Re: The Price of Cheap Clothes : Wed May 01, 2013 3:31 pm  

Big Graeme wrote:

Can you explain this, I'm a bit baffled how you get from the £1 cost to a net cost.

I'm talking about the fully absorbed cost after factoring in overheads. The cost to the retailer isn't just the price paid for the product, it is the whole chain from manufacture through to shipping, through to having a store to sell it in, to having staff to sell it, to advertising it, to heating and lighting the store etc

The example used was just that, a very simple example, and of course every line will have a different profit margin - some bigger, some smaller - but using an average product at 10% profit margin on full cost then if you're selling something at £15 and it is priced thus to make 10% margin on cost then ipso facto the full cost is £13.64 giving you £1.36 net margin.

The cost of the retailer buying the product and the cost of the retailer selling the product are very different things. People fixate on the original manufacturing cost but that ignores the whole raft of associated costs that occur between point of manufacture and point of sale.

Re: The Price of Cheap Clothes : Wed May 01, 2013 4:44 pm  

Derwent wrote:

- but using an average product at 10% profit margin on full cost then if you're selling something at £15 and it is priced thus to make 10% margin on cost then ipso facto the full cost is £13.64 giving you £1.36 net margin.

.

That can't be right. If you were selling at £15 then you would be making only £12.50 gross as the rest of the sale price (£2.50) would be VAT.

Re: The Price of Cheap Clothes : Wed May 01, 2013 4:50 pm  

Ferocious Aardvark wrote:

That can't be right. If you were selling at £15 then you would be making only £12.50 gross as the rest of the sale price (£2.50) would be VAT.

Small, one unit trader under the VAT threshold?

Re: The Price of Cheap Clothes : Wed May 01, 2013 4:52 pm  

Ferocious Aardvark wrote:

That can't be right. If you were selling at £15 then you would be making only £12.50 gross as the rest of the sale price (£2.50) would be VAT.

You are correct, but I was working on net price not gross so as not to complicate matters. The figures are unimportant as they were merely examples to illustrate the principle, the principle applies whatever figures you wish to use.

Re: The Price of Cheap Clothes : Thu May 02, 2013 8:11 am  

Derwent wrote:

I'm talking about the fully absorbed cost after factoring in overheads. The cost to the retailer isn't just the price paid for the product, it is the whole chain from manufacture through to shipping, through to having a store to sell it in, to having staff to sell it, to advertising it, to heating and lighting the store etc

The example used was just that, a very simple example, and of course every line will have a different profit margin - some bigger, some smaller - but using an average product at 10% profit margin on full cost then if you're selling something at £15 and it is priced thus to make 10% margin on cost then ipso facto the full cost is £13.64 giving you £1.36 net margin.

The cost of the retailer buying the product and the cost of the retailer selling the product are very different things. People fixate on the original manufacturing cost but that ignores the whole raft of associated costs that occur between point of manufacture and point of sale.

So, basically you're saying that, because most of the retail cost is in overheads, you could double the pittance paid to the machinist in Vietnam and/or provide him/her with better working conditions without doubling the retail price at this end..

Re: The Price of Cheap Clothes : Thu May 02, 2013 8:36 am  

Deleted.

Re: The Price of Cheap Clothes : Thu May 02, 2013 8:40 am  

El Barbudo wrote:

So, basically you're saying that, because most of the retail cost is in overheads, you could double the pittance paid to the machinist in Vietnam and/or provide him/her with better working conditions without doubling the retail price at this end..

Yes in certain sectors you could, no doubt about that, in others you couldn't. It wouldn't make much of a difference to higher end retailers who are buying jeans for £3 and selling for £75, but it would make a difference to Primark-type retailes who buy for £1 and sell for £5.

But again the retailer works on a target profit margin so any increase would be passed on to customers which would create the inflation I mentioned some time back. Unless the retailer is prepared to absorb the extra cost (which is unlikely) then somebody else in the chain has to pay it, and that would be the consumer.

Re: The Price of Cheap Clothes : Thu May 02, 2013 8:40 am  

Whilst not specific to Bangladesh, I've just arrived back in Bangkok for the next 6 months and local labour rates plays some part in my day to day role. At the beginning of this year, the Thai national minimum wage increased to 300 THB per day (current r/e approx 41THB = £1.00, meaning minimum pay is approx £7.30 per day). In the North of Thailand, which is mainly agricultural and a producer of rice, sugar cane, and soy, the minimum wage was previously 159 THB / day (£3.88). This rise is an 88% increase in labour cost! As most small businesses are so labour intensive, labour represents a much bigger percentage of the cost of the finished product than in the west, for example. (I was in a produce packhouse here yesterday, and there must have been 300 people doing pretty much the same job that I saw being undertaken by 30 people and some basic mechanisation only 2 weeks ago in Spalding, Lincs). Businesses are therefore losing their competetive edge. The effect on small businesses has been huge, and increased inflation means the individual benefit has not been fully achieved. Interesting article can be found here: http://www.bloomberg.com/news/2013-02-26/thai-bankruptcies-rise-as-minimum-wage-rolls-out-southeast-asia.html A living, minimum wage should be an objective everywhere, but it needs to be managed and implemented in such a way as to reduce any impact - a staged approach may be the best long term solution. Regarding safe conditions, this should be a pre-requisite: if a suppliers' premisies and working conditions are not safe, then any discerning business should not buy from that supplier.

Whilst not specific to Bangladesh, I've just arrived back in Bangkok for the next 6 months and local labour rates plays some part in my day to day role. At the beginning of this year, the Thai national minimum wage increased to 300 THB per day (current r/e approx 41THB = £1.00, meaning minimum pay is approx £7.30 per day). In the North of Thailand, which is mainly agricultural and a producer of rice, sugar cane, and soy, the minimum wage was previously 159 THB / day (£3.88). This rise is an 88% increase in labour cost! As most small businesses are so labour intensive, labour represents a much bigger percentage of the cost of the finished product than in the west, for example. (I was in a produce packhouse here yesterday, and there must have been 300 people doing pretty much the same job that I saw being undertaken by 30 people and some basic mechanisation only 2 weeks ago in Spalding, Lincs). Businesses are therefore losing their competetive edge. The effect on small businesses has been huge, and increased inflation means the individual benefit has not been fully achieved. Interesting article can be found here: http://www.bloomberg.com/news/2013-02-26/thai-bankruptcies-rise-as-minimum-wage-rolls-out-southeast-asia.html A living, minimum wage should be an objective everywhere, but it needs to be managed and implemented in such a way as to reduce any impact - a staged approach may be the best long term solution. Regarding safe conditions, this should be a pre-requisite: if a suppliers' premisies and working conditions are not safe, then any discerning business should not buy from that supplier.

Re: The Price of Cheap Clothes : Thu May 02, 2013 9:00 am  

El Barbudo wrote:

I see you have deleted this post ... well done, as you probably remembered that you post on average 9.46 times a day to my 3.28 times, thereby (in your terms) contributing even less to the world.

Nice.

Re: The Price of Cheap Clothes : Thu May 02, 2013 9:14 am  

How would you define 'pittance', then, Standee?