Back in 2012, a designer named Bruno Pieters, who had been the main guy at Hugo Boss, had an epiphany: It was time for fashion to try radical transparency. So he started a new line called Honest By, and on its website he included information about where each part of a garment was made, down to the buttons and zippers, as well as the factories that made them — and, even more radically, the cost of the garments. Including the markups between what they cost him to make and the price he sold them for.
The general rule is as follows: The cost of a garment to the manufacturer or brand includes materials, labor, overhead and shipping of the materials and samples. Sometimes the cost includes the taxes involved with “landing” a garment, or taking it into a foreign country. That cost is then marked up about 30 percent for wholesale because you have to add in more shipping, profit and brand equity — that is, the reputation and worth of the brand name itself and the way it may hold its value over time.
Next, retailers multiply that number between 2.1 and three times to get the store price, which includes their costs (labor, rent, marketing) as well as (and this is crucial) gamesmanship about discounting. Which is to say, they have to build in a profit margin assuming a certain percentage of garments will go on sale. Yes, they mark it up in part to mark it down.
The calculus is slightly different for mass market and fast-fashion brands, where profits are driven by volume rather than margins, but you get the idea.
In any case, this exercise implies that the higher the cost, the better the labor conditions, the more skilled the craftspeople and the higher quality the materials. That is not incorrect. Generally, when a price is so low it is unbelievable, it is: You should assume the bottom of the supply chain is being unfairly squeezed.
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