Due to excessivly high traffic (#humblebrag) Well Spent is running extremely slow right. For that reason, I’ve decided to repost the Why Clothes Cost What They Do feature here, for all those who are having trouble accessing it on WS.
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A little over a month ago, newbie direct-to-consumer e-tailer Everlane, posted the below infographic on their Tumblr.
4,100 notes later, and the image is still going strong. Though a clever and fairly artful depiction of the inner workings of the apparel industry, it’s not entirely accurate.
How much should a designer get paid for designing something? How much would you want to get paid to sew the same thing over and over again for 5 days a week? What about the people who work in the warehouse, packing and shipping everything? Things like this just beg more questions than provide any real answers. What is a living wage? More importantly, what’s a wage that you would take for making something? Maybe t-shirts shouldn’t cost 15-20 dollars because it demonstrates that someone down the line isn’t getting paid fairly. No one likes hearing justifications for things they find ‘overpriced’. But when’s the last time someone asked you how much your work is worth?
I reblogged Jon’s response, as did many others. Shortly after, I received the following message:
I respectfully, and forcefully disagree with your characterization of Everlane’s infographic. Clothing retail lacks transparency and anyone who has seen how things work knows that some retailers put out fair markups and others do not even come close. The exact same pants cost $200 from Epaulet and $400 from Ovadia. A T-shirt of the same quality of material, construction, cut and country of origin costs $15 from Everlane and $50 from James Perse. One is a fair price, and the other is overpriced.
My issue with Everlane’s infographic is that it’s a dangerous over-simplification. Essentially, Everlane is attempting to demonize any clothing company charging greater than 2.25% its manufacturing costs. That’s ludicrous. Running a clothing company is expensive. Period. No matter how big or small, there’s always going to be unavoidable overhead. Mark-ups exist to cover that overhead. They pay for office space, employee payroll, web hosting, web design. They help to cushion the inevitable losses incurred from factory fuck-ups, shipping damages, fabric imperfections. The list goes on. None of that is accounted for in the image. Instead, mark-ups are depicted as some great ruse being perpetrated on the guileless consumer. And that’s just not true.
While writing my response, I realized that the majority of people who have seen, or are going to see Everlane’s graphic, don’t actually have any first-hand knowledge of how the clothing business works. And so, they have no reason to question Everlane’s claims. With that in mind, I asked some industry friends to share their thoughts on the image as well. I don’t want this to seem like an attack on Everlane, because it’s not. I simply feel there are some glaring inaccuracies in their infographic, and given how popular the picture has become, those inaccuracies must be addressed.
I couldn’t help but notice that the Everlane graphic left out the most important part of the equation: people. When you pick the cotton, weave it, dye it, cut it, sew it, transport it, etc, you’ve got to pay people to do those things. The Everlane graphic represents the absolute lowest prices in the world for those tasks, and at the very highest quantity (prices go down as numbers go up). Our Archival t-shirts, by contrast, have a very different path. The fabric is woven, cut, and sewn in the USA, where labor prices are much higher. We also have to be able to pay ourselves for spec’ing, ordering, and marketing the product. Our mark ups reflect a person who’s making a living.
Usually, how it works in the apparel business, is that a company will make a garment for $10, wholesale it for $20, and sell it at retail for $40. This keeps retail prices even across direct and wholesale channels. Consumers are generally surprised when they hear that $10 of labor and material went into a $40 shirt. But what they don’t realize is that apparel businesses have other costs (design, marketing, sourcing, administrative, etc). If you look at the apparel industry, profit margin averages out to about 10% (even for highly successful brands like Ralph and Gap).
Our manufacturing cost is just one of many. It doesn’t include our custom labels or shipping to our showroom in Minneapolis. It doesn’t include fabric minimums from Europe. It doesn’t include Mac, the co-owner of the company, unpacking each box and performing quality checks by hand, piece by piece. Then there are other costs like photography and ecommerce system fees and babysitters – these add up so quickly. The other issue here is putting a price on creativity. Our business is self-made. We don’t have a conference table full of investors telling us what to do to bring in the best profit. We were inspired from within to create our brand. I don’t know how to price that out.
Only thing I can say about that graphic is, to quote Ed Lover, “C’mon SON!” The most interesting thing on there is the footnote. What does that footnote say? That they made up their numbers based on their “own experience.” C’mon SON! How are we supposed to believe that? Everlane is funded by Kleiner-Perkins the same people who funded Google and Amazon back in the day. So you’ve got Kleiner-Perkins money and you still need to make up your own sources? C’mon SON!
All that said, there is a reason Kleiner-Perkins was willing to back them, and it’s because there is an element of truth in all that. Traditional retail is very expensive. It requires expensive real estate, a lot of people hours and a lot of inventory risk. The internet dramatically reduces the real estate cost, makes better use of labor hours and can sometimes pull down the inventory risks too. It’s tough though because there are amazing aspects to the traditional retail experience and people are going to fight hard to keep them around even as the internet cuts into the margins. My best guess is that the reality of it all won’t quite look like Everlane’s distorted numbers but the face of clothing retail is going to change and change quicker than people expect.
With a physical store, covering operating costs while ensuring comparable price points is often an extremely difficult task. However, despite that difficulty, I still believe there is a need for brick-and-mortar shops. B&Ms provide a unique experience to consumers, as well as help spread recognition of emerging – often local – brands that can face enormous barriers. While I thank Everlane for causing people to think about where their clothing comes from, this infographic is too much of an oversimplification, and doesn’t do justice to those in the industry who work hard to make an honest living.
When people shop at certain stores, they’re paying not just for the product, but also the experience. They want to be a part of something bigger than the act of consumption. There’s a reason people wait in line at the 5th ave Abercrombie and Fitch, even if they’re only buying socks. The same applies to small stores too. Shoppers want to participate in something aspirational. And it costs money to create that experience. Combine that with the dozens of behind the scenes expenses, and you start to understand how expensive it can be to run a store. But that’s what people want and expect. If they didn’t, everyone would just be shopping at discount stores with no atmosphere.
Based on the prices they are quoting in the illustration, I think we can assume the garments are made in China. If that is in fact the case, they’re “forgetting” to include a flood of other costs, such as: opening letters of credit, currency exchange and banking fees, quality inspection fees, importing the garment, taxes and duties, shipping from the port to the warehouse. Add that to all the non-manufacturing expenses, like time and money spent developing design and fit, employees, rent, insurance, supplies, etc, and suddenly, that $6.70 shirt is actually costing closer to $10 or $12. If an illustration like this is going to be out there for people to see, the consumer deserves to have the honest figures. And honestly, there’s no such thing as a $6.70 shirt.
First thing’s first: is their product made in the USA? If not, then it’s not a fair comparison. WWD reported in 2010 that the average minimum wage in China was $0.93 and in Mexico was $0.53. The current minimum wage in New York is $7.25 and in California it’s $8.00. You just can’t compare items made here and abroad. Second, what about the cost to design the shirt? Either you’re doing it, or you’ve hired someone else to. Regardless, the shirt’s not going to design itself, so someone has to get paid. Thirdly, not everyone uses fabrics as cheap as $2.75 per garment. And then what about all the other steps involved in the manufacturing? Moving fabric from one area of the factory to the other. Cutting. Dying. Fittings. Fit models. Pattern changes. Production markers. Damages. These are all related to the final cost, and they’ve all been left out. The commenter from Nansblog does make a good point about products changing hands too much. That’s absolutely true. But Everlane’s model doesn’t actually change that, or offer a solution to it, it just doesn’t mention it.
Bottom line: we live in a capitalist society. If something is expensive, and there’s a demand for it, competition will step in and offer a cheaper alternative. That’s how it works. In the end, you just have to hope your customer can tell the difference between your product and the knockoff.
In this infographic, Everlane is trying to create the biggest gap possible between cost of production and retail price, in order to set up a stark contrast to their own model. The most misleading part of this graphic is the $15 wholesale > $50 retail markup (3.3x). Everlane is being intentionally misleading here because they want to shock you into thinking that you’re being ripped off every time you buy a $50 t-shirt. I don’t know where they found evidence of this 3.3x markup, but it’s certainly not happening at any of the independent men’s clothing stores in the US that I know.
The highest markup we charge on any product at Hickoree’s is 2.5x the wholesale price. For clothing, we use the standard markup of 2.3x, which would make the $15.00 t-shirt in this graphic cost $34.50 at Hickoree’s. If you buy a $50 t-shirt at Hickoree’s, we’re charging $50 because we paid $21.75 for it. It costs us $21.75 because it cost the brand somewhere between $8.50 – $10 to design and produce it. We sell $29 t-shirts at Hickoree’s as well as $120 t-shirts. In both cases you’re paying 2.3x what we bought it for, which in turn is 2x-2.5x what it cost the brand to make it.
We believe in these products and we’re friends with the people who design and produce them. Rather than feeling ripped off, when you buy one of these products you should feel good about the fact that you’re supporting both Hickoree’s and the people who made the stuff. By doing so, you help ensure that we’ll be able to put more cool stuff in our shop next season, and that the brands we carry will be able to keep making cool stuff going forward.