Retail and Wholesale 101
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There has been some discussion recently about the delta between US retail and European retail for Viberg and Wesco.
I will try and explain what the dynamics are here.
Whatever the delta between the retail price of Viberg and Wesco in the US is academic. The ex-works price of both brands is virtually identical, that means that in Europe the landed cost is pretty similar.
When I import into UK, not only do I have to pay shipping, I have to pay 4% duty (in Germany that is 19%). I also have to pay 20% VAT. I can claim the VAT back, but it takes up to 3 months, so for a large shipment I have USD8,000 tied up that I can't use for up to 3 months. Nothing gets under the radar either, Wesco, Whites and Viberg (like most Japanese brands) refuse to under declare
When we sell an item of clothing in Europe 20% of the sale price goes to the government. So that sale price of USD800 only yields USD666 in revenue. The minimum mark-up that a retailer will accept for this type of product is 2.2 time. That means he needs to buy that boot for no more than USD302.
Out of that USD302 needs to come duty and shipping.
No-one is going to get rich selling Whites, Viberg or Wesco in Europe. It is low volume/low margin business.
And as @derivative666 has said elsewhere recently, if you don't like it don't buy it.
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Do I understand you correctly when you say there's a minimum 220% markup on buy price for retail?
In my IT Land/World, we're generally happy with a 30-50% mark up with ROI on many years (TOTALLY different business/dynamics, understood).
I've not thought about what the wholesale>retail markup is, but assumed it was lower than that. Is that type of mark up just the bespoke retailer, or even the high transaction/low quality as well (if you know/can comment).
Interesting and much thanks!
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Consider that the production volumes are way smaller for handmade footwear than for mass manufactured IT gear.
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To make sure we are on the same page. In retail parlance: 2.2 = 220% = cost is 100, price is 220.
Minimum mark up in the garment industry is 2.1 (210%). And that is simply not enough to keep many retailers afloat. Every other expense (fixed or variable) in running a shop, other than the cost of the product has to come out of that markup. Just to pay the rent, a small London shop will need to sell 70 pars of jeans a week, that's actually not that easy.
Fashion boutiques and major department stores expect 500%. If they can't get that, discussions stop.
If I offer a product for less than 2.1 to my retailers, it will not be looked at.
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That's why fashion boutiques and department stores demand a 500% mark up, they know that they are likely to have to slash prices on a lot of product. This is the discussion I had with Liberty of London.
"In the main, you will not have to put our stuff on sale. it is timeless classic clothing that is not impacted by high street trends". They simply could not comprehend how that retail model worked.
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@ArloVShop:
Add to that that not everything sells at retail price, as a retailer you get stuck with stuff that doesn't sell. Ask me how I know…
At some point in this discussion I'm sure I'm going to cross things that likely shouldn't be share, so won't take offence.
I had(?) assumed that stock was not paid for in full upfront, rather a pro rata amount, that when it's sold the rest of the buy price is paid back/off. I'm sure I've heard of that being the model, maybe another part of the industry, or maybe I made it up. To front full costs an entire season of inventory would take VERY big pockets with a very long ROI.
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Consider that the production volumes are way smaller for handmade footwear than for mass manufactured IT gear.
Totally got that BTW.
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@ArloVShop:
Add to that that not everything sells at retail price, as a retailer you get stuck with stuff that doesn't sell. Ask me how I know…
At some point in this discussion I'm sure I'm going to cross things that likely shouldn't be share, so won't take offence.
I had(?) assumed that stock was not paid for in full upfront, rather a pro rata amount, that when it's sold the rest of the buy price is paid back/off. I'm sure I've heard of that being the model, maybe another part of the industry, or maybe I made it up. To front full costs an entire season of inventory would take VERY big pockets with a very long ROI.
I have worked quite a bit in sporting retail and this is rarely the case for that industry unless a company is desperate to have you selling their stuff. Generally with bigger distributors you can get 30-60-90 days terms and sometimes even deference of the start date of payment from the actual ship date. However for smaller niche companies providing small batch made goods I have never encountered anything other than payment up front.
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At some point in this discussion I'm sure I'm going to cross things that likely shouldn't be share, so won't take offence.
I had(?) assumed that stock was not paid for in full upfront, rather a pro rata amount, that when it's sold the rest of the buy price is paid back/off. I'm sure I've heard of that being the model, maybe another part of the industry, or maybe I made it up. To front full costs an entire season of inventory would take VERY big pockets with a very long ROI.
Wrong assumption. That's part of the point. People assume that this business is easy. It's not, it's feckin hard. at the age of 47, having worked in the corporate world all my working life and accumulating the pensions etc that you get from doing that, I had to sell every pension and every insurance policy I had,to start this business. Paula still had to support me and Alex financially for 2 years….
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Thank you for being so open about all of this Giles. It sheds a great deal of light on an area that most of us have little insight into. I think it's safe to say that the readership here could be considered highly educated consumers in terms of our knowledge of product, but how it reaches us is an entirely different matter. So, cheers.
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Wrong assumption. That's part of the point. People assume that this business is easy. It's not, it's feckin hard. I had to sell every pension and every insurance policy I had when I started. Paula still had to support me for 2 years….
I know the feeling. And the days of having 30/60/90 days to pay are pretty much over with most brands. In the clothing industry, we also have to order summer collections in winter and winter collections in summer, you have to hope that you'll sell enough to be able to pay what you ordered, and keep track of what you've ordered.
Another thing is that delivery of SS is around januari, februari and FW is juli/august for most brands, so if the weather doesn't play along, you're also screwed because people decide they'll wait for sales (I hate sales…)
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@ArloVShop:
I know the feeling. And the days of having 30/60/90 days to pay are pretty much over with most brands. In the clothing industry, we also have to order summer collections in winter and winter collections in summer, you have to hope that you'll sell enough to be able to pay what you ordered, and keep track of what you've ordered.
Another thing is that delivery of SS is around januari, februari and FW is juli/august for most brands, so if the weather doesn't play along, you're also screwed because people decide they'll wait for sales (I hate sales…)
What's worst? I think consumers are now more "conditioned" to expect sales and they are waiting to see them before they buy. Good for the consumers, bad for the retailers.
