We Answer: Are Online Clothing Businesses Profitable?

Whether you’re just starting out or considering your next steps as a small business owner, it’s important to know the statistics on you clothing business and its possible success. Is a physical store better than an online store, and does one make more profit than the other?

Are online clothing businesses profitable?

Yes, online clothing businesses are profitable. The industry standard for a clothing store markup is about 2.5 times the cost of production and your profit margin is around four to 13 percent. The benefit one gets from an online store is that your profits do not have to go to paying for or upkeeping a physical store, shelving, and staffing needed, which can make them appear more profitable than a physical store. 

Either way, you’re making the same amount of markup for your business. But how does working with an online store affect the way your sales are made? Are they profitable, and just how much profit can you expect? Read on to find out more. 

Are clothing business profitable?

Before you consider whether online clothing businesses are profitable, it’s important to know whether clothing businesses in general are profitable. As mentioned previously, the standard mark up is 2.5 times the cost of production. A designer can create an item for $100, which would be sold to a distributor for $250. That distributor—the person doing the inventory for a shop, specifically—can then mark up the item for $625. 

According to Statista, 263 million Americans are now shopping online consistently. Not sure what to think of that number? That’s around 80 percent of the American population that is shifting their focus online. Millennials are still the most focused on shopping online, which means that by 2024, the industry is expected to make over $154 billion in revenue. 

How does that affect profits, though? By the time you take out all your expenses, you should be making between four and 13 percent profit. That actual number depends on how much product you’re moving, though, which can vary depending on the size of your business. It’s also important to note that that profit percentage, in cases of a business having a physical storefront, can be lower or shift based on maintenance and staffing of that shop. So how does having a shopfront actually affect your business numbers?

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Similarities & Differences Between an Online and Physical Clothing Business

There is a distinct difference between an online clothing business and a physical clothing business, and it comes down to how you sell your clothing. While the main function remains the same, you will have less overhead if you’re selling online. 

So what remains the same? The following are the typical budget line items for any clothing business:

• Your inventory. Depending on what you’re selling, if you want to keep your costs low, this should still be about 40 percent of your budget. Regardless of whether you’re selling online or in a storefront, you need to make sure you have the best product for your business. 
• Insurance and legal permits. Depending on what you decide to do with your business, this could vary, but costs are typically about 15 percent of your budget. 
• Modeling and photography. This section also costs about 15 percent of your budget, but can be reduced by working with those who need more experience in the field. 
• Point-of-sale system. No matter your location, this needs to be state of the art. This could be a cash register, or, if you’re selling online, a subscription to an app that will allow you to take credit card purchases and embed into your website. This usually costs about five percent of your budget. 

But there are differences in your budget between types of business. The following are what you need to consider as you plan for an online or physical shop. 

• A physical storefront. Setting up a store in an actual, physical location can cost upwards of $20,000. If that’s just not in the budget, consider keeping your business online. If you do it out of your home, though, make sure you have enough insurance to cover the business portion of your home. Talk to your lawyer for more information. 
• Advertising. This can vary depending on what kind of business you’re creating. The budget percentage shifts from marketing plan to marketing plan, so know how much you’re willing to put into advertising before you even budget it. Both types of stores need a professionally made website. If you’re creating an online store, it’s imperative that it’s extremely user friendly and you can integrate your point-of-sale system into it. For an online store, your website is your storefront. For a physical store, it’s still important, but you also have that ability to sell in person. Advertising is also much more important to an online retailer, as people can’t just walk into your store to check out the product. Consider advertising on social media to get attention and spend the least amount of money possible. 
• Staffing. If you’re starting an online business, theoretically, you can start with just one employee—you. If you have a physical storefront, you’re going to need enough employees to cover any shift that you set out, and you’ll need people to work behind the scenes. Depending on your budget, you may find that online may be best for you to turn the most profit. 
• Delivery costs. Your online business can reduce physical storefront costs, but you’ll need to send out your customers’ purchases. Depending on your shipping policies, this will cost you both money and time, so factor that into your decision as you look into what kind of clothing business you’d like to create. 

While these differences and similarities only consider the strain on your budget, there are a few more that may affect your sales. For one, a physical store means that customers can simply walk in and browse. Online, you cannot have the same experience. Combat that by making sure you advertise all your items and encourage your customers to browse your products online. Secondly, an online shop means your customers cannot try on your items. Make sure you have a size chart and guide with model photographs that properly show off your clothing on body types of your target demographic. While there are hurdles to either store type, they are easily surmountable with the right type of focus. 

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How to Attract Online Customers

There are a few ways to attract online customers, which can ultimately improve your profit margins. According to GlobalWebIndex, customers are looking for a few things when shopping online, including:

• Free shipping
• Coupons or discounts
• Easy to understand customer reviews
• Easy return processes
• Easy checkout process
• Loyalty or rewards programs
• Social media engagement
• Sustainable and environmentally friendly fashion
• Payment plans that do not incur interest

If you’re looking to attract more customers while also making a profit, finding ways to incorporate these items into your online store will not only make your current customers more comfortable, but help draw in other customers. One of the top ways to do both is working through your social media. It is a great way to create a personal connection with your customers and share your brand story, all while advertising your clothing business. 

An important factor to note is that online shopping continues to grow. While in the past few years, it has boomed, that increase will only continue as more and more shops shift to purely online shopping. Between the convenience and the ability to shop from home and have products show up on their doorstep, you could also be saving money by eliminating the need to have a storefront altogether. While creating an online clothing shop can be comparable in profit, considering the overhead and the cuts you can make to your budget, and all in all, it’s likely you’ll make more profit on your online clothing business. What does it come down to, though? The profit you make is a direct representation of how much capital you put in and how much work you put in. If you’re passionate about your business, you can turn a profit. 

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Frequently Asked Questions

• Do clothing retailers still turn a profit on clothing when it is marked down?

Because of the high markup on clothing—typically about two and half times the cost of production—clothing retailers can make a profit even if they seem to mark down their items for sales. While the profit margin would decrease depending on the amount marked down, most clothing retailers will still turn a profit when they run clearance sales. 

• What are the growing trends in the fashion industry?

The fashion industry has started focusing on the environment, meaning that fast fashion—where trends are quickly created and sold in masse, and when the trend falls out of favor, those clothing items are sold for deep discount or thrown out—is becoming less popular. Fashion houses want to focus more on sustainability and recycling. Another trend growing is more comfortable professional clothing, along with genderless clothing. 

To learn more on how to plan your own online clothing business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.