Profit Margins and Competition in Fashion Industry Profit

Profit Margins and Competition in Fashion Industry

Profit Margin n Profit: money left after expenses are deducted from sales – Sales-Expenses= Profit n n 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 How much a company actually KEEPS in its earnings n Useful to compare companies in similar industries n Shows the health of a company n Also called Return on Sales n Markup vs. Profit Margin n – Profit margins and markup calculators

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

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

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

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

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

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

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

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