Disclaimer: The subject is really very vast (and it fascinates us), so here is the second part of the article ( first part here ). We even explain our own economic model at the end, and we make a little revelation! 😉
In the ready-to-wear sector, low margin does not mean good value for money (and vice versa)
Another parameter that we have not talked about, however, greatly influences the quality/price ratio: it is the quality of sourcing . Sourcing is the action for a brand to find suppliers who meet its specifications.
If it finds the best factories that work cheaply and if it intelligently minimizes its transport costs, then it increases its quality/price ratio. And even more so if it has its own production tool: it will be able to produce for less and then share the savings made between the consumer (by lowering the final price) and itself (by increasing its margin).
So you can find brands that save a lot while still offering beautiful products. Or brands that make little money, without however managing to be competitive (for example if they had an obsession with made in France , without saving volume and without having negotiated well with suppliers , while in the end, they happy to come out with stupid t-shirts with no added value).
The shoemaker Markowski is one of the rare brands to have both its own production tool (workshops in Spain), as well as its own store (in Paris and online). This allows it to generate a significant theoretical margin, which it chooses to redistribute largely to the consumer by offering shoes with an exceptional quality/price ratio.
But why doesn't a brand distribute its clothes itself, without going through distributors?
Quite simply because opening a store is very expensive and it is much simpler to go through distributors! Let's also talk about foreign brands, which often have no knowledge of the target country and for whom distributors are the only option.
Opening a store is a profession in its own right, it requires raising money... a lot of money . This is why distributors are essential in this ecosystem, because they allow a young brand to be sold almost everywhere without opening its own store. It can develop by limiting these costly investments...
And then some distributors have an aura which can be a serious boost for a young brand. For example, being sold at L'Eclaireur is a sign that the brand is doing very interesting creative work. Being sold in department stores is a sign that the brand has achieved a certain notoriety, which can reassure other smaller distributors. Being sold in certain stores can even become a label of quality , as some distributors have an intelligent selection. They have a knack for identifying the best pieces from brands they like, selling them in a beautiful place, and it's normal to remunerate this selection work (also largely underestimated).
Even if a brand is only sold in its own store (and therefore has no distributors), it will still sell its clothes at the same price as if it went through a multi-brand store (because it takes bears the traditional costs of a brand to which are added those of a distributor).
In fact, the margin made on the wholesale price is used to finance the growth of the brand, marketing (when there is any), the creation of new parts, production, and the margin made on the retail price is used to finance distribution : salesperson salaries, social charges, rent, etc.
We may think that selling a shirt for €150 when we bought it for €25 (excluding VAT) at our workshop is an abuse, but here too, it is an error to think like that: it amounts to hiding a huge item. of spending at a brand: its development.
Such a margin makes it possible to finance this development, by hiring staff (stylist, model maker, trainee, salesman, salesperson, etc.), by advancing the production costs of the collection (and believe me, it is very expensive), by paying for prototypes (also very expensive), paying trade shows to find new distributors, etc.
And the creator's salary in all this? Here's the sad truth: most of the time, there isn't one. In the vast majority of cases, a designer earns his living for services for other brands (consulting, styling, etc.) but rarely thanks to his brand, at least in the first years. I know it's counterintuitive, but just because a designer sells shirts for €150 doesn't mean he's making a comfortable living, far from it.
All this would be impossible to pay with a margin of only 2.5, which only serves to pay for operational matters, that is to say what makes the company run on a daily basis (salesperson, rent, invoices, etc. ). There is a real need for additional margin to finance the growth of the brand.
For this kind of brands and stores, it's another world that has nothing to do with our little creator... the figures are from another planet: margin rate, volume, cost price, ease of payment is night and day. Ultimately a product with poor quality/price ratio.
But if the ready-to-wear sector lowered the price of clothes, perhaps more would be sold!?
Well no, unfortunately... Lowering the price means cutting back on quality, and that, for many creators who are starting out, is unacceptable . The excellent quality in relation to the prices of the pieces is one of the rare advantages that a young designer has compared to well-established brands.
He also cannot keep the same quality and still lower the selling price, because the situation would become untenable for him, the banks would no longer follow, and he would be forced to close shop.
Use cotton laces rather than leather laces? Never !
Replace the sewn Margom sole with a simple glued sole? Rather die !
Make concessions on the quality of leather to cut costs? Out of the question !
However, I do not deny that for major luxury brands with huge flagships, the price is determined above all by marketing positioning , and completely disconnected from the intrinsic value of the object. The ready-to-wear sector is a bit like swimming in troubled waters . But these large houses still target a very specific clientele who seek to display their ability to spend a lot of money, more than to satisfy their taste for beautiful products.
What about very established brands?
If we take a brand like Diesel which sells its jeans via a lot of distributors, the final selling price is also determined by this distributor margin of around 2.5 (which, I remind you, can be more or less high). The small regional store that sells its Diesel jeans for around €170 most likely bought them for around €60 excluding VAT. Moreover, it is not uncommon for certain brands to impose the final sale price, in order not to degrade the brand image (this is prohibited by law, but in fact, there are many ways to control the final sale price).
But what about Diesel's margin between the cost price of the jeans and the wholesale price? It's a mystery . These are very difficult figures to obtain and I will not venture to put forward any figures. But it is certain that a pair of jeans sold for €60 in a regional boutique is made for less than €15 because these brands benefit from immense economies of scale. But the precious margin points collected will be used to finance major marketing campaigns, celebrity endorsements, and little by little, the brand becomes an advertising brand...
I'm talking about Diesel, but the same goes for G-Star, Kaporal, Levi's, Nike, Adidas and all these brands that everyone knows.
Diesel has accomplished the feat of setting up two ranges (with different prices), including one which supplies the clearance channels. To give you an idea of prices, it's not difficult to find ads from wholesalers selling Diesel jeans in batches .
If the clearance store buys Diesel jeans at €25 each, we can reasonably assume that they will be sold for €70 to the end customer, whereas their store price was around €150. When I read these figures, a great mystery remains: how much and where was this wholesaler able to buy these jeans?
But aren't there other ways to do it?
Of course yes, and you have known these brands for a long time, sold everywhere in France, but only in their own boutiques : Celio, Zara, Jules, but also H&M, or Devred. You cannot buy these clothes anywhere other than in the dedicated store.
No distributor margin here, they can therefore offer more attractive prices, but must on the other hand finance expensive store locations and major marketing campaigns (remember the big Jules posters "it seems that..." when you were a schoolboy /high school student). Fortunately, they are making up for it in terms of volumes sold, economies of scale and cost price . When Celio sells a shirt for €40, we can safely assume that the cost of said shirt is less than €5... Given that these ready-to-wear brands have no customers distributors, cost prices and other margin rates are very confidential.
As such, Zara stands out for its formidable efficiency with unstoppable logistics which has made it possible to build an empire.
Zara's warehouse churns out thousands of pieces every day...
If we go upmarket, we come across the same model with The Kooples, Sandro, Maje, Zadig & Voltaire, only sold in their own stores. These are the "marketing brands" par excellence, with crazy margins that leave no one fooled (or almost) about the quality of the clothes, which quite annoys some bloggers (read the comments too, very informative).
For example, an M6 team managed to obtain an invoice from an Indian factory for one of these brands, and we discovered with surprise and annoyance that a T-shirt with a Tunisian collar sold for €80 in stores was invoiced. less than €3 per factory in India... i.e. a total margin of 27 (for information, the total margin is between 4 and 5 for a brand like APC, depending on the parts).
But quite honestly, I think that these brands will decline in the long term because at BonneGueule, we are well placed to talk about the resurgence of men for quality clothing 😉 Thanks for the word of mouth by the way!
A few words about the big luxury houses: it happens quite often that the margins soar and that an item purchased for €100 from a workshop is resold for almost €1000. Yes, we approach margins at x 10... Moreover, internally, the margin coefficient is often indicated before and after marketing costs, as it is a department which consumes money and considerably impacts the margin.
Luxury Reboot: But are there still alternative models emerging?
The advent of the Internet, the fashion for crownfunding, and everything else you know, have allowed us to think about new economic models. With a return to our own definition of luxury: a product that lasts and is beautiful . The one that our grandparents called "everyday product", and which constitutes the exception today.
To lower the final sale price, new generation ready-to-wear brands are cutting out as many intermediaries as possible, dealing directly with the factory, and choosing to only be sold on the Internet. This is what Everlane did in the US ( which is openly interested in Made in China ), and Maison Standards in France .
Moda Operandi is an American start-up that allows its users to watch fashion shows and pre-order pieces before they are produced. We thus avoid all the waste of unsold items... while leaving the user the choice to define the trend (= what will ultimately be produced or not). It's a bit of a reinvention of the fashion house: a company that "publishes" designers.
And how could we not end this article by talking about Gustin, a selvedge denim brand with dazzling success on Kickstarter? The launch of production is financed by customers . If a certain amount of money is reached for a given jean style, Gustin produces it. No costly collection costs, the brand bypasses factory production minimums , and the quantity produced matches demand perfectly. If a model does not reach a sufficient number of potential customers, it is not manufactured. It is the market that decides, while preserving the brand from potential failures.
This allows Gustin to limit its costs and cash advances. In exchange, it can offer its customers products at prices closer to wholesale prices. For example, a pair of Gustin jeans costs $99 and would sell for over $200 in the traditional ready-to-wear sector .
For less than $100, I assure you you get what you pay for!
The future of men's fashion
We therefore believe that the future holds treasures to discover (or invent), and that the period we are going through is extremely exciting. It marks the gradual decline of brands that bring nothing to anyone, and the emergence of an entire intelligent, transparent, ethical, collaborative... and extremely scalable ecosystem. The market is really changing: luxury brands which are reinventing themselves and gradually abandoning this arrogant and elitist communication, small creators who focus on quality, or even success stories of brand creations financed by customers! I tell you, we still have beautiful things to see...
Because this fundamental phenomenon, anchored in consumer demand, is completely beyond most major brands. They still have not understood what is threatening them, and they are content to reinvent their communication, refusing to see their underlying problems and what surrounds them (some people who are close to us and who work for these brands even talk about autism: the word is dropped).
It's a bit like the meteorite was approaching in the sky, and the big dinosaurs were just grazing. If they have been there for thousands of years: why would they disappear tomorrow? However, this means having a short memory: less than 10% of the leading companies in the 1960s are still there today: most have gone bankrupt or are struggling with a future in limbo.
The Internet is the 3rd planetary revolution after agriculture and the industrial revolution .
There it is, the meteorite: and the Internet, it’s you, it’s us . While the big ones graze, the small mammals run around, ignored by the big lizards. We all know the end. Continue to talk about the brands, stores and sites you like on the web: the evolution will be even faster. And these next 10 years will be exciting!
The BonneGueule case
We are asked more and more questions about our economic model (which we really appreciate, because understanding economic models is often key to knowing if what we buy is worth it, whether in fashion or in other sectors).
And we have recently been invited alongside major fashion and cosmetics leaders to talk about it. We are always surprised to see that people are interested who would not have looked at our CVs 3 years ago. However, the recipe is simple, and it can be summed up in a few words:
We couldn't have said better than Nicolas Gabard from the Husbands brand.
In reality, it's a little more complicated. BonneGueule has two main sources of income:
- information products : digital books (BonneGueule Guide I and II to come), BonneGueule Program, paper book to be published, which teach people to consume better and take better advantage of the clothes they buy. All while remaining objective (a luxury in our time) because we have no financial ties (advertising, affiliate links, sponsored articles) with anyone.
- clothing collaborations : we select brands for their quality/price ratio, we create a new garment together, and we offer it to you via the newsletter. Being both a distributor and a media outlet allows us to convince brands to sell their products to us even cheaper than to a traditional distributor, because the benefits are double for them.
Note: Yes, I did not mention image coaching. It's no longer something we try to push, because paradoxically the more we do, the less we develop . A makeover: it's two busy days on one person, when we could use this time to write an article that benefits everyone, or advance our other projects.
Today, it's just our research & development of new ideas, it's good to keep one foot in the store, and it should remain a pleasure.
This is basic economic logic, but it can sometimes be a real pain for those who discover it !
The clothing collaboration model is clearly what we want to develop. Because it allows us to offer you products with an even better quality/price ratio (total margin around 4 on average) than those of the brand. Here again, we only choose the products we believe in: for example, last month we declined a proposal from a world leader in men's leather goods, because the style of the products didn't appeal to us. And each time, it is us who go towards the brands, never the other way around.
The real difficulty for us is to anticipate demand . With each collaboration, we find ourselves out of stock before everyone can order. Unfortunately, we are still too small to keep dormant stock, and our structure without investors or a bank does not allow us to take the risk of ordering large quantities (but it is a choice which guarantees our independence).
Collaborative financing (Kickstarter) is not an acceptable solution in our case either: we cannot do every collab on KickStarter, especially since it is more complicated to sell something that we can deliver in a few days than a product where you have to wait 6 months (especially since BonneGueule welcomes many new people in the space of 6 months, nothing is set in stone!).
But... we found the solution . There will always be as many articles (or more!), always the digital books and the Program, and always as many collabs. We're just going to add something that will allow us to meet demand while further improving the quality/price ratio: this is our secret end-of-year project. And we’ve already said too much!
And if you have questions about the economic models that we presented, or suggestions for models that we don't know about, don't hesitate!
