The Agenda

Speaking of Virtual Goods

Christina Binkley has a report on designer denim in the new Wall Street Journal.

 

As with all fashion, a big part of the price of luxury denim is in the multiple profit margins taken at each level of production. Most any piece of clothing contains parts and services from potentially dozens of providers: from fabric and button makers, to designers and seamstresses, and wholesalers and sales agents. After all this, designers and retailers say the typical retail markup on all fashion items, including jeans, ranges from 2.2 to 2.6 times cost.

 

In the luxury business, those mark-ups cover huge marketing budgets (someone has to pay for giant billboards and ads in fashion magazines) as well as the costs of running stores, headquarters, shipping, and other overhead.

The profit margins on premium jeans can be substantial. Mr. Geliebter says his gross profit margin for private-label jeans, which he makes for Wal-Mart Stores Inc., Sears Holdings Corp. and other retailers, are less than 20%, whereas the margins for his own premium lines are 40%-to-50%.

And of course spending on this virtual good translates into wages for a relatively large number of employees, a small number of whom — the owners of the intellectual property, presumably — capture a large share of the profits. The fact that prices are rising is also further evidence for the bifurcation of the economy. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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