Why Fashion Brand Owners Must Know the True Cost of Their Garments

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True Cost of Their Garments

It is very hard to keep up with the ever-changing fashion trends. While trends come and go, the cost and numbers behind those trends always remain.

If you are a fashion brand owner running a clothing brand, you must understand the true cost of garments. Understanding the intricacies of the production cost of your merchandise is more than just a financial necessity; it’s a strategic imperative that can make or break your brand.

The top 7 reasons why, you as a fashion brand owner need to understand the true cost of their garments are as follows:

#1. Financial

#2. Competition

#3. Distinction between Cost of Goods and Cost of Service

#4. Quality Control

#5 Inventory management

#6. Ethical practices

#7. Avoid getting duped

In this post, we’ll delve into the details of each of these reasons why fashion brand owners need to be acutely aware of the true cost of their garments. Let us understand each reason in detail.

#1. Financial

True Cost of Their Garments

You want to know the numbers to determine the financial health of your brand. Your brand cannot have a self-sustaining life of its own until and unless you get to the nitty-gritty of costing – and the costing involves not only the detailed breakdown of the garment cost but also a very close analysis of transportation costs, freight, duties and taxes – we call this the “Landed Costs”

Imagine if you are ordering 200 pcs of T-shirts from India. The cost of the product could be $3 but the cost of shipping by air is going to be a lot more than $3

What if your product cost is $600 (200 pcs for $3) but you end up paying duties of $5000 in penalty because your supplier did not have the right expertise in administering documentation for customs? What would be the true cost of your 200 pcs –  $600 or $5600?

Getting the financials right is what we call internal benchmarking.

#2. Competition

Competition

Just like getting the financials right is internal benchmarking but looking deeply within, looking at competitors to benchmark externally is very important.

For example, you plan to sell a dress for $50 but your competitor sells a similar product for $30, then sooner or later you will converge to $30 – this is particularly important if your competitors had a head start.

It is important to benchmark your competitors and start with a selling point for each garment and then work your way backwards. In the above example, if the dress has a selling price threshold of $30, you have to work your way backwards and arrive at the total landed price.

A rule of thumb in the fashion & apparel industry is to have at least 4X mark-up from the landed price – this means you need the landed price to be ($7.5) or below. Now you have your selling price and you know the cut-off of your landing price – with these constraints, you should be able to work your way with your suppliers.

#3. The distinction between the cost of goods vs. the cost of service

cost of goods
the cost of service

You need to clearly understand the cost of goods vs. the cost of service.

The cost of goods is simply the cost of raw materials + the cost of labour – these are variable costs. The more quantities you order, you will get some incremental discounts on raw materials and you will gain some efficiency in terms of labour and your supplier can pass these benefits on to you.

Cost of service on the other hand is the cost of servicing your requests. Do you want design, do you want tech packs, do you want support on the logistics, do you want support in custom clearance etc?

When you are new to the industry, you may not be able to distinguish between the cost of goods and the cost of service. But if your supplier is an experienced service provider, they will have their services clearly mapped out.

Let us understand this with an example:

You want 200 pcs of this black crew neck t-shirt with a print.

Product cost is $3 per unit: this is simply the raw materials + labour + print cost

Service cost is $3000 (fixed)

Now what this service cost entails – simply put: the cost of servicing your request.

In this case, it would be the basic salary of management staff for 1 or 2 weeks depending on your service request.

#Fabric Manager

Would you want to ensure that the fabric of your garments is free of defects and doesn’t shrink right after the first wash? What about pilling? What about other damages? 

Would you prefer the clothes to look great from the outside and fall apart after the first wash? If yes, who do you think would ensure that? 

Would you take your supplier’s “word” for it or would you want your supplier to have a professionally qualified fabric manager in their team to verify with stringent lab tests?

Most suppliers are capable of hiring fabric managers. It is a skill set readily available in sourcing countries in Asia. But the suppliers won’t hire a fabric manager because they don’t want to scare you away with more costs.

The result – your goods reach your end-customers and then they wear it, wash it and all hell breaks loose because you did not do a good job in understanding the details and now your customers feel cheated.

#Production Quality

Production Quality

Just like the fabric quality manager ensures the raw material is up to the mark, similarly, a production quality manager ensures that the garments being stitched are free from defects.

The blue-collar labour that is stitching is usually trying to meet their stitching targets. The production manager overseeing that group of blue-collar workers is also incentivized to finish the production ASAP so that they can move to the next order. If you take your factory operator’s “word” for “good quality” – you will be in for a big surprise.

The solution is to have an independent quality control or do a third-party quality control. 

The worst thing that you can do for your brand is to assume the cost of quality control to be FREE.

#Logistics, Shipping and Documentation

Logistics, Shipping and Documentation

Do you want your supplier to have a team for logistics, shipping and documentation – if you have any exposure to the logistics & supply chain industry, you would know that these are 3 specialized roles.

When your supplier is NOT charging you a service cost, it means they do not have a specialized person for logistics – what this means is that when you receive your goods, you can be in for a big surprise, or worse – the goods never leave the supplier’s home country!

Service cost although remains fixed for the most part but if your quantities go from 200 pcs to 20000 pcs – the service cost could marginally increase by another $1000 but since the quantities are good enough this additional service cost would be $0.05 – almost negligible and most suppliers would happily absorb this additional service charge.

#4. Quality Control

Quality Control

If you have read this far, you would understand clearly the distinction between the cost of product and cost of service – And quality control falls under the cost of the service part.

If you are not paying for quality checks and you have no measure of service quality – then you are getting the “best quality”: pun intended!

If you are not paying specifically for quality checks and control, be assured that you supplier is neither paying – which means all the clothes that are being made, are made on “words” and not analytics – because if there is analysis of defects – then someone has to pay for those checks.

#5. Inventory Control

Inventory Control

You need to know the true cost of your garments, particularly the landing cost otherwise, you will not be able to evaluate the cut-off point for your liquidation. Whether you like it or not – most likely you won’t be able to sell your entire inventory. So, by knowing your landing cost, you would be able to evaluate the cut-off price at which you can liquidate your inventory in order to manage your cash flow.

Also, as your season is nearing an end, you can create a staircase kind of discounting strategy so that you can maximize your sales by pushing more inventory out the door.

#6. Ethical Practices

Ethical Practices

While some suppliers can provide products at very low cost simply because they are situated in countries with low income (particularly for blue-collar workers) if the price is too low even within their own specific geographic cluster, then it means that they could be indulging in some unfair trade practices, particularly from non-payment of wages to the workers.

Some brand owners may think if the factory is not able to pay their workers a decent pay, that’s not our problem – well it would become your problem more than a PR way.

If a supplier is breaking labour norms of that country by underpaying workers or not paying at all. It is quite possible that the supplier might have breached labor laws before. Imagine the supplier who is currently working on your products faces labour unrest while your production is happening – what would you do? 

The production would come to a standstill and your goods would be stuck. This is quite common in Bangladesh and several other countries. If you have no experience in evaluating suppliers from these countries on ethical manufacturing grounds, then it is better that you avoid them altogether.

#7. Avoid getting duped

Avoid getting duped

Imagine you are based in Paris and you want a t-shirt, round neck 100% cotton for $3 and the quantities you want is just 200 pcs and bravo – you find a supplier from Bangladesh willing to do 200 pcs for $3 – this is too good to be true because if you were to go to a local wholesaler in Paris, for 200 pcs, you probably would be paying $12 or $15 per unit – so this is too good to be true.

So what’s the catch here – you get duped!

How to Avoid Getting Duped

You have to be very smart when you are dealing with clothing suppliers. This problem becomes a lot more complicated when you have suppliers away from the country you are currently living in. You don’t have much control on what they do and they don’t. If you are getting an offer that is too good to be true, most likely it is not true.

While those scamming others always find ways to cheat you but based on years of our interaction, we have synthesised a 4-step process where you can identify if you are falling for a scam.

Here is the modus operandi

Step one:  you get a sample + two good-to-be-true prices

Step two: you pay 50% advance – because it is so cheap, right?

Step three: you are told the goods are ready and you receive pictures, video etc. as proof – you pay the balance amount.

Step four: the supplier disappears after receiving the balance amount!

The production of your goods never even started!

Congratulations – you got duped!

Welcome to the world of generative AI.

If you are a little smart, sometimes, you will catch the supplier after step 2 but even then you kind of lose your advance amount.

The only way to avoid this fate is to work with reputed suppliers. At Hula Global, we constantly say NO to orders where the quantity or the financial feasibility is not met.

We do this because we have a reputation to live up to. Our 200+ brands are happy customers and probably busy growing their business while we support them at the backend but what if we fail once – those disgruntled customers are going to write horrible reviews and people like you would read and think – oh this supplier is not good.

What if you end up with a supplier with no review or nothing to lose and you cannot verify their identity or even if you verify their identity – they are Mr. Nobody – would you still work with such suppliers?

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