SKU is a standard-keeping unit that’s associated with the barcode on your product. An SKU differentiates between styles, sizes, colors, and other technical features. It’s usually a number and a letter combination, which translates easily between languages and makes it simple to track without confusing people.

It’s also associated with the barcode you use when telling items in a store or online. It allows you to keep track of which colors, styles, and sizes sell better. You can use this data to determine which types of products you need to make more or less of in the future. Pay attention to the data associated with each SKU so that you can make sound financial decisions.
The challenge with footwear is that there are so many SKUs to create for just one style. Decide whether you want a range from a size 5 to a size 13 or if you want a narrower size selection. It’s better to have a wider range of shoe sizes because shoe sizes vary so much. This means that shoes will always need to have many SKUs. Then you have to consider whether you want to make them wide, narrow, or with half-sizes.
Variety is good for customers because they want an extensive selection. But when there are so many SKUs and you have to create different tech packs for each, it often causes confusion in manufacturing.

Costing your fashion product usually involves a few components. As a merchandiser, you may have 10 styles and want to have a certain markup. If you’re selling within your own stores, you usually want at least a 75 to 85 percent internal markup. If you want to retail a jacket for $695, you need to then back it up and already know that your landed cost needs to be 20 percent of that to get your 80 percent markup.

If the coat designer wants beautiful satin made in Italy, your cost of goods will increase. Generally, when you’re looking at cost of goods and cost on the item, around 70 percent is the raw materials. In your fashion business, you must think about the actual materials – the thread, the trim, the buttons.

If you are going to get your desired 75 or 80 percent margin, this coat is going to be $1,500 versus the $695 you wanted. You’ll then have to go back to the design team since the market and your brand can’t retail this high. The cost value is not there, so you’re going to see where you can cut costs using fashion education and sourcing. Can you counter source a material in another country that looks and feels the same? Can you take a few pockets off to lower the cost?

The second component of costing is having a loss leader. A loss leader is the one item that’s the showstopper, the most fashionable piece. You need this piece to draw interest to the collection, although you’re getting a lower margin, possibly a 40 to 50 percent margin. You’re going to make fewer units, but the other styles have higher margins. Many fashion brands use this blended costing because ultimately it’s the blended total that makes a difference.

Costing a product is a full-time job and usually takes many people. You can look at costing in a couple of different ways. As a merchandiser, let’s say you had 10 styles, and we wanted to have a certain markup. If you’re selling within your own stores, you usually want at least a 75% to 85% internal markup. If you want to retail a jacket for $695, and you already know that your landed cost needs to be 20% of that to get your 80% markup.
A designer wants this beautiful satin made in Italy. When you’re looking at the cost of goods, around 70% is the raw materials, like the thread, the trim, and the zipper or button. A designer goes to Premiere Vision and finds the most beautiful Italian satin they want to use. If you are going to get the 75% or 80% margin you want, the jacket is going to be $1500 compared to the $695 or the $595 you wanted.
You go back to the design team and tell them that if the market can’t retail nor our brand can retail a jacket this high, there’s no the cost value is not there. Start taking things out of it. Can we counter source material in another country that looks and feels the same but not the higher quality? Can we take a few pockets off of it to lower the cost?
Let’s say a loss leader is the one item that is the showstopper—the most fashionable piece. You need it to draw everyone in to look at the collection, but you already know you’re going to get a lower margin on it. It might be 40% or 50%. You’re going to do a few units, but the other nine styles are going to have higher margins. That’s a trick that all fashion brands use. It’s called blended costing. They look at key items, but they also look at it as blended because ultimately, it’s the blended total that really makes a difference.