How Will Tariffs Change Clothing Prices?

I’m curious how much clothing is marked up over cost. Does it really have to do with quality, or can a popular or fancy brand mark up more than average? And what does the threat of tariffs mean? — Jane, Boston

Back in 2012, a designer named Bruno Pieters, who had been the main guy at Hugo Boss, had an epiphany: It was time for fashion to try radical transparency. Not in clothing (naked dressing has long been a thing) but in what went into the manufacturing of clothing.

So he started a new line called Honest By, and on its website he included information about where each part of a garment was made, down to the buttons and zippers, as well as the factories that made them — and, even more radically, the cost of the garments. Including the markups between what they cost him to make and the price he sold them for.

I say “radically” because, as Millard Drexler, a founder of Alex Mill and the former chief executive of the Gap and J. Crew, told me, “No one wants to talk about it.”

Indeed, there’s so much obfuscation around price at this point, and some prices are so stratospheric, it is hard not to feel as if you are being duped every time you walk into a store. But it’s also true that the calculus has gotten more complicated over time.

The general rule is as follows: The cost of a garment to the manufacturer or brand includes materials, labor, overhead and shipping of the materials and samples. Sometimes the cost includes the taxes involved with “landing” a garment, or taking it into a foreign country.

That cost is then marked up about 30 percent for wholesale because you have to add in more shipping, profit and brand equity — that is, the reputation and worth of the brand name itself and the way it may hold its value over time.

Next, retailers multiply that number between 2.1 and three times to get the store price, which includes their costs (labor, rent, marketing) as well as (and this is crucial) gamesmanship about discounting. Which is to say, they have to build in a profit margin assuming a certain percentage of garments will go on sale.

Yes, they mark it up in part to mark it down.

This process has been further complicated by globalization, tax differentials and currency fluctuations, since one brand doesn’t want its products priced completely differently in different regions. That happens, but there has been a coordinated effort to normalize prices around the world — which pretty much means at the highest end.

The calculus is slightly different for mass market and fast-fashion brands, where profits are driven by volume rather than margins, but you get the idea.

In any case, this exercise implies that the higher the cost, the better the labor conditions, the more skilled the craftspeople and the higher quality the materials. That is not incorrect. Generally, when a price is so low it is unbelievable, it is: You should assume the bottom of the supply chain is being unfairly squeezed.

At the same time, the escalation in luxury pricing over the last few years has been so extreme that most insiders acknowledge that some of it cannot simply be ascribed to rising costs. Some of it is a because-they-can play on elitism and aspiration that has as much to do with psychology and revenue growth as anything else.

This is also why tariffs have the fashion world so nervous, since they will obviously affect the markup, potentially pricing some goods out of the market and, perhaps,prompting a reconsideration of who, exactly, pays what.

And in case you were wondering about Honest By: It lasted not quite seven years. Apparently there was less demand for radical transparency than we may have assumed.

Your Style Questions, Answered

Every week on Open Thread, Vanessa will answer a reader’s fashion-related question, which you can send to her anytime via email or Twitter. Questions are edited and condensed.