PRICING: CREATING VALUE

AMANDA-DU-PLESSIS.jpgThis is a transcript of a talk given by Amanda du Plessis at the 6th Annual DAC fashion seminar hosted by Sanlam SA Fashion Week. In it she explains all the costs that go into the production of a range and how you can determine your selling price.

Amanda du Plessis has been involved with the South African fashion industry in many capacities over the past twenty-one years. She started her career as a buyer developing in-house ladieswear and accessories ranges at Truworths and then joined Stuttafords as a brand manager where she developed three private label ranges – Oaktree, Excursion and Define and managed six local and international brands. She left Stuttafords after thirteen years to head up the retail development process at Polo and to refocus their gross profit structures to obtain maximum results.

She has won two of the three South African design awards for which she has been nominated. Amanda launched, Evolution, her own retail consultancy three years ago to assist leading South African brands to realise their potential in product assortments and transforming original African-inspired designs into respectable sales.

She believes that the South African fashion industry has the talent to develop original products with inspirational style and creative detail to compete with the influx of international brands but that designers too often fail to deliver on the promise of that creativity through lack of basic planning.


When we begin construction of our ranges there are a number of elements we need to take into account before we put pen to paper to design a range.

Some of you may already be aware of the fashion triangle – we have novelty items at the very top, fashion items in the middle and the basics at the bottom form the largest segment.

 


This triangle not only applies to the planning of your range but it also affects your pricing.

The novelty items are your creative pieces, the ones that you put into your store window. These form the smallest segment of the triangle. So if you have a range with say 10 pieces, 1 out of that 10 should be your creative pieces.
The fashion items are the trend based pieces for the season. Here you need to be careful of finding the right balance between high fashion and creativity. To make your ranges more commercially accessible consider which trendy items are essential. Create 3 pieces out of the 10 of on trend yet basic pieces. For example, the harem pants are sure to be huge this summer. They are a trendy yet basic item (basics are items that you can build a look on). The bottom tier is made up of your simple basics – the items that sell year on year that everyone needs to have in their wardrobe. You should be producing around 6 basic items in a 10 item range.

Your pricing for your novelty items will be more expensive. They probably take more time to make, the materials may be more expensive and they are limited in number. The bottom basics are generally more volume driven so they should be the most cost effective items in your range. The fashion items should sit in between these two pricing tiers. 

Even if you are a designer who primarily designs and creates high end creative pieces that fall into the cutting edge segment, in order for you to have a successful business it is recommended that you apply the fashion triangle to your ranges. You need to have items that are more accessible to a greater audience price and style wise. This does not mean that you need to be creating pieces for the mass market. Instead you need to consider a range of pieces and prices within your collections.

Competitors

When you start to conceptualise your range, take some time to look at the price points your competitors use. If you are interested in stocking a store like YDE or The Space go and have a look at their pricing and their product selection. Where in that fashion triangle do they place themselves? Who is buying their product? Who would you like to buy your product?

Customers

You need to have a strong sense of your customer.
Create a profile:

•    Who is my customer?
•    Where does she shop?
•    When does she shop?
•    Who else does she buy from?
•    What prices will she pay?
•    Does she want to pay with cash, credit or on terms?

The last point is an important, yet often overlooked point. When a client pays by credit card, there is a 3-5% charge on the sale by the bank. This charge needs to be included into the sale price or you will lose a percentage of your sale to these charges. Also terms will mean that you get payments over a period of time, which will affect your cash flow.

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Differentiation

How are you planning on differentiating yourself from the hundreds of other fashion labels out there? Differentiation can happen on many levels - branding, aesthetic and pricing. Consider the following: you have created a dress that you have priced at R5000, but another label brings out a similar looking dress for R1500. Now you have a problem. The customer will perceive you as being overpriced. So you need to consider how to differentiate your offering from your competitors in a way that also creates a sense of value for money for your clients.

Planning your assortment

Your budget applies not only to what you plan to sell for the season (your turnover and your profit) but also what you plan to put into your business (what capital you have to spend). These two are closely linked. If you would like to, for example, turnover (total sales before deductions) R10 000 worth of product this month and each of your items costs R500, then you need to sell 20 units.

You should also fine tune your budget into themes and styles. This will help you monitor which kinds of items are more profitable for you and it will also help you plan an assortment of items for a season. A typical collection seen on the South African ramps is usually made up of around 45 components. Those 45 components need to put on sale over a season, so if the season is 6 months long, then you should be introducing 7 - 8 new items a month for the duration of that season.

From here you can start planning your assortments, so there is a lot of work that happens before you start drawing that first sketch. Your assortment is the variety of items you have in your range. It is important to have the right ratio of tops to bottoms because the customer likes to buy an outfit. If you have too many tops, they may be inclined to go elsewhere to find the complete look. A general rule of thumb is around 2 -3 tops per bottom. So out of the 7 new items you will be producing in a month you should, for example, have a spread of:
3 tops
1 bottom
2 dresses
1 jacket

These new items will need to be manufactured in a number of sizes and possibly colours. Put all of your styles, sizes and colours into a spreadsheet to give yourself a clear idea of what you need to produce to create a balanced assortment for the season.

Costs

There are numerous costs involved in producing one garment – some of them are obvious like fabric and some are hidden like time.

embellish.jpgYour materials: How much fabric, fusing, lining, elastic, binding, lace and brown paper do you need? How many buttons, zips, hooks & eyes, shoulder pads and rolls of thread?

You need to create a cost sheet for each item you plan on making. A cost sheet is a document that includes all the material, style and cost information.
Here are some examples of cost sheets:
one
two
three

Your employees: how many do you have? What do you pay them? What is their hourly rate (the cost to you per hour)?

Your studio: what is your rental? Are you still paying the machines off? What are your electricity costs?

The construction: how long will it take to make one garment from cutting to packaging? How much was the dyeing? How much was the pleating, the embroidery, the beading? What did your samples cost to make?

The patterns: how long did it take to make and finalise the patterns?

The fittings:
how long did you spend fitting the client? Did you have to drive there?

Distribution: what are your labelling and packaging costs? How much are your swing tickets (the tags with the prices)? How much are the hangers? Do you have a driver who delivers your stock? What does your delivery cost?

Many young designers do not put a value on the time they spend creating a garment and omit in their costings. You need to figure out how much your time is worth per hour. If you are spending 8 hours making one t-shirt and you plan on selling it for R50 you will quickly find out that you will be unable to grow your business without working yourself to death first.

Be smart about the use of your time. If you plan your production carefully you will know what you need to buy which will save you from running around and burning petrol, which is an additional expense (and should be added to your costs). If you make a pattern for a garment, try to use that pattern again with slight changes in style/details. These patterns will form the basis of your library of patterns that you can draw on from season to season. Also be sure to rate your patterns correctly to reduce the amount of fabric that you waste. Use as much as you can, where you can. Try to keep the number of fabrics you use down to a few and rather add value through dyeing, printing and embellishing. When you are starting out look for fabrics that are wider and give you more value for your money.

Pay attention to potential cash flow problems. It may take 1 – 3 months for you to be paid for your sold garments. In the meantime you have spent money on the garment production and may also have salaries/rent to pay monthly. You need to be sure that you have enough capital to pay your debts/expenses while you wait for income.

Other factors influencing costs include:

•    Theft of stock from stores
•    Returned/unsold/rejected goods

swingtags.jpgSelling prices

Generally speaking the boutiques and retailers work their selling prices out on a minimum 2.4 factor: you give them the garment at R100 and they sell it at R240. Some of the retailers and high end designers work on factors up to 3 times the initial price. These factors are calculated to cover the retailer’s costs and create profit. Store rentals, staff, tax, marketing etc all add up and these costs are passed onto the consumer. Some other stores like The Space will charge you for rail rental and take a percentage of your sales. These factors and costs need to be taken into account when doing your budget. If you know your customer, you should know how much they will be willing to spend on a particular item. If your costs are very high then the retail mark-up might push your garments out of your customer’s affordability range. You should add 30% mark-up onto the cost of your garments before you add in the selling factor. This will help you grow your business. Without it there is no profit for you.

E.g. Your item costs you R50 to make. You add 30% = R15 bringing your total wholesale price to R65. If you now multiply your wholesale price by the retail factor you will get your sale price: R65 x 2.4 = R156

Your costing spreadsheet should now be filled with the season’s garments, their individual costs, the costs of producing the entire range, your overheads (salaries, rental, petrol etc) and your mark-up. From here you should be able to clearly see
•    how much money you will need to produce the range
•    how much you will need to sell to cover your costs
•    how much you will need to sell to make a profit

The planning of your costs will also go along way to helping you determine your lead and turnaround times – how long it will take for you to produce your range. This information is essential to the success of your range. You need to know when your goods can get into the stores and how fast you can replenish/replace them. In some instances retailers will charge you for loss of turnover if you deliver late.

I have travelled and seen the work of young designers like yourselves in other countries and I can tell you that South Africa has a lot of talent. Our work is filled with a soul that seems to be missing from a lot of international work. What is essential for our creatives is for them to understand how to make money out of their work. The basics of business are not difficult to understand and careful planning will go along way to ensuring that you can turn your passion into a sustainable business.

Related article: From design to ramp to store - part 1

Add your comment (2)
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written by palesat, May 08, 2009
Very informative, as a young designer this is the kind of information i was not exposed to until i joined a retail group as a buyer. Great article... smilies/wink.gif
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written by Tatumpaperdoll, May 08, 2009
Stunning!





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