As a buyer and a fashion merchandising graduate, I thought I would share some insight with you. Right now, I’m sure you’re just as tempted as I am with all of these mega sales. You might be wondering how stores can afford to discount so much. Well, I’m here to explain!

Sales floors are the last stop in the retail chain (before customers). The thing to remember is that everyone gets a piece of the pie. I’ve created a super basic chart to explain.

So at this point, you can see that the fabric is sold to a manufacturer. The item is produced and sold to a wholesaler or distributor. From that point, it goes to a retailer and then to you! Obviously this hikes up the price substantially when everyone is trying to get paid. I didn’t even mention the designers , marketing, labor, and transportation at all, which definitely adds up! That’s why some companies go directly to product development (which I’ll discuss next week) to cut out all the middlemen.

So how do the retailers make a profit? Well, the items you buy are generally marked up 50% or more. Specialty stores, like lingerie or gift shops, have a 60% markup. Fashion or trendy stores, like Forever 21, have at least a 70% markup (because you know it’s going to be marked back down at the end of the season).  That means the neon belt that cost you $20 really probably only cost $5 or 6 to produce. This article about jeans pricing  is wonderful in understanding structure (visual below).

Why it may be frustrating to think that the products you love being made for half of what they cost you, that’s the nature of the beast. It’s retail and everyone is just trying to make a profit.

What else are you interested to learn about retail?