How the fashion industry makes money

Trying to dress better does not mean choosing exclusively branded clothes and accessories. It means paying more attention to quality fabric, good stitching and well-cut, well-fitting items.

The book “Fashion Babylon” by Imogen-Edwards-Jones and Anonymous is about the world of high-fashion, specifically in London (but includes New York/Milan/Paris anecdotes).

“Anonymous” is the collection of people who work in the fashion industry (models, stylists, seamstresses, fashion influencers, makeup artists, photographers etc), and who spill the beans on how the industry works and how it makes money.

Credit: Amazon

It’s all about mark-ups

The designer might spend $30 to produce one piece of clothing. They’ll sell it via their shop for $100, but once they have a deal with a department store, they in turn will mark it up further. The book said the typical mark-up rate in the UK is 2.9 times (they’ll sell the same clothing for $290) and in the US is 3.1 times (they’ll sell for $310).

Also, a company can sew one last button in their country and claim its “Made in Country X”. Most clothes and fabric come from developing countries due to the cheap manufacturing costs there.

Accessories, perfume and cosmetics are the actual money-makers

Bags, keychains, wallets and eyewear. Perfume. Cosmetics. They are fairly cheap to make, but can fetch high prices due to branding. They tend to be small so stocking isn’t usually an issue.

In one of the examples in the book, the main character planned to sell an accessory bought for just $2 for $25 on wholesale, which would then sell for $75 to the customer.

Some items (notably handbags) are artificially kept in short supply and have “waiting lists” to create and maintain the illusion of exclusivity and scarcity.

So same goes for diamonds. Not technically rare, but just marketed as such.

Perfumes are particularly cheap to make. Apparently they cost less than $1, inclusive of the box. But they sell for absurd prices like $100.

Designers rely a lot on celebrities as fashion influencers

Apparently, designers fight for certain celebrities to wear their stuff to award shows, red carpet events, and other PR opportunities.

Tonnes of free stuff are sent to them in the hopes of getting some of the items photographed by the paparazzi. Some celebs are already known for certain brands, so they only let those designers dress them.

Lesser-known designers get their “lucky breaks” when the celebrities they dress win awards or get a high level of attention in the press. They’ll see their sales increase after those events.

Designers also have to do a lot of damage control when C or D-list celebrities wear their clothes. They don’t like it when their brands are “tainted” by those celebrities – sales go down as the public avoid their brands due to the association. Remember when Abercrombie publicly asked the Jersey Shore cast to stop wearing their stuff haha.

What happens to leftover clothes that don’t sell?

First designers will hold sales. End-of-season sales, flash sales, online sales, whatever.

If that doesn’t work, they’ll sell it to stores like TJ Maxx at cost price (probably Reject Shop/FOS for us?)

If that still doesn’t work, they’ll destroy the clothing. They do this instead of donating just to protect the brand image.

Designers dream of being bought over by bigger brands

Lesser-known designers handle a lot of stuff. Not only do they have to create two full collections a year, they also have to manage production (hire seamstresses, select and buy fabric), organise runway shows and photoshoots (hire producers, models, photographers, makeup artists, hairstylists etc), meet and please buyers (shops that stock their stuff), work with agents (who help them dress celebrities) and more. It’s a very stressful life.

That’s why the designer in the book, whose brand turns $1-2 million in revenue a year, still enjoys only minimal profits.

So they dream of being bought over – that way they will only be in charge of the creative process and let the bigger brands sort that out the “admin stuff” for them.

So here’s one reason to support smaller brands more. The high price is a necessity as it’s not due to greed.

‘Cabbage’ vs fake goods

Cabbage is “the stuff that falls off the back of a lorry… out of factory gates… and ends up in the market stalls next to the cabbage, hence the name”, the author of the book explains.

They are the leftover products (fabric, zippers, etc) that aren’t used in manufacturing the designer’s order. For all intents and purposes, cabbage is the exact same thing as the real branded stuff, except they are way cheaper (if you know where to go) and don’t give you the actual experience of buying from the branded store.

Fake goods, on the other hand, tend to be poorly-stitched imitations of the real thing. Easy to spot.

Keeping up appearances is everything

The designer in the book absolutely got crazy stressed over the pressure of being “fashion-forward”. This can be translated in many ways.

They look at what other designers do, recycle fashion from 20-30 years ago, buy vintage stuff and simply slap their label on them, hire stylists (whose feedback include “I’m feeling it” or “I’m not feeling it”), be different but not TOO different, and generally spend a lot of time partying (aka networking), drinking, smoking and snorting cocaine.

In short, looking like you made it is a necessity to make it in the fashion world.

Keeping up appearances is very, very expensive. Smaller design brands can’t afford it, and thus will never be “high fashion”.

Being put on the ‘waiting list’ can mean ‘the item is not actually available, and will never be’

This is hilarious. In the book, the designer had a lucky break, and everyone wanted to order the same dress a celebrity wore when she won an acting award.

But the dress was custom-made. It was not available in stores, there was just one of it, and the actress was unlikely to return the dress.

Sewing it would take months. It would not be cost-effective, plus by the time the dress hit the stores it would no longer be in demand because fashion is fleeting. So everyone who ordered it got on a permanent “waiting list”.

What do you think about how the fashion industry makes money?

The way the fashion industry makes money is cunningly brilliant. It’s not about practicality (which one may argue is the purpose of clothing in the first place), but about creating demand out of thin air, and subtly and not-so-subtly pressuring people to give in to that demand.

That said, fashion can be art itself. One can’t help but be in awe of those who can feel fabric and imagine 1,001 possibilities.

When it comes to fashion, don’t buy in to marketing and branding gimmicks. Go for quality, but know that quality is not synonymous with how expensive the item is.

This article first appeared in ringgitohringgit.com

Suraya is a corporate writer-for-hire and the blogger behind personal finance website Ringgit Oh Ringgit. She is more of a minimalist, less of a consumerist, a konon DIY enthusiast, a let’s-support-small-businesses-over-big-corporations kinda girl. Prior to her current role, she worked in various capacities within the non-profit industry.