Uruguayan import taxes).

yummyfajitas2• 14 years ago

This sounds like a huge waste of labor. Suppose making a shirt (of whatever sort of cloth) takes 5 hours of labor.

If you hand wash and line dry, suppose that's 5 minutes of labor per wearing. If you wear the shirt every week for 10 years, that's 43 hours of labor on washing for 10 years worth of shirt. It would only take 25 hours of labor (compare to 48) to buy a new shirt every 2 years.

And this also assumes your time is equally valuable to the time of the guy making the shirt - I consider my time to be worth far more than $5-15/day.

blahedo• 14 years ago

I believe this; I have plenty of clothes that I've been wearing since the mid-90s (and a few clothes I inherited that are even older), and none of it is luxury brand; but I do take care of them. It's also worth noting that some kinds of clothes can stand to be worn for multiple days between washings, and this is likely to extend their useful lives considerably.

ImprovedSilence• 14 years ago

Yeah, I'll believe this. I think it's a big culture thing too. I studied in Italy in college, and never used a dryer in my 4 months there, the washing machine was a little side loader, and if you tried to run that, the TV, and the microwave at the same time the breaker would flip... But here's the thing. EVERYBODY hung their clothes out to dry, dryers were just un-heard of. Here in the US, I've got my big washing machine, my big dryer, and I notice my clothes getting worn out before my eyes. I'd hang stuff to dry, but it's just a pain moving wet clothes from the laundromat to home. I'd like to get back to air-drying my clothes someday though, it was so much 'simpler' if you will, and nothing shrank.

unohoo2• 14 years ago

It is for this reason (2.x markups) that I am working on an ecommerce startup idea. I like the idea of selling actual product, making actual revenue and knowing what your margins will be.

While manufacturing your own clothing is much more involved and logistically complicated, its relatively easier to become an online retailer and buy clothing at wholesale from existing brands and sell that. That also helps me mitigate my risks (my domain knowledge is technology and not apparel manufacturing/sourcing).

On a side note, I am currently looking for co-founders. I have a technical background and have almost completed coding the site. If you are interested, my email is in the profile

ahsanhilal4• 14 years ago

I used to be in the fashion business for a while. I owned and operated a number of brands, sold to major national/international retailers. However, from my knowledge the major issue with ecommerce is stock/inventory. Inventory is a huge problem since it is a cash hoard, and because of ecommerce/ brick-mortar retailers die . The basic problem: you have to buy before you sell, and what if you buy wrong? Most retailers/e-tailers underestimate how big of a problem that is.

Also, a lot of times, retailers will have 30-60 day payment terms, which is basically the time you have to turn over the inventory. Also, if you do not sell (in fashion) it becomes stale quick and then you have to sell at discounted prices.

I am around to help if you need any advice etc. Have a decent amount of knowledge in this area.

unohoo2• 14 years ago

do you have a contact email ? mine is in my profile.

ndelage• 14 years ago

Hi, i'm part of a tiny startup working on a subset of this problem, and would love to pick your brain on a few of the challenges you mentioned. If you're willing to help out with some advice, what's the best way to contact you?

aresant• 14 years ago

Solving the "direct from wholesaler" for American made goods is a monster opportunity.

$65 is a lot more reasonable that $155 and I'd buy twice as many at that price ;)

Etsy comes close but a startup that focused on a niche and curating quality could be a fun and profitable challenge.

lsb• 14 years ago

If you'd buy twice as many at $65 than at $155, then you've just proven why, to maximize profit, they should be selling it at $155 instead of $65. 155n vs 130n is pretty straightforward, and the point of luxury brands is that not everyone is wearing them.

ashishgandhi• 14 years ago

Also if you can only produce n where n < d (d, is the demand) you might just as well raise the price of those n pieces produced until n = d.

You can use the profit to create an umbrella brand and increase production. The extra items from the increased production (from the extra profit) can be sold at a different price under a different brand so to let people who can afford to pay more, pay more, and get to feel special.

Note: I think the OP was just trying to say if it costed less, he would shop more. He might not have meant he'll buy exactly double.

dkrich• 14 years ago

Not to mention that it has been proven in many studies that what people say they would pay for something is never an accurate representation of what they would actually pay. The actual amount is almost always found to be lower.

prbuckley• 14 years ago

I agree with you but there remains one difficult problem. How do you convince the brand to price their product lower and thus eliminate the possibility of selling in retail channels?

robryan• 14 years ago

So these will popup online for about $85 to $95. No matter how good the service is I doubt going forward you will get a lot of volume at that type of retail price. Retail cosmetics is really feeling this as people now refuse to pay what is probably a similar markup.

D-mo• 14 years ago

There have been quite a few of these "price debunking" articles in the past year, as if we all finally figured out that we're getting screwed. Software's markup is similarly ludicrous, since there's very little variable cost to serving up extra copies--even with cloud-based systems.

Another one on $550 chinos: http://www.nytimes.com/2010/04/29/fashion/29ROW.html

Also, anyone else find this "killer app" notion in clothing to be funny? It's like Bonobos claiming they've solved the "saggy butt problem" with a "curved waistband." Genius!

redsymbol• 14 years ago

As an entrepreneur, I'm wondering how the MacLanes got an article written about them like this in the WSJ. It's a major, major PR boon for their clothing business.

Are there any journalists or PR folk here who can comment? Or entrepreneurs who have had coverage like this for your own company(s)? How can other founders accomplish something similar?

mhb• 14 years ago

See: http://www.paulgraham.com/submarine.html

tomwalker• 14 years ago

I have had some "good coverage" in my niche from some big name magazines related to my products field (non-tech).

I did not use a PR company.

There isnt a secret. Just meet lots of people, ask them to suggest other people to meet and dont expect a story from everyone. I find that for every 10-15 journalists I have met, I have got coverage.

In my experience, after meeting a journalist they will often email to clarify points. Dont overload them with data here. Dont send them a pdf file. Give them well worded answers and maybe a few extra points that you wish to reinforce.

Luck also helps!

rdl• 14 years ago

I'm curious how much something of exactly that quality made in China in quantity ~50k/yr would cost. $10 per unit delivered in NYC?

Polo Puzzle: What Goes Into a $155 Price Tag?

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