June 21, 2024

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Definitions, examples and pricing strategies

Definitions, examples and pricing strategies

Entering the fashion industry and deciding how to distribute your products can be complicated. What is retail and wholesale? Who uses it and why? What are retail and wholesale prices and why do they differ? In this brief feature article, FashionUnited delves into all of the above and much more.

1. Definition of retail and wholesale trade

The difference between retail and wholesale in the fashion industry lies in how products are sold and to whom.

Retail or retail trade It refers to the sale of fashion goods to consumers. This can happen in physical stores, online stores, or a combination of both.

Retailers are companies that sell directly to consumers. They buy fashion goods from wholesalers (often the fashion brands themselves) or directly from the manufacturer and then sell them to consumers. These companies range from independent retailers with one or more fashion stores to well-known major department store chains. Retailers typically stock a wide range of fashion items and focus on providing a high-quality shopping experience and customer service.

Wholesale or wholesale trade Refers to selling products in bulk to a ‘middleman’/other companies. Wholesalers supply fashion items to retailers, such as boutiques, department stores or online stores, which then sell the products to consumers.

2. What are the fashion companies that operate in wholesale and retail trade?

Many big names in the fashion industry operate in wholesale and retail. This means that your brand is sold through multi-brand retailers (independent stores) and also through your own brand or Main stores.

For the fashion industry, opening flagship stores is a relatively new thing that has been adopted by more and more fashion brands since the late 1990s. A good example of this is large clothing brands, such as Nike and Adidas sneakers, for example. Its products are available in department stores, boutiques and sneaker stores (or “brokers”), but also in brand stores, where they are sold directly to consumers.

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Some fashion brands focus more on retail and others focus more on wholesale, but it’s common to see a mix of both. For example, Levi’s, Filippa K, American Vintage, Daily Paper, Fabienne Chapot, G-star, Ganni, Maje, Ugg, Birkenstock, Triumph, Crocs, Xandres, Dstrezzed, Louis Vuitton and Totême are engaged in wholesale and retail trade.

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An image showing retail and wholesale trade. Nike sneakers on a Snipes series rack. DJ Khaleds Büro / Studio im “We The Best x Snipes” – Store credit: Snipes
An image showing retail and wholesale trade. Nike brand store. Credit: Nike Style Store in Seoul. Owned by Nike

3. What is the difference between wholesale price and retail price?

he Wholesale price It is the price a retailer pays to purchase an item of clothing from a wholesaler or manufacturer (usually the clothing brand).

he retail price It is the price a consumer pays when purchasing a product in a store.

How are these prices determined?

The wholesale price includes production costs, but also transportation and/or import costs, as well as the profit margin of the manufacturer/producer or wholesaler. The last is the money the brand earns from selling the clothing to the retailer.

The retail price includes the wholesale price plus the retailer’s operating expenses (such as rent, employee salaries, and marketing expenses) and the retailer’s profit margin. The latter is the amount a retailer earns from selling clothing to a consumer.

Let’s take an example. A jacket from a clothing brand with a wholesale price of 200 euros. Therefore, an independent retailer of the clothing brand pays €200 for this jacket. In the retailer’s fashion store, the jacket sells for €540 (because the margin is usually 2.7 times the wholesale price of €200).

“I think a lot of people don’t know that only a small part of what they pay for a product in a store goes into the retailer’s profits,” says Dutch independent retailer Marion Mulder in an interview with FashionUnited.NL. “It’s not something that’s transparent to the consumer.”

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An image showing a liquidation sale. Credits: Unsplash

Pricing and settlement strategy

If you shop at a brand’s flagship store or online store, you may find greater discounts than buying the same item from an independent retailer. This is because if they sell directly to consumers in their own brand, flagship store or online store, they save average costs and margins for retailers. The brand has more room to offer discounts without sacrificing its profits .

Detailed analysis:
– Purchase price compared to wholesale price: When an independent retailer buys fashion products from a clothing brand, he buys them at the wholesale price. This price already includes an additional cost over the actual production cost of the item. Therefore, the retailer starts with a base price that is higher than the price of the clothing brand itself.
– Profit margin: After purchasing at wholesale price, the retailer must add his own profit margin to cover operating expenses and make a profit. This results in an increase in the selling price for the consumer.
– Fixed expenses: Additionally, both independent retailers and brand stores incur their own operating expenses, such as rent, staff, and marketing. These expenses can vary depending on location, size, and business model, which may also affect the discounts they can offer.

“If I take 30 percent off (the retail price), I’m sacrificing my profits,” Mulder explains.

4. There are also direct-to-consumer brands

As its name suggests, a direct-to-consumer (D2C or DTC) brand sells its products directly to the consumer, without using traditional intermediaries such as retailers or wholesalers. This is mainly done through online platforms, but it can also be done through special stores or pop-up stores. This allows them to establish a direct relationship with their customers and avoid traditional distribution costs.

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Since the beginning of 2010, direct-to-consumer brands have begun to gain popularity, coinciding with the emergence of this trend. Some of the recognized brands in this business model are Dutch eyewear brand Ace&Tate, clothing brand Reformation, and sports shoe brand Allbirds.

Direct-to-consumer brands have more flexibility in their pricing strategy as they can preserve profit margins that might otherwise go to middlemen. As a result, they can earn higher profit margins and/or offer their products at lower prices to consumers. It is also common for some DTC brands to be transparent about their cost structure, which may lead to a perception of “fairer” pricing. For example, Everlane, a clothing brand that offers high-quality basic clothing, clearly communicates to consumers how much each product costs to manufacture.

summary:
  • selling by pieces also selling by pieces: Focuses on the final consumer. Retailers sell products directly to buyers.
  • wholesale also wholesale: Targeted at other businesses, such as retailers or corporate customers. They buy in bulk and sell in larger quantities than retailers.
  • Direct to consumer (D2C): They produce clothing, shoes and/or accessories and sell them directly to consumers.

sources:
– FashionUnited.NL interview with Marion and John Mulder, owners of the fashion store Mulder Mode in Waddinxveen (Netherlands), November 2022.
– Portions of the text in this article were created using an artificial intelligence (AI) tool and then edited.

This article was originally published on FashionUnited.NL and was later translated into Spanish.