Should You Spend $25 or $250 on a T-Shirt? Part 1

Let’s start by breaking down the five key cost components of the apparel production process, which are: fabric, trims, manufacturing, duty and transportation, and marketing.

Figuring out exactly how much to budget on fashion can involve weighing so many small decision that it can sometimes feel like opening up a can of worms, even for a basic purchase like a t-shirt.

For most shoppers, a modest budget is a choice made for them by their checking accounts. Others have more disposable income to work with, but are unsure if doling out the big bucks on their threads is worth it. What does “worth it” even mean in this case? Even the most fashion-forward sartorialists sometimes wonder, “Are designer tees just ridiculously marked up, or is there more to it than that?”

So many actors go into determining the retail price of a T-shirt, so The Millennial Economist decided to do the heavy lifting and break it down for you as we explain the economics behind your fashion choices.

Let’s assume that a $25 t-shirt and $250 designer t-shirt are similar in design and fabric. What justifies the drastic difference in cost? Does it really come down to just markup? We spoke with Dawn Collins, a Retail Analyst & Consultant and former Head of Buying at Jack Spade and Director of Global Merchandising at The Gap to help us answer this question.  

Fabric

Fabric is one of the most important and sometimes the most expensive component of a garment. When looking at fabrics for a cotton T-shirt there is a broad price range, which can run as low at $1.00/yard to $10.00/yard or higher. More expensive fabrics, such as Egyptian, Sea-Island and Pima cotton are made of longer and stronger fibers that provide greater comfort, durability and softness.  Other fabrics like Combed, Modal, Organic, Slub and Stretch cottons are popular and can be moderately priced, but are still considered more expensive than basic 100% cotton.

According to Dawn, “When selecting fabrics, many fast fashion brands consider fabrics based on value, while most designer brands usually make selections based on quality. A more expensive fabric wears better and lasts longer after multiple washes. Although the upfront cost is more expensive, in the end the consumer saves because if they properly take care of the garment, it will have greater longevity.”

Another factor to consider is that the fabric production is very global and the material can travel between several points before reaching its final destination. For example, cotton fiber can be shipped from a cotton farm in the U.S. to a mill in Italy, which then gets exported to Vietnam for garment production. All of this affects the final fabric price.

Manufacturing

Labor prices play a big role in manufacturing cost. Wages in India converted into US dollars are about $1.50 per hour, compared to $7.25 minimum wages in the U.S. In order to cut costs, companies have an incentive to move production abroad. Although not every inexpensive t-shirt is made in a country where the minimum wage is significantly lower than the US, it is extremely common. Economies of scale also play a large part in determining the overall costs. If a company produces 10,000 shirts, it would be significantly cheaper than producing only 100, which is a cost advantage for large commercial apparel brands.

Dawn digs deeper on the importance for consumers to understand why apparel production costs are higher in the U.S. versus Asia or South America. “Although the cost of labor is more expensive, you’ll usually find more skilled workers in the U.S., as well as in countries like Italy and Portugal. They may come from a line of craftsmen that has passed down their trade for generations. There’s a certain amount of integrity and tradition embedded into their product, which is valuable within an industry contending with manufacturing in unethical working conditions.”

“When you see a “Made in USA” or “Made in Italy” label, there’s a certain level of trust that your garment is made well, which goes back to value versus quality.”

Dawn Collins, 2020

Trim such as thread, buttons, zippers, and garment wash are other factors that add to the overall manufacturing cost. To keep retail prices low, fast-fashion brands may look to cut cost by selecting threads that are not as durable against tension which may lead to easily ripped seams, or shorter garment washes which reduces the amount of comfort and softness.

Duty and Shipping

Photo by Julius Silver

The duties on clothing are determined by the garment style, fiber content and country of origin (where garment is manufactured). If a t-shirt is made in a country with a free trade agreement with the U.S., the import duty will be zero. However, the same t-shirt manufactured in a non-free trade agreement country, could have an import duty of 20 percent or more.

Shipping costs are also a factor in determining the overall price of a shirt. For example, shipping from China, Vietnam, Thailand, India or Bangladesh to the U.S. will cost more than from Central America, Mexico or Haiti. In addition, whether a garment is shipped via air, sea or land makes a significant difference in cost.

Dawn describes her role as a merchant where she kept a close eye on how fabrics affected the duty rate. She explains how typically there is a higher duty rate on synthetic fibers versus cotton.  She also tried to steer production to factories in locations where she knew the shipping cost was more affordable. “When that was not possible, I tried to ensure that we were able to book shipments by boat instead of plane to keep costs low. This is one of the advantages of garments made in America because you can send shipments by truck which is generally a lower cost.”

Marketing

As Dawn discusses, “labels and packaging are tangible marketing costs that can influence the overall garment price. Although not a direct cost factor, a brand name may perceive the price value of garment. Typically, designer brand names like Louis Vutton, Gucci, Fendi are associated with craftsmanship, heritage and quality.”   

In addition, newer direct-to-consumer brands, such as Everlane, have earned a lot of attention in an industry for shrouding the connection between what it costs and what you’ll pay. These companies are making openness a core tenet of who they are and how they compete by providing the customer with supply chain cost information. The transparent cost breakdown of each item and their markup, along with the quality and confidence that you’re investing in quality pieces that will last, have worked.

Is a higher price tag always worth it?

Dawn doesn’t think there’s a right or wrong answer. “I believe that it depends on what the consumer deems important when making a purchase. Is it value or quality?” She sees an emerging trend of purpose-driven shopping, which is being led by Millennials and Gen-Z shoppers.

“The focus here is on products that are sustainable and environmentally friendly. Consumers are savvier in their purchases and are starting to understand the affects that fast fashion is having on our environment.

“Those that see the importance of quality, and how it relates to conscious spending, but can’t afford to pay premium prices are shopping at secondhand brands like The Real Real, Fashionphile or thredUP. Retailers like Neiman Marcus and Nordstrom have taken notice and are expanding their footprint into the resale market. It will be interesting to see how more brands adapt to this evolving trend as it is relates to their market growth.”

If a company is using eco-friendly and sustainable processes to make t-shirts in the U.S. with a small ecological footprint, these products will cost more but might be more “worth” the cost. You could buy essentially what looks the same shirt for $25 but made in India under unknown labor conditions. Yet, some of us will still need to bring the $25 t-shirt up to the register and revel in our thriftiness. The truly important thing is knowing what you’re paying for, the product’s true costs, and making the best choice for your situation.

References

“Free Trade Agreements | United States Trade Representative”. Ustr.Gov. 2020.

“India’s Organized Manufacturing Sector.” U.S. Bureau Of Labor Statistics. 2020.

O’Toole, Mike. “At Everlane, Transparent Is The New Black”. Forbes. 2016.

“State Minimum Wage Laws.” U.S. Department Of Labor. Dol.gov. 2020.

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