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I was thinking about this today after looking at the current news on WWD and then making the rounds on Fashion Network…it hit me many newbie clothing company’s have garments, profitable ideas, enough know how to get started, but do any of them actually plan out a selling point and how their going to build a sustainable clothing business model with reoccurring sales and cash flow.

Many just sell without doing the necessary math or accounting as we say to break-even or have profit goals that they strive toward to increase business sales. Many are happy with having repeat orders and not really taking the time out to see if they’re actually turning a profit or growing as a business, but believe me I understand when doing it all yourself sometimes you get caught up in all the excitement.

In the forums I’ve seen a lot of talk about setting wholesale prices and how much of a percentage does a retailer get of your sales and how much should I sell my clothing in order to make a profit. This tells me how lost some are with selling their clothing wholesale and all the above goes back to setting up your business model and how you will make money in order to grow the business.

There are many types of clothing businesses from private labels, to mass merchants who sell to any and everybody or produce in store brands for large retailers like Target and Wal Mart where most likely their focus is on volume and not a high profit margin because they want to keep the prices low for their market, the exclusive boutique labels, and than there are some company’s who sell exclusively online. All of them are in business to make a profit, but neither have the same strategy towards generating sales and profits.

Let’s talk a little bit about each of the above business models:

• Private labels- Are usually produced by company’s such as Tarrant Apparel for stores like JcPenney, Dillards, Lane Bryant, which are sold exclusively in their stores and not wholesale to other retailers. As you can already see the possibility of higher profit margins, because the middle men is cut out (wholesaler) and the product goes from the manufacturer straight to the floor for the consumer. They are usually able to offer these brands at the same or competing lower prices, plus the same quality as similar brands that are wholesale on the retail floor, but with no middlemen markup so each sale is more profitable.
• Mass Merchandisers- Their sweet spot is of course in moving volumes. Many company’s that design ‘generic’ apparel dream of landing a deal with a Wal Mart or Target to sale their clothing exclusively in their stores. You offer average quality clothing at affordable prices and move it in volumes. i would think their profit margin isn’t that high, but I could be wrong considering the prices they’re able to get clothes produced for when you think about production orders that probably run a lot of thousands per garment.
• Exclusively online or in Retail stores- The brands that sell only online or in their own retail stores. For example brands like A Bathing Ape, Johnny Cupcakes, which build their businesses around lifestyles and exclusivity and most importantly repeat customers who come back time after time to buy each garment as if its a collectible item.
• Wholesalers- This is the route that most of us take. You design, manufacture your clothing and then attend trade shows or go door to door selling to retailers with a set wholesale and suggested retail price. I would say this is the direction 60-80% of startup clothing company’s take.

With many apparel businesses selling clothing at a profit all boils down to COG (Cost of Goods) and setting your wholesale prices and ultimately pleasing retailers with the product quality you offer at a reasonable selling price in your market so that they order again season after season.

The mistake many newbies make is thinking about how much money they can make or need to pay for certain aspects of their business or even worse quit their job and setting their prices in order to replace an employment income. Unless you have an unimaginable amount of product demand (Think Ed Hardy) you will not be able to place your product with a price that you think is suitable or high enough for you to gain the profit you want or sustain a certain lifestyle off of your startup clothing line. So with that said having proper financing and business planning has its place in your clothing company.

Setting a wholesale prices

Now i’ve written a couple of articles on setting wholesale prices and JC our forum Super Moderator has spoken on it lately here, but many seem to still be confused or aren’t putting in the necessary footwork (research) to find the right answer.

There are formulas for setting wholesale prices which will in return produce a final retail prices, but fabric,production,shipping, trims and so on play a part determining a definite wholesale cost so I would first calculate my COGS or determine what I would want my final retail price to be and work backwards depending on what your market can bear you might have to adjust cost or take a hit in your profit per garment sold.

I remember when I first started out I remember many telling me to mark up my clothing 2.5x and that would give me a fair wholesale price, but with my COGS being around 10-12 per garment (Producing domestically on small quantities) I knew my wholesale price would be unreasonable and not attractive on the retail floor. With the above COGS per garment I would have a wholesale of price of $25-$30 for a basic tee that was competing against popular brands retailing below my wholesale price! So I knew there was no way I would be making a profit and also be able to compete with similar products i.e. competition.

At that point I had to find a cheaper source for production or take a hit in the pocket and maybe get close to breaking even at the current cost of my garments or increase the quantity on my production. I chose to increase my production order, but with limited capital it seemed impossible, but I was able to leverage what I had and get orders placed by retailers before placing my order with the manufacturer and it was one hell of a balancing act receiving orders and getting product to retailers on time, but it was the only way for me to break-even or turn a profit on a per garment basis. In the process I was able to knock a few dollars of the final retail price, but some retailers were still skeptical as to how it would sell next to similar products at slightly lower prices.

How Will You Build a Sustainable Clothing Business Model?

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