In the late 1990s and early 2000s, fast fashion disrupted the apparel industry as we knew it. People could suddenly buy trendy clothes they saw on the runways of Fashion Week for a fraction of the cost and achieve all the looks en vogue, without the luxury prices.
But over time, many realized these low prices can come at a human and environmental cost. Customers are now demanding transparency in pricing and manufacturing practices, but many brands have some catching up to do.
This month, US representative Alexandria Ocasio-Cortez came under fire on Twitter for selling a $65 sweatshirt emblazoned with the call to "tax the rich." Despite people's political differences, the biggest issue wasn't the message, but the price tag. Comments said the sweatshirt was too expensive for "most average working-class" people and "only the rich" could afford it. The price has since dropped to $58.
Chief analyst at real estate and economics media startup Better Dwelling, Stephen Punwasi, who worked in mass-market apparel for about 10 years for companies like Tevrow + Chase and Bluenotes, argues that the price of each piece of clothing reflects the cost of the materials and labor required to make it.
"Consumers are biased to their experience. When a final price point is your only comparison, products are highly commoditized," he told Business Insider in an email. If brands want customers to buy their products at premium prices, they'll need to explain the reason for the price tag.
Ultimately, it's not the consumer's fault for questioning a price tag, he explained. Rather, clothing brands are responsible for setting low price expectations by driving what they pay for materials and manufacturing lower and lower. Retail is highly competitive and oversaturated. In a world of cost-conscious shoppers, the brand offering the lowest price, wins. "It's fair for a consumer to have some alarm bells go off, and ask if they're being screwed," Punwasi said.
The price of AOC's sweatshirt remains a case study for how businesses can more effectively and transparently communicate pricing to customers off the bat.
Why did people think AOC's sweatshirt was 'so expensive'?
Most apparel brands aim to sell their items for double the cost they pay to the manufacturer, according to Punwasi. If a sweatshirt costs $50 wholesale, the end price for customers would be $100. However, competition for high-volume pieces like T-shirts can slash these prices and command even lower prices.
After marketing, advertising, payroll, rent, and a slew of other expenses, final profits typically end up around three to 20% of the price tag, according to Punwasi, as long as the product is purchased at or around full price. Clearance and deeply discounted apparel doesn't always turn a profit.
The product page details for AOC's hoodie provide key information that warrant its price tag. First, it's made in America, where minimum wages and labor standards are higher than in other countries, plus the factory real estate is undoubtedly more expensive, Punwasi explained. The graphic was also printed by union workers, which means they were paid more than the minimum wage.
"Could it be cheaper? Yes, but one person's spending is another person's income," he said. "Racing to the bottom also means driving consumer wages lower, so balance is important."
Adopt radical transparency in your user experience
Only in the last decade have customers become more informed and concerned about what goes into their purchases. Before 2010, they were relatively in the dark without much information from brands about how their clothing was produced, distributed, and priced.
"It was never communicated to consumers that some things are cheap, because the rest of the price paid is an environmental or human cost," Punwasi said.
Fashion used to be a notoriously secretive industry, he said, until consumers began questioning the ethical cost. That's when brands like Everlane launched to create apparel for a growing customer base that wants to know how their clothing is produced and the reasons for the prices.
Everlane adopted "radical transparency," explaining the real cost of everything they sell, down to the profit margins, labor, materials, and markup. And it's all seamlessly worked into the user's experience on the website. The company even tells customers what factory makes the clothing and who owns it.
Punwasi compared shopping at brands like Everlane to visiting a farmer's market, where people are willing to pay a little more because you see the faces behind the product. "When people have a concrete connection to how something is made, and the true costs involved, it's easier to stomach paying more," he said.
This approach can help drive sales and customer loyalty, Punwasi said, providing a competitive opportunity for more companies to explain why their products cost more compared to other brands. "Consumers feel like they're invested in a cause, rather than just a transaction."
SEE ALSO: Meet the 27 power players working to make fashion more ethical and sustainable
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