Hi, everyone. It's Justine. When making just a simple T-shirt, many different people are
involved. When you pay 29 Euros for that T-shirt, they all get a share of the money, right? The
person sewing, the factory, the transporter, the brand, the retailer, everyone. But so when you
pay 5 Euros for that T-shirt, who gets paid? How much? In other words, how can brands like Shein or
Temu afford to sell that cheap? Great question. Let's break it down. Here comes the normal cost
structure. When the T-shirt costs 29 Euros in the store, it probably costs around 5 Euros to
make. Here I'm using statistics from the NGO Fashion Revolution. You'll find references
in further readings in the video description. Within these five Euros, you have labor. The
person who's actually making the garment, they get 18 cents. This is very cheap. It's only possible
if the T-shirt is made in a very cheap labor country, somewhere in Asia, in a country where
the minimum legal wage is probably under the minimum that you actually need to live. Then,
manufacturing costs, $3.40. This is cheap, okay? You can't get super high quality materials
or fabrics for that price. It's already very cheap. Overhead, 27 cents. For instance, the
cost of running the factory, and then the factory margin, because there must be a profit somewhere.
Otherwise, it's not worth it to produce clothes. 1.15 Euro. This sums up to five Euros. This is
the price that the brands pay to the factory. Notice that these elements are calculated very
cheap already. We are already assuming that the materials are low price, probably low quality,
and that the garment workers are being vastly underpaid. Then, the brand needs to bring the
T-shirt from Asia all the way to Europe. Why it's going to be sold, because yes,
in the business model, the clothes are rarely being produced in the regions that are the actual
market. Transport 2.19 Euros. Crazy, right? When you think about it, it's better to pay a garment
worker in Asia 18 cents, and then pay 2.19 Euros to transport it. Then, agent fee, 1.20. In many
case, it's this way. The brand does not have the connections, customs knowledge, capacity,
and bandwidth to coordinate the supply chain, customs, etc, so they'll pay someone to do that.
That's what we call an agent. The rest of this bucket is the brand's margin. 3.61 Euros. Watch
out. From that money, the brand must still pay its employees, offices, taxes, etc. Then,
what's left within this is the actual brand's profit. This brings us to 12 Euros. That's the
price at which the brand sells the T-shirt to a retailer, so it's also called the wholesale
price for the retailer. For instance, Patagonia, it's a brand. They produce a T-shirt, so they have
it made. They manage the whole process, and then, with a little profit, they resell it to Nordstrom,
who is a retailer. Nordstrom doesn't create anything. They buy T-shirts and resell them.
So for them, 12 Euros is the wholesale price. Now, you might ask, where are 12 Euros? Who
gets all the money from 12 to 29 Euros? That's the retailer. They have a margin of 17
Euros. From this money though, the retailer must pay its own employees, offices, marketing costs
rent for the stores, and that's a high one, taxes, and then within this, the rest is the retailers
profit. Okay, so now we know who gets paid what, when the T-shirt costs 29 Euros, but fast fashion
brands sell T-shirts for 5 Euros, so how do they do it? This brings us to the fast fashion cost
structure, so I recalculated everything, but with a target of 5 Euros now. Play with me. Imagine
you're a fast fashion company. Labor, 18 cents. Maybe a few cents more, but not much. It stayed
the same, mostly because paying the garment worker less than this would be nothing. Manufacturing
costs, we cut them in half. We assume 1.70 Euro. Without budget, you can get the lowest quality
polyester, acrylic, nylon, polyurethane. You won't get silk, you won't get wool,
you won't get organic cotton, none of that, but it's doable. Overhead, we cut them in half,
assuming 13 cents. You make people work more hours. You don't change the sewing machines,
all the needles, even when you should. You turn off the lights in the sewing rooms. You forbid
breaks for the workers. They can't even go to the bathroom. All that fun stuff. Factory margin,
50 cents. Instead of working with legal factories that have some laws they have to abide by,
security checks, and whatnot, you outsource to non-registered third-party sweatshops, and you
do not look at the working conditions, so you get the overhead down compared to legal factories.
Transports, 1.10 Euro. I'm guessing you could cut the cost in half, because you're shipping so many
more T-shirts from Asia to Europe than a regular fashion brand. You can indeed probably manage to
lower the transport costs per T-shirt. Agents fee, let's guess 50 cents, so we cut them in
half as well. Again, I'm assuming that you're doing super high volumes so you can decrease
the cost per product also for the agent. So far we're at 4.11 Euros to get to 5 Euros, so
the remaining brand margin is 0.89. From that, you need to pay your employees, offices, taxes,
etc. The rest is your now tiny profits. Now, we're at 5 Euros instead of 12 previously. Here's
the thing. Traditional fast fashion brands. Traditional. Let's not make this a tradition.
Brands like Zara or H&m have their own stores. So they can keep the brand's margin and also the
retailer margin. There is no additional retailer in that equation anymore. If they decide to cut
down their retailer margin, let's say by half, so just 8.50, they can already afford to sell
the T-shirt for 20.50 instead of 29 Euros. This is how fast fashion started to compete on price
against traditional fashion brands. Then, came Shein and friends, ultra-fast fashion brands.
They beat Zara and H&M at their own gains. They have no stores. They're erasing the
step of the retailer completely, so yes, they're losing out on some additional potential profit,
but they're also avoiding the costs attached to selling products in a store. That's how 5 Euros is
the wholesale price, but now also the final price tag of an ultra-fast fashion T-shirt.
It's worth it financially if you sell millions of these T-shirts. What does this business
model now mean for fast fashion and ultra-fast fashion brands? Well, the tiny margin would be
completely annihilated if anything in the cost structure changed, like let's say inflation. Oh,
wait. We had inflation in the past two years. Electricity costs more. Shipping containers
cost more. Raw materials cost more. Labor is also increasing a little bit, even in countries that
don't have proper laws to support their workers. So the consequence is fast fashion brands need,
desperately need, to keep all their costs down as much as possible in order to just
remain profitable. They don't want the garment workers to earn more. They don't
want the factories to invest to into making the working conditions safer. They don't want to use
better or more sustainable materials because that goes against not tiny profit that they have left.
They also need to sell more and more and more every month and every year. They need you,
the consumer, to shop more and more and more. So if the clothes are disposable and come undone when
you wash them, that helps. You'll come again for more sooner. If trends on TikTok go out
of trend faster, that helps as well. Anything helps, really. So it's a vicious circle into
which they're trying to pull you, because they can only thrive or be profitable at all if their sales
volumes keep increasing forever, basically. If you learned something new in this video, subscribe to
this channel and thumbs up. Thank you very much. To make you buy into the fast fashion mindset,
that system, all these brands have created myths. Very smart marketing. I've done a whole video on
that topic. It will be linked here for you and down below in the video description. It
already has 340,000 views. I'll see you in the next one. Until then, take care. Bye.