Tuesday, October 24, 2006

Why I Don't Order Pasta; Why I Don't Pay Full Price

This is the wholesale vs. retail price story that I wrote for the The Budget Fashionista's excellent series called: Being Broke Ain’t Cute. Public thanks to BF for including me in the mix.

Don't Overpay for Luxuries

Eating out is a pleasure and I enjoy being served. But I have trouble ordering
pasta in restaurants.

I don't suffer from wheat allergies and I'm not pasta phobic. I just know
better. You see, as a young professional in New York, I worked in a few
Manhattan restaurants and I know the cost of a pasta dish. Dressed up in
sauce, cheese and Portobello mushrooms, noodle entrees cost less than 50
cents to make, but were sold to diners for $8 to $12 a serving. (My boss
loved to brag about his pasta profits!)

Armed with that knowledge, I am a cautious diner and I eat for value. What's
more, I try to apply that same logic to my clothing budget. If pasta sells
for hundreds and hundreds of percentage points higher than costs, what's the
real deal with clothes?

For answers, I checked into an employee complaint blog of a major discount
retailer. The inside story: Most clothes on a rack are sold at markups of
at least 100 percent over the wholesale price, according to the cyber-chat
of two retail employees. What's more, they estimated that the retail markup
at high-end stores was as much as 500 percent to 1000 percent. Ouch!
Suddenly, I have a new view of end-of-season clearance sales. Bottom line:
Even with sharp discounts (60 percent off), most stores pull in tidy

While window-shopping through wholesale catalogues, I found trendy tops for
$5 and $6.50 each and hot, hot jeans for as low as $10 a pair. Of course,
you have to buy in huge bulks, with credit checks and shipping charges for
wholesale buyers.

And that's on a wholesale level. How much does it actually cost to make
shirts, purses and other body trinkets? Not surprisingly, most of those
items are produced in low-wage labor markets in developing countries,
according to textile industry reports.

Production costs were recently analyzed in an economic study from the
University of Massachusetts-Amherst and University of Cape Town. Those
findings and other industry data were featured in a labor report from the
Workers Right Consortium, a labor group:

Casual Shirt (for men) made in Mexico
Labor costs: 50 cents;
Overall factory costs: $4.45
U.S. retail price: $32

Knit Shirt made in the Philippines
Labor costs: 69 cents,
Overall production costs: $8.00
Wholesale price: $20
Retail price: $44

Embroidered Sweatshirt made in the Dominican Republic
Labor costs: 45 cents,
Overall production costs: $6.34
Wholesale price: $15.78
Retail price: $35

Now consider prices from TheCost of Living Extremely Well Index from Forbes. How much does luxury cost? Here are a few answers:

$190,000 for fur coat: "Natural Russian sable, Maximilian at
$1,875 silk dress from Bill Blass
$410 Gucci loafers

The production costs for many high-end items are often within the same range
as lower-priced goods -albeit with significantly higher marketing and
advertising costs and budgets.

As for my budget, overpaying for luxury is like eating noodles in
restaurants or sipping a steady diet of gourmet coffee. Why spend $4 every
day for a latte that would cost you less than 50 cents to make at home? I
plan to choose my luxuries carefully.

1 comment:

Anonymous said...

I worked as a chef and caterer before and I can tell you that I loved when clients wanted pasta dinners or pasta salads. I could see the money coming in. We pretty much charged the same as we would a steak or seafood plate.