Manufacturing cost: 8%; Retail markup: 92%

Roger Cohen writes about Chinese factory owner Eddie Leung, whose company manufactures watches for many famous brands:

Leung was wearing a great hulk of a watch called a Bonja. It’s big in Gulf states, where it retails for about $4,000. Leung told me he’s paid $200 for this model and that leaves him a comfortable margin. For Juicy Couture watches that retail in New York for $95, he gets eight dollars. He’s still making money on that. In general he receives about 8 percent of the retail price, or about 40 bucks for a $495 Lacoste watch…

Develop a cool brand and you can charge a crazy mark-up. Even for a product like a watch that nobody needs any more…

The average worker at [the watch factory] earns about $150 to $200 a month, before overtime, ranging higher for supervisors. About 70 percent of the more than 400 workers are women, many from inland provinces, living six to a room in on-premise dormitories and sending their earnings home.

No wonder there are so many cheap, high-quality knock-offs of famous Western luxury goods. Since manufacturers receive just 5% to 10% of the retail price, manufacturers still increase profit selling identical products on the black market at 90% to 95% discounts.

Posted by James on Tuesday, February 09, 2010