Is Cycling a Fashion Show?

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mattiTWOROADS
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by mattiTWOROADS

I don't know where you guys are getting your mark-up numbers, but it is nowhere near that - depending, of course, on whether it is direct to retail or a wholesale model.

First, 300% ? That number makes no sense. It's not possible to make more than 100% profit (and if there is a way, I want to know how to do that).

The margins FROM THE COST OF GOODS AND MANUFACTURING is normally 50% (or one could say a 2x mark-up) to wholesale and another appx 50% to retail (which is actually normally now closer 2.2x to be more precise). Sometimes this takes into account the amortized cost of other services, but usually does not. There are a lot of hidden costs such as patterning (which is usually around $1k per piece), prototyping, sampling, marking, grading, customs/duties, landing, shipping, minimums etc. These are all usually not part of the cut and sew cost and normally a small brand only considers a simplified fabric cost + cut and sew cost.

Working backwards you can see where things start to fall apart as far as these companies making a ton of money.

That $200 jersey to retail, cost the shop/retailer $100 and the designer/brand paid approximately $50 to have that jersey made.

So for a $200 jersey, the brand only has a "profit" of $50. That might sound significant, but a small brand producing a jersey will have a hard time actually hitting that mark with decent materials and trim. Fabric can cost 10-15 per yard, a good zipper? That's another 7 at wholesale. Oh, you want printing too? And if you can't afford, either in inventory or capital, a run of 2000 units, your cost could be anywhere from $20-$40+ per unit just to cut and sew. Do the math, we're already way above $50...

Now that $50 (let's just assume you can actually do it for $50 to keep the math simple) also does not include those things I mentioned earlier that should be amortized throughout the cost of the run. So depending on numbers sold, the patterning could cost $5 per unit - prototyping and sampling another $5 or so per unit - That fabric that cost x dollars per yard also costs about 1/3x to get it to you or the manufacturer, so there is another extra $2 - marking = appx $1 - grading = appx $1 - etc. Now take into account it needs to be photographed, materials printed, etc. Hang tags et al will add another couple of dollars per (forget packaging and shipping for now). That $50 dollars starts to dwindle fast... and this doesn't take into account general brand development, marketing or overhead. Normally, there are items you make more profit on and those you make little to none... you just pray it all evens out somewhere in the black.

Even in a model that is direct to consumer, the overhead is more significant (unless you are able to call in all sorts of favors for web design, photography, marketing, etc). The quantities are also significantly smaller, making it much more expensive to manufacture. There is still a higher profit margin, but on significantly smaller numbers... so it all depends how much overhead and marketing cost as to whether you will be profitable or not. The worst thing that so many get caught in with a direct to consumer model is thinking they are making "good enough" margins and leaving them up shit-creek if they ever want to go wholesale.

Trust me when I say, it is very difficult to sustain a cycling apparel company. Yes, there are a ton of people doing really basic, vertically produced, shite. But a lot of these boutique brands mentioned or alluded to here do what they do because they love cycling and fashion.

I have been in the fashion / branding / marketing world (both luxe (LVMH) as well as outdoor for brands like TNF, Patagonia, Arc'Teryx, H/H etc) for a long time and have both had a line with my wife that sold to Barney's and other high end boutiques and smaller department stores, as well as a cycling apparel line myself that I have yet to get off the ground even after funneling tens of thousands of dollars into it.

There is a reason why clothing - whatever the industry - costs what it does. Sure there are things that cost more than they should, but overall, very few people in that industry are making fortunes.
Last edited by mattiTWOROADS on Sat Jul 25, 2015 1:06 am, edited 4 times in total.
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nathanong87
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by nathanong87

kgt wrote:Nice post.

NealH
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by NealH

Good post.

mattiTWOROADS
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by mattiTWOROADS

... and the point of my rant above is just to reiterate that a lot of these people do this because they love the history and heritage of the sport, which happens to be very in-line with current design and fashion trends... it always has been.

Cycling is a beautiful sport. Look at the "on the road" thread. The visual aesthetics are part and parcel of what it is and what is has always been.
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Wingnut
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by Wingnut

mattiTWOROADS wrote:I don't know where you guys are getting your mark-up numbers, but it is nowhere near that - depending, of course, on whether it is direct to retail or a wholesale model.

First, 300% ? That number makes no sense. It's not possible to make more than 100% profit (and if there is a way, I want to know how to do that).


I'm only quoting from friends who work for retail surf clothing outlets and who have worked directly for the manufacturer...I've heard this repeated many times over the years...all have said even when clothing is heavily discounted a big margin is still had.

$50 x 300% equals $150

Seems pretty simple to me?

mattiTWOROADS
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by mattiTWOROADS

I don't mean to sound like an ass, but they don't know what they are talking about.


% is based on profit from sale, meaning 50% is equal to a 2x mark up, 75% is equal to 4x mark up, etc. This is the way it is always figured in the industry and for investment purposes. The other is a factor, which is what your friends are talking about but somehow combining the two (not uncommon by the way, I do hear it, but it is confusing as hell).

But event then, I have NEVER heard of a 3x mark-up from manufacturing to wholesale in apparel (again, maybe some pieces in a collection, but on average... no way). From wholesale to retail it could possibly be that high depending on the retail's overhead, but normally even in the accessory category, mark-ups are around 2.7. For clothing, it is normal to be at 2.2.

I speak from a perspective more fashion related and have never seen the margins for surf (and wouldn't be surprised if they could be higher because it doesn't cost a whole lot to sew a pair of shorts or t shirt (which is WAY different than cycling apparel). I DO know about cycling apparel though, and those are NOT the margins in cycling. Do you even know how much it costs to sew in a chamois the right way? That alone is an art that needs specialized people and equipment... just ask the riders from Rock Racing. Michael Ball thought he could get his jeans sewers to do it and they all got such bad saddle sore they had to cut them out and wear other shorts underneath.

Now if you are manufacturing in the the thousands of units - per style per color, your margins can obviously increase by off-shoring to one of several vertical and very good manufacturers, but then you have the added expenses of freight, duties and landing. This also is usually a more mass-market approach and mass-market margins are miniscule in comparison. On the extreme end of the spectrum is selling to costco or walmart where margins are closer to 15%! But even with only 15%, a brand can make a shit-ton of money through units sold.

Sorry to get off topic here, but it is a pet-peeve of mine, after working in the apparel industry for both very large brands and having a couple of companies we own, when I hear people throw out these ridiculously large numbers that are nowhere near accurate (at least on average). Even that $100 designer T-shirt might seem like it has a ridiculous margin, but not necessarily. My wife's line sells leggings that cost over $1k, but even there the margins are such that we are BARELY in the black (without either of us on salary too). It's all in the exact fabric, manufacturing and the hidden costs I outlined above.

... and god forbid you have charge-backs that are usually NEVER accounted for in the wholesale pricing structure.
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mattiTWOROADS
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by mattiTWOROADS

... and normally, again, at least with fashion and cycling, when that retailer is having to discount at 50%, they aren't making a penny. Anything discounted beyond that by a larger retailer will be a loss and in many cases charged back to the brand.

And wingnut, are you saying that, according to your understood margins, that a $200 jersey cost $22 to make... fabric, trim, and all? Or are you just talking about a direct to consumer strategy either via web or brand store? In theory, you could actually get a 4x mark up direct to consumer, but then your overhead is extremely high and needs to be considered before claiming that people are making a lot of money selling clothing. If your friends are working at a billabong, they might be right, but how much do they have to spend in overhead and marketing to sustain? I have been involved in a major rebrand of one surf company and can tell you it's a lot... someone has to pay for my bike stuff... ;)

OK... sorry... back on point...

I am curious, why IS it looked upon negatively when cycling follows a particular fashion trend? Isn't their room for development of a brand through both the technical AND style? It's an honest question and one I see that is a weird gap. A lot of cycling brands seem either all fashion and falter on the technical or are all technical and discount the fashion. Hell, even anti-fashion is a fashion statement... I am currently working with a couple of large fashion and couture houses that are now developing a technical line of outerwear (the trend is for fashion going technical and the technical brands introducing fashionable lines) and have wondered why cycling doesn't follow more in that area of overlap - particularly when it is a sport that prides itself on a very precise representation of itself and its heritage.

I know some try and have succeeded to varying degrees, but with the way we poetically speak about the sport, I am surprised at the backlash to "fashion."
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saibot
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by saibot

Thanks for taking the time to post all that! I also worked in the so called "surfer clothing" industry for a nationwide distributor and reading some of the profits claims on here made me laugh, no energy to debate on the internet though. But glad you came in with some actual facts. Spot on!

Wingnut
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by Wingnut

I can only quote what I was told by some people in the surf industry...appeared plausible to me as the clothing is mass produced in Asian factories at very low costs?

Hurley Phantom Elite board shorts sell for $199 AUD online...explain to me how there isn't a large margin on these? They're made in the thousands!

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djm
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by djm

Or head to Hennes & Mauritz or Costco and buy a 50 cent t-shirt.. but it is a totally different market and extreme volumes.

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MikeMoore
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by MikeMoore

I read this topic thinking it'd just turn into a bit of a bitch fight, but there's some fascinating info. Thanks Matt!
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ajmit3
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by ajmit3

I think that Melbourne Australia is ground zero for cycling fashion. Maybe San Fran would beat it ... The prices are insane ... People are going to go nuts and its a bit of a dog act , but I've bought some counterfeit jerseys for 5% of the real garments cost . I still think in certain groups I was being judged for my clothing choices but it's a small minority , like the bike gallery guys

sawyer
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by sawyer

@MattTiWOROADS.... you need to distinguish profit as a % of revenue and margin

Margin is usually expressed as a % of cost, and profit is margin x volume

So if your costs to produce, distribute, market, sell, service/administer an item/service are estimated at £100, and you sell it for £130, then margin is 30%. Likewise if you sell it for £250, then margin is 150%

Think about it, how could this be limited to 100% of cost?

On the other hand, obviously as a %age of revenue, profit can only be a maximum of 100% ...
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DerekV
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by DerekV

sawyer wrote:@MattTiWOROADS.... you need to distinguish profit as a % of revenue and margin

Margin is usually expressed as a % of cost, and profit is margin x volume

So if your costs to produce, distribute, market, sell, service/administer an item/service are estimated at £100, and you sell it for £130, then margin is 30%. Likewise if you sell it for £250, then margin is 150%

Think about it, how could this be limited to 100% of cost?

On the other hand, obviously as a %age of revenue, profit can only be a maximum of 100% ...


Margin is calculated as the % of the revenue. You are describing markup, which is calculated as a % of the cost.
£100 cost/£130 selling price is 23% margin/30% markup
£100 cost/£250 selling price is 60% margin/150% markup
This is how the words are used at least in finance and accounting.

I feel like this terminology can just be googled, but this tangent is going further off-topic.

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