When you’re trying to start a new fashion business, one thing you’re probably wondering is how established fashion brands make money and how much they make. This can be a complicated question to answer. As fashion brands are privately held, they don’t have to tell how much money they make and how they make it because different fashion brands use different business models. Though we can’t get specific dollar figures, we can give you a good general idea of how they make it.
Fashion businesses make money by:
- Saving on Labor Costs
- Designed Obsolescence and Trends
- Keeping Products Accessible
- Being a Brand
Saving on Labor Costs
One of the most expensive costs for any business is labor. Not just in terms of paying workers but in terms of regulations. In the U.S. and Europe, there are a lot of different regulations governing the treatment of workers such as insurance laws, safety regulations, and so on. Thanks to our globalized world and various international trade agreements, fashion companies can source their labor and materials from countries with less stringent regulations. Many companies have built clothing factories in Third World countries that allow practices that wouldn’t be allowed here,
This has led to decades of debate. On one hand, these practices are exploitative by First World standards and the loss of these jobs has done considerable damage to many communities that were primarily reliant on textile jobs as their economic engine. Many of the textile workers didn’t have the technical skills to take the jobs that replaced them.
On the other hand, many of these factories have had benefits for the places they’ve relocated to. While conditions aren’t always ideal, they’re a major step up from what was there before. Before these factories were built, the best many of the locals could hope for was subsistence farming. When the factories moved in, living standards improved. Defenders also point out that when the West was industrializing, conditions in clothing factories were similar if not worse.
This debate will likely go on forever and these are the broad strokes. Though the use of cheap labor has brought big businesses bad publicity and lots of Congressional hearings, consumers have more or less moved passed the bad publicity. However, if you’re planning on starting a fashion business yourself, you should do your best to make sure your chosen factory matches the image you’re trying to present.
If you’re trying to represent your brand as proudly made in the USA or something similar, you need to make sure your products are made in the USA. If you’re marketing your brand as one that cares about how workers are treated, you have to do your best to make sure that your factory is abiding by those standards. If you’re found not abiding by those standards, it will be a major public relations nightmare for you and unlike big fashion brands, you can’t handle such an incident and come out the other side. So always make sure you’re keeping promises to your customers.
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Designed Obsolescence and Trends
Designed obsolescence, (a strategy of ensuring that the current version of a given product will become out of date or useless within a certain time), is heavily employed by the fashion industry. If you’ve ever lived with someone heavily into fashion, you’ve probably heard terms like “out of style” or “so last season.” You might remember teenage girls at your high school using similar language and buying lots of clothes based on what they saw in magazines even if they didn’t particularly need new clothes.
Who decides what’s “in season” or what these and many other types of fashion jargon mean anyway? The answer is, unsurprisingly, the fashion industry itself. Many fashion journalists who promote new styles often say that styles they previously promoted are no longer good. This often prompts people to buy new clothes even if they don’t need to. Clothes can last longer than other products that rely on planned obsolescence because clothes don’t rely on parts that get discontinued as soon as a new model comes out. For example, cars and laptops frequently have to be replaced because parts aren’t made for them after a new one comes out. Jeans don’t have this limitation so the fashion industry uses the notion that perfectly good clothes are “out of style” and that people are less fashionable for continuing to wear them and not getting the new style as their form of designed obsolescence.
As often as the fashion industry likes to be the trendsetters, they have no problem using existing cultural trends to make money. Take music for example. When emo music was big, a lot of kids were wearing skinny jeans and t-shirts with band names. The fashion industry profits handsomely from these musical trends and move on as quickly as musical trends change (often leaving us with photos that we cringe at when we’re older).
Keeping Products Accessible
When you look at fashion magazines or high-profile events with a lot of famous people, you often see dresses that cost thousands of dollars and handbags that cost the same. Yet, you’ll rarely see those products on store shelves. Ever wonder why that is?
Outside of the fashion companies that make products specifically for the luxury market, these high-end items are made to show what the brand and designers are capable of doing. The expensive clothes at the fashion shows and galas are advertisements for the brand.
The real money is in the mid-range market. While luxury brands cost a lot of money, they don’t bring in a lot of profits. There aren’t enough high-end consumers to keep a fashion company in business. So, fashion companies rely on the mid-range market. They need to keep their products accessible to the masses. The more people that buy the product, the more money that fashion companies make. Fashion companies will use big fashion shows as billboards to promote their brand. People may not be able to afford the dresses the supermodels wear but they can still feel associated with them by wearing the brand.
Another way that fashion companies make money is by offloading merchandise on cheaper retailers. Mid-range retailers and department stores often require fashion companies to buy back unsold stock. Discount retailers have no requirement. Putting last season’s clothes on the shelves of the discount stores allows the company to recoup some of their money and it keeps the brand fresh in the minds of customers.
As a small fashion business owner, you can do something similar. While you probably won’t be on retail shelves, you can discount unsold stock and get some money from lower-end customers while improving your brand recognition in the marketplace.
Being a Brand
Speaking of brand recognition, many fashion companies make significant amounts of money through branding. They will put their logos on lots of different products. If an item is in your purse, chances are there’s a version of it with a fashion brand’s logo on it. This logo is big business. Putting a logo on any mundane object makes the item more profitable. A tube of lipstick without a fashion company’s logo is cheap. Add the logo and the price of the lipstick goes up. Plus, the fashion company makes a tidy profit out of it. People will buy products that are associated with the brand because they associate it with quality or the lifestyle the brand promotes. This is why you see many different fashion brands putting their logos on multiple different products. A middle-class woman may not be able to afford a $5,000 handbag but she can afford the lipstick. A man might not be able to afford all the high-end camping gear but they can afford a hat with the company’s logo.
This serves another purpose: Diversifying business. It’s never a good thing to put all your eggs in one basket. Sometimes a line of clothes can underperform compared to expectations or something unexpected can happen that makes a company need extra money. Having diverse products is not only good marketing but it also helps fill budget gaps and gives the company extra revenue.
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Related Questions
What are some ways I can promote my brand?
While you may not be able to afford your own fashion show to promote your brand the way a major fashion brand can, the Internet has opened up new opportunities for small fashion businesses. Supermodels may still be out of your reach but you can reach out to Instagram or TikTok influencers. A lot of the fashion influencers are happy to promote a fashion line for some money and free clothes,
What are some other ways fashion companies keep their products accessible to the mass market?
With the demise of malls that used to be the domain of fashion companies, they’ve had to expand to big box stores like Wal-Mart and using online retailers like Amazon. This has allowed them to stay within reach of customers even as the retail landscape has changed.
To learn more about how to start your own fashion clothing line check out my startup documents here
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
Meet Shawn Chun: Entrepreneur and Fashion Business Fan.
I’m a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a designer or boutique owner at a craft fair, farmers market, retail location or anywhere else I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Fashion Business Boss: I want to help fashion business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.