By Jane Long on Apr 5th, 2012 | Family, Livin’ the Dream
Have you ever wondered what goes into the cost of a wedding dress? In a video by NPR’s Planet Money out earlier this week, reporter Caitlin Kenney sets out to determine just that.
To investigate, she first takes her dress to the owner of a wholesale fabric company, who estimates that the fabric in her dress likely cost about $500. A professional tailor then examines how the dress was constructed (by machine), and estimates the cost of labor at about $200. That’s about $700 to manufacture the dress. Caitlin paid $2,730. In the video, she laments, “Even when you factor in design, marketing, and overhead, I still paid way more than I should have.”
However, the video didn’t spell out how she came to conclude that she paid way too much for her dress. Sure, $2,730 is a lot of money, but I was left wondering: did she really get ripped off?
Here is a look at some of the factors that go into retail pricing, and my take on Caitlin’s dress cost.
• Perceived value
The cost of an item can send a message about its value. Say you’re used to paying $75 for jeans that you consider to be pretty good quality, and then while out shopping you find a pair of jeans that cost $19.99. This raises red flags: why are the jeans so cheap in the first place? Are they just really crappy quality? (Probably.)
A wedding dress priced at $500 has a different connotation than one priced at $2,000, and the value attached makes all the difference for some consumers. Some people even feel better paying (as odd as it sounds) for an expensive dress because it makes them feel like they’re getting a quality product. In the video, Caitlin mentions that while trying on her wedding dress, she didn’t notice that it was made partially of polyester–she assumed that the dress was made of non-synthetic materials because it was expensive.
Fashion retailers typically use a markup of 50%, called “keystone,” as a general guideline to pricing. Markup allows for overhead costs as well as profit.
The way it’s calculated, a 50% markup actually means doubling the cost of the product, and, according to Matthew Carroll’s explanation in Forbes, this markup happens twice. Here’s how it would break down for Caitlin’s dress, assuming the $700 figure is accurate:
Cost to manufacture the dress (fabric, labor): $700
Wholesale price= $1,400 ($700 x 2)
Retail price= $2,800 (Wholesale price x 2)
The wholesale price is what the brand charges to a retailer (like a bridal boutique) for the dress, and the retail price is the end price to the customer. It might sound like a big jump from wholesale to retail, but Ronald L. Bond, as quoted in Entrepreneur, says, “You absolutely need at least a 50% markup to survive in a small retail shop.”
At $2,730, Caitlin actually paid a little less than the keystone retail markup price:
$2,730 = 48.71% retail price markup
Not only is this less than standard retail markup, it’s far less than the markups common in the wedding industry; according to some industry experts, retailers in the wedding industry routinely mark up wedding gowns 100% from the wholesale price, and in some cases even up to 600% (nuts!).
Remember, again, that the 48.71% markup isn’t all profit to the retailer. As Bond explains:
Net profit = Sales of merchandise – cost of merchandise – overhead expenses
Overhead expenses for the retailer can include rent, insurance, taxes, employee pay, credit and debit card processing fees, and shipping costs. In other words, when you buy a wedding dress, you pay not only for the dress itself, but to try it on in a store with sales associates, a working cash register, selection of inventory, and so on.
• What people will pay
Ultimately, pricing reflects what consumers are willing to pay. If customers won’t pay the keystone markup for an item of clothing, then someone involved will have to find a way to price it lower. This could mean taking a smaller profit margin on the product by selling the item at a lower price (this works better if you’re a massive retailer like Walmart and can sell huge volumes of product at a small profit margin each). Past certain price cuts, it may no longer be profitable to sell the product.
On the other hand, because people are willing to pay more for their weddings, prices may reflect that, too–hence why wedding boutiques can get away with three-digit markups. As consumers, we compare whether something is affordable based on how similar products are priced, and based on our perception of what things should cost.
So, did she get ripped off?
I’m not sure that the keystone pricing model is infallible or always “fair” to consumers, but all things considered, it’s likely Caitlin paid just about standard retail markup for her dress. This doesn’t sound like getting swindled by the wedding industry to me–unless we’re talking about the pressure to throw down nearly $3k on a dress in the first place.
Do you think you paid too much for your wedding dress?
Photo (from my wedding) by RedFish Photography