Profit Margins and Competition in Fashion Industry

Profit Margin Profit: money left after expenses are deducted from sales Profit: money left after expenses are deducted from sales –Sales-Expenses= Profit Gross Margin: profitability after the cost of making or buying the product is subtracted from the sales Gross Margin: profitability after the cost of making or buying the product is subtracted from the sales Profit Margin: ratio of profitability calculated as net income divided by revenues or net profits divided by sales Profit Margin: ratio of profitability calculated as net income divided by revenues or net profits divided by sales

Profit Margin How much a company actually KEEPS in its earnings How much a company actually KEEPS in its earnings Useful to compare companies in similar industries Useful to compare companies in similar industries Shows the health of a company Shows the health of a company Also called Return on Sales Also called Return on Sales Markup vs. Profit Margin Markup vs. Profit Margin –Profit margins and markup calculators Profit margins and markup calculatorsProfit margins and markup calculators

Markup and Profit Margins Same figures, different terms Same figures, different terms Markup: (also Markup on Cost) Markup: (also Markup on Cost) –(Retail price-wholesale price)/wholesale price Profit Margin: (also markup on retail) Profit Margin: (also markup on retail) –(Retail price-wholesale price)/retail price –(Retail sales-cost of goods sold)/retail sales

Profit Margin Gross Profit Margin: Gross Profit Margin: –What remains from sales after a company pays out the cost of goods sold Net Profit Margin: Net Profit Margin: –What remains from sales after paying taxes and cost of goods sold

Calculating Profit Margin Gross Profit Margin Gross Profit Margin –Gross Profit / Total Revenue Net Profit Margin Net Profit Margin –Net income / net revenue

Typical Profit Margins in Retail Higher Volume Stores = Lower Profit Margins Higher Volume Stores = Lower Profit Margins Lower Volume Stores = Higher Profit Margins Lower Volume Stores = Higher Profit Margins Typical Markup: 40% or more in retail Typical Markup: 40% or more in retail Typical Profit Margin: 2% + Typical Profit Margin: 2% + Typical Profit Margin: 2% + Typical Profit Margin: 2% +

Controlling Expenses to Increase Profit Margin Employee productivity Employee productivity Utilities Utilities Loss Prevention Loss Prevention

Typical Profit Margins in Wholesale Vary greatly from business to business Vary greatly from business to business Factors Affecting Profit Margins: Factors Affecting Profit Margins: –Labor –Materials –Overhead –Risk

Overall Tips to Increase Profit Margin Computerized systems to manage inventory Computerized systems to manage inventory Effective positioning Effective positioning Effective pricing strategies Effective pricing strategies Accurate buying decisions Accurate buying decisions Following a budget with a specific open-to- buy Following a budget with a specific open-to- buy Analyze vendor performance Analyze vendor performance Consider adding private label brands Consider adding private label brands Effective visual merchandising Effective visual merchandising

Competition in Fashion Industry Heavy competition to get into the industry Heavy competition to get into the industry Competition in designs Competition in designs Competition in brands and brand awareness Competition in brands and brand awareness Competition in wholesalers Competition in wholesalers Competition in retailers Competition in retailers Competition for market share Competition for market share Competition with internet Competition with internet