Fashion retail markups: from 100% to 1,500%

Bought for €1, sold for €15: how fashion retail margins work

A clothing manufacturer asks how much margin a store needs in order to stock his products. The answer he gets on an entrepreneurship forum is a crash course in textile economics: from underwear bought for 1 euro and sold for 15, to cars whose spare parts cost five times the factory price. The range is so wide that it demolishes any notion of a "fair price".

What markup fashion stores apply to cost price

The starting point is set by the brand itself. One participant describes the classic system: the brand imposes the retail price and then passes the retailer a confidential rate of around 50% of that price. A Fruit of the Loom hoodie that cost 4 euros sold for 8 in store. That was the scheme in 2007. By 2009, the same product was offered online for 6 euros without printing, cutting the margin to 2 euros. Today, according to this account, the garment can be found for 4.5 or 5 euros online and margins are "barely cents".

The pressure of online competition has strangled small retailers' margins. But not all categories behave the same way. In lingerie, a Portuguese manufacturer sold underwear to stores for 1 euro excluding VAT, and they retailed it for 12 or 15 euros. That is an increase of over 1,000%. The same source notes that the label read "Made in Spain" even though production was Portuguese.

Why a 50% discount during the sales doesn't ruin the store

The key lies in the gross margin on sales. One retailer explains that to apply a 60% discount during the sales and still make money, a product bought for 5 euros must be priced at 22.73 euros. The formula: divide the cost by 0.55 and then by 0.4. Below that commercial margin, the business runs into trouble. Pareto's law, he adds, is usually stubborn: 80% of revenue comes from 20% of the product lines.

This calculation demolishes the intuition that a 50% discount means selling at cost. If the initial markup is 150% on cost, cutting the price tag in half still leaves a 25% profit. The question is whether the volume makes up for it.

How much a clothing store needs to sell per day to be viable

One concrete analysis puts the threshold at 300 euros per day, 24 days a month, with a minimum gross margin of 50% on revenue. That gives 3,600 euros gross per month before deducting staff, rent and running costs. The conclusion of the same analysis is that "it is very hard for a store to survive if its minimum revenue is that high".

The big chains play by different rules. Inditex makes a net profit of around 15% of revenue, which requires selling at 150-200% of product cost. The gross margins of the textile giants are between 200% and 300%, according to another estimate. An employee at one of those chains gets a 60% discount as a staff benefit, which gives an idea of the cushion available.

What a store expects from its supplier when negotiating prices

The manufacturer who started the discussion wants to sell to small fashion stores, not chains. The advice he receives is clear: the more margin the customer has, the more likely they are to buy. But there is also a greater risk that some will adjust prices and create differences between points of sale, generating conflicts over "prostituting" the product. There is no magic formula.

The most common calculation mistake, one participant warns, is confusing markup on cost with margin on sales. Adding 150% on top of cost means multiplying by 2.5, not by 1.5. A 100-euro product sells for 250. If it sells for 150, the markup on cost is 50%, but the margin on sales is 33%. The confusion is so common that another participant confesses having had to explain to sales reps how to strip out VAT.

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The range runs from 1,000% in lingerie to 20% on a hardware store shopping basket. Is there a "normal" margin in fashion? The answer depends on whether you sell online, in a physical store or during the sales. And on whether the supplier is a manufacturer or a distributor. Nobody in the conversation dares to give a single figure.