This page is for a buyer, a retail planner, or a merchandiser working on the retail side who needs to explain why a department-store chain's own margin looks nothing like a factory's own margin, on the very same T-shirt. A person moving from a factory role into a retail buying role often carries the factory's idea of margin with them and applies it to the wrong price. This lesson mainly teaches the money flow: it separates the margin a factory earns on its own selling price from the margin a retailer earns on its own, much higher, selling price.
Delta Garments confirms Order A with Northline Apparel at FOB USD 3.20 per piece, planning a factory profit of USD 0.26 per piece. Northline Apparel sells the same T-shirt wholesale to Fairway Stores, a department-store chain, at USD 8.00 per piece. Fairway Stores sells it on at its own shop price of USD 19.90. Three companies, one T-shirt, three selling prices, three margins. Without this skill, a buyer cannot tell whether Fairway Stores' margin on Order A is healthy or thin, because a factory's margin and a retailer's margin are never the same calculation on the same number.
You need: no previous lesson. A basic idea of what a percentage is, and Order A's own fixed FOB price of USD 3.20, are enough to start.
By the end of this lesson you can:
Not covered here: the full difference between markup and margin as separate calculations (lesson T19-C01-L02), planning a retail buying budget before committing to any one style (lesson T19-C01-L03), and the cost of stock that does not sell at full price (lesson T19-C01-L04).
| Term | Meaning |
|---|---|
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB (free on board) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Landed cost | The FOB price plus shipping and duty once goods reach the buyer's own country, USD 3.70 per piece on Order A. |
| Wholesale price | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Shop price | The price the customer pays at the till. Also called the retail price. |
| Retail price ladder | The sequence of separate selling prices a garment passes through, from the factory's FOB price to the shop price the final customer pays. |
Margin is always profit divided by the price the company itself charges for what it sells. A factory's margin is its planned profit divided by its own FOB price. A retailer's margin is its own profit divided by its own shop price. These are two separate calculations on two separate prices, even when both companies are handling the exact same garment. Fairway Stores never earns a margin on Delta Garments' FOB price of USD 3.20, because Fairway Stores never sells at that price; it buys wholesale from Northline Apparel at USD 8.00 and sells at its own shop price of USD 19.90. A buyer who forgets this compares the wrong two numbers and draws the wrong conclusion about who is earning what.
A buyer meets several shapes of this same idea across a normal working year, and learning to read each rung of the price ladder on its own terms prevents one company's margin from being confused with another's.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Export order sold on to a retail buyer | Order A moves from Delta Garments' FOB price of USD 3.20, to Northline Apparel's wholesale price of USD 8.00 to Fairway Stores, to Fairway Stores' own shop price of USD 19.90. | Each company's margin is calculated only against the price it itself charges; none of the three margins can be read off another company's price. |
| A domestic order bought straight from the factory | A local brand such as Cedar & Co. buys directly from Delta Garments on open account and sets its own shop price without a separate wholesale step in between. | Fewer rungs on the price ladder still means each remaining company calculates its own margin against its own selling price only. |
| Landed cost added before a wholesale price is even set | Order A's FOB price of USD 3.20 becomes a landed cost of USD 3.70 once shipping and duty of USD 0.50 are added, before Northline Apparel even sets its own wholesale price. | A retailer's true buying cost, and the margin built on top of it, must start from the landed cost, not the factory's own FOB price. |
| A factory reading a retailer's margin as if it were its own | A merchandiser moving from Delta Garments to a retail buying role reads Fairway Stores' 60% margin and expects it to describe extra profit taken from the factory's own price. | The retailer's margin describes only Fairway Stores' own markup over its own buying cost; it says nothing about how much profit Delta Garments itself earned. |
Delta Garments confirms Order A with Northline Apparel at FOB USD 3.20 per piece, 15,000 pieces, planning a factory profit of USD 0.26 per piece. Northline Apparel adds shipping and duty of USD 0.50 per piece, reaching a landed cost of USD 3.70, then sells the T-shirt wholesale to Fairway Stores, a department-store chain that buys Northline Apparel's products wholesale, at USD 8.00 per piece. Fairway Stores then sets its own shop price at USD 19.90 per piece. Sara, the buyer at Northline Apparel, and her counterpart at Fairway Stores both need to state their own company's own margin on this same T-shirt, and neither number describes the other company's business.
Fairway Stores' own margin of 59.8% looks far larger than Delta Garments' own margin of 8.1%, but the two numbers are not comparable in money terms without knowing the selling price each is measured against. Fairway Stores earns USD 11.90 of profit on a USD 19.90 sale; Delta Garments earns USD 0.26 of profit on a USD 3.20 sale. Each company's margin only ever describes its own business.
The methodA common mistake is assuming that a retailer's high margin percentage means the retailer is taking profit away from the factory's own price. Fairway Stores' 59.8% margin says nothing about Delta Garments' own 8.1% margin; the two are calculated on two entirely separate selling prices, with a landed cost and a wholesale price sitting between them. What this costs a buyer who gets it wrong is real: a merchandiser who reports a retailer's margin as though it were extra money squeezed out of the factory's own confirmed price will mislead a negotiation, because lowering the factory's FOB price by a small amount does almost nothing to a retailer's own margin, which is set against a shop price several times higher up the same ladder. The two numbers must always be kept apart, or every conversation about who earns what turns into confusion between two unrelated calculations.
A factory and a retailer both talk about their own margin, but each one means a different number. A factory's margin is its own profit divided by its own selling price to the buyer. A retailer's margin is its own profit divided by its own shop price to the customer, which sits much higher up the same chain, after landed cost and a wholesale price have already been added. The same T-shirt is priced several times before it reaches the shop, and every company's margin only describes its own price, never any other company's. A high retail margin percentage does not mean the retailer took money away from the factory; it means the retailer's shop price is simply a much bigger number to divide profit by.
Fairway Stores has just hired a merchandiser, Layla, who previously worked at a garment factory. Reviewing Order A, Layla sees that Delta Garments planned a margin of 8.1% and that Fairway Stores' own margin on the same T-shirt is 59.8%. She drafts a note for her manager suggesting that Fairway Stores could ask Northline Apparel to lower its wholesale price, since "the factory is clearly only keeping a small margin while we keep a much larger one."
Here is the note Layla actually wrote:
Is Layla's recommendation correct, and what does the comparison in her own note actually show? Decide before opening the answer.
No, the comparison is not a valid basis for that recommendation. Two facts in Layla's own note decide this.
First, the two margins are calculated on two different selling prices. Delta Garments' 8.1% is profit divided by its own FOB price of USD 3.20. Fairway Stores' 59.8% is profit divided by its own shop price of USD 19.90, a price nearly six times higher. The percentages cannot be compared to conclude who is "keeping more".
Second, Fairway Stores does not buy at Delta Garments' FOB price at all. Fairway Stores buys wholesale from Northline Apparel at USD 8.00, a price that already includes Delta Garments' FOB price, landed cost, and Northline Apparel's own margin. Even if Delta Garments' FOB price were reduced to zero, Fairway Stores' own margin would still be calculated against its own USD 19.90 shop price, and would barely move, because the wholesale price it actually pays is set by Northline Apparel, not by Delta Garments' factory margin.
Layla's note should instead compare Fairway Stores' own wholesale cost of USD 8.00 against its own shop price of USD 19.90, which is the correct pair for judging its own margin.
Using Order A's own fixed figures:
Most of the profit earned across Order A's whole retail price ladder belongs to the retail end of the chain, not because the retailer is unfair to the factory, but because the retailer's own shop price is the largest number on the ladder and its own costs, rent, staff and unsold stock, are paid out of that same margin. A merchandiser who sends a wrong recommendation like Layla's costs the buying team time correcting the record, and risks a negotiation with Northline Apparel opening on a false premise.
Open the course workbook's "Price ladder" sheet. It lists every point on Order A's own price ladder, from Delta Garments' FOB price to Fairway Stores' own shop price, with a column for each company's own selling price, its own cost, and its own margin calculated automatically. Enter a different order's own figures to see how the same four-step method applies to any company's own price.
[Download the Retail profitability worksheet](../../templates/T19-C01-retail-profitability-worksheet.xlsx)
1. Why is Fairway Stores' own margin percentage on Order A so much higher than Delta Garments' own margin percentage?
2. A retailer buys a garment wholesale at USD 10.00 and sells it at its own shop price of USD 25.00. What is the retailer's own margin?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB (free on board) | تسليم على ظهر السفينة في ميناء المصنع | FOB (franco à bord) | FOB (gemide teslim) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Landed cost | التكلفة بعد الوصول | Coût rendu | Teslim maliyeti | The FOB price plus shipping and duty once goods reach the buyer's own country, USD 3.70 per piece on Order A. |
| Wholesale price | سعر الجملة | Prix de gros | Toptan fiyat | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Shop price | سعر المحل | Prix boutique (prix de détail) | Mağaza fiyatı | The price the customer pays at the till. Also called the retail price. |
| Retail price ladder | سلم أسعار التجزئة | Échelle des prix de détail | Perakende fiyat merdiveni | The sequence of separate selling prices a garment passes through, from the factory's FOB price to the shop price the final customer pays. |
You now know that a retailer's margin and a factory's margin are two separate numbers, taken at two separate points on the same chain. The next lesson names every point on that chain and shows how markup and margin, calculated at each one, are related but never equal. Back to the course map