Crash course on the fashion supply chain
We thought we knew the ins and outs of the fashion supply chain with over a decade of retail experience under our belts. But, when we started on our product development journey, we saw the inefficiencies first-hand and the process just didn’t make sense to us. Here we share some of what we learned in our first year of peeling back the curtain on the fashion supply chain.
Why does it take 12 to 18 months to commercialize a new item?
The fashion cycle consists of three main phases: planning, design, and product development; wholesale sell-in; and production and delivery. The length of each phase can be as short as 3 months or as long as 8 months depending on the company.
The design and product development phase is typically the longest wherein the design and merchandising teams will set the creative direction and style count for the season. From there, the sample development process can take months as samples are developed and sent back and forth between the head office and the (typically overseas) factory before finalizing a pre-production sample. This phase traditionally occurs with no real-time input from the customer. Instead, brands will rely on trend data and past seasons' sales data to help plan for the next season.
Production timing can range from as short as one day up to a month, depending on the size of the production run and how much capacity a factory has to produce that order. Delivery speeds will depend on where and how the produced goods are sent from the factory to the brand's warehouse. For example, slow, cross-border freight shipments from Asia to the US can take over 6 weeks.
Why does [insert brand] sell a t-shirt for $70 that cost less than $10 to produce?
Fashion markups range depending on the brand and the premium that a brand believes a customer will pay for their label. The typical range is between 6-10X what it cost to make the item (this includes the materials and the cost of labor). There are several variables that a brand needs to pay for after getting the product made before it's in a customer's hands, but not 6-10X the original cost of the item. The big ones are shipping, duties (tariffs), warehousing, marketing, and returns. Yes. That's right. Most brands factor in the amount of returns that they expect to get into the retail price of the product. Beyond that, brands do some fancy artwork to determine how much they can reasonably (or unreasonably) expect a customer will pay. Luxury brands often mark up their products by up to 25X in handbags and other fashion categories.
If a t-shirt costs $70 to buy, how are the workers making them typically not earning a living wage?
If a $70 t-shirt cost $10 to make (including materials), the cost of the labor may only be $3-4, depending on the factory and country of origin. This will then get diluted further before it's passed on to the factory workers.
We learned that an average garment worker in Bangladesh who sews shirts for fast fashion brands might make around 33 US cents/hour and struggle to pay bills even with a 60-hour work week. Globally, the majority of garment workers still don’t earn a living wage. Part of this is driven by the aggressive pricing demanded by the fast fashion market (think about how much the labor would be for a $10 t-shirt). Part of this is also driven by the margins that brands are looking for in order to pay for marketing, shipping, duties, and to pocket as profit to make shareholders happy.
Do customers know that up to 40% of the retail price of a product is funding a brand’s marketing and liquidation expenses?
Based on our customer research, the majority do not. Customers understand that brands need to pay for those flashy ad campaigns, TV spots, photo shoots, and influencer partnerships but typically aren't aware how big of a budget this is for many mass and contemporary brands.
Most customers do not know that brands and retailers also build in a budget to cover the cost of discounting and ultimately disposing of inventory that doesn't sell. They call this their liquidation budget and is needed because, in the traditional supply chain, it's almost impossible for a brand to sell exactly the number of units it bought. With such a long development timeline for getting products to market there is a lot of educated guessing that goes into planning how much product to make.
It is very hard to get an accurate read on just how many pieces of unsold clothing are ultimately disposed of because brands don't like to publish this data but some industry estimates show that up to 30% of garments made each year are never sold. That amounts to 45 billion pieces that will likely end up at landfills.
How many customers know why fashion is one of the most polluting industries?Fashion's carbon footprint and negative environmental impact has been getting a lot of press in the last couple of years and for good reason.
- 20% of industrial water pollution comes from textiles treatment and dyeing. Wastewater contains toxic substances such as lead, mercury, and arsenic, among others. These are extremely harmful for the aquatic life and the health of the millions people living by those rivers banks.
- The fashion industry is the third largest user of water globally (after oil and paper), currently using around 79 billion cubic meters of water per year to dye and finish fabric, and to produce cotton. All while 750 million people worldwide live without access to drinking water.
- 190,000 tons of textile microplastics end up in the oceans every year from synthetic microfibers like nylon and polyester. These are ingested by small aquatic organisms that are then eaten by small fish, introducing plastic in our food chain.
- A family in the western world throws away an average of 60 pounds of clothing each year (81 pounds in the US). Only 15% is recycled or donated, and the rest goes directly to the landfill or is incinerated. In a landfill, these materials don’t just go away—nylon takes 30 to 40 years to decompose, while polyester requires more than 200 years.
- The apparel industry accounts for 10% of global carbon emissions.