A 2010 filing put direct-sales gross margin more than 20 points above wholesale

A new fashion or beauty brand keeps more of each dollar from a sale on its own website than from the same product sold to a store. Public filings and common pricing rules both show the gap. Direct sales also require different customer acquisition and retention strategies, so the margin is only part of the comparison.

The sections below cover the cost stack, the markups that move a price from cost to shelf, what direct selling adds, and how founders split their channels at launch. The filing figures date from 2010 and 2024, and the founder interviews from April 2021.

The cost stack and the first markup

Every price starts with the cost of making a product and getting it to the brand. This explainer treats that unit cost as one number rather than splitting it into materials, labor and freight.

The most common starting rule is keystone pricing, which sets the selling price at twice unit cost. A 100 percent markup on cost gives a 50 percent gross margin on the price. A $10 product therefore sells for $20 and leaves $10 of margin, according to FemFounded’s pricing reference. Each $20 sale returns $10 before any other costs.

The reference treats keystone as a starting point rather than a fixed rule. Premium and luxury brands can price above it, while high-volume or value products often price below it and make up the difference in quantity.

Keystone also applies when a brand sells to a store. The brand prices its wholesale at about double cost, and the retailer doubles that figure again for the shelf. The same $10 product becomes about $20 at wholesale and $40 at retail.

The reference adds that a brand selling both wholesale and direct should keep its cost of goods near a quarter of the final retail price to make money in each channel. It also says retailers set their own markups based on category, competition and how fast a product sells.

A 2010 margin gap
True Religion Apparel’s 2010 annual report gave a 72.4 percent gross margin for its U.S. Consumer Direct segment and 50.9 percent for U.S. Wholesale.

What wholesale leaves the brand

Public filings show the gap in plain figures. In its 2010 annual report, True Religion Apparel gave a 72.4 percent gross margin for its U.S. Consumer Direct segment and 50.9 percent for U.S. Wholesale. In 2009 the figures were 73.8 percent and 53.5 percent.

Overall gross margin rose from 62.9 percent to 63.2 percent, which the company attributed to a shift in sales mix toward its direct business. By simple subtraction of the reported figures, the gap between the two segments was 21.5 points in 2010 and 20.3 points in 2009.

The same filing shows what pushed each channel’s margin down. The filing ties the direct decline to a larger share of sales from outlet stores, which carry lower margins than full-price stores. Sales of lower-margin sportswear also rose.

Wholesale margin fell because the company offered additional discounts to sell merchandise it already had on hand. The 2010 figures come from one apparel company, so they show how the two channels can diverge rather than a benchmark for today.

A more recent case comes from Digital Brands Group’s 2024 annual report, filed on Form 10-K. The filing says its denim prices generally range from $75 to $95 for its DSTLD brand. It states that similar quality brands, produced at the same factories, wholesale for about $95 to $125 and retail for $185 to $350.

Those wholesale and retail figures describe other brands rather than DSTLD itself, so they are not the company’s own price points. The filing notes that each channel offers different margin structures.

What direct sales add in acquisition and service

Direct sales eliminate the wholesale mark-up, but Digital Brands Group says each channel requires different customer acquisition and retention strategies. The company describes aiming for a tight, disciplined approach to acquiring new customers.

Founders describe the same trade-off in a Beauty Independent feature published April 11, 2021. Melissa Jochim, whose High Beauty sold 11 percent direct, said digital advertising had been an obstacle, and that the brand uses sampling to drive shoppers to its website.

Kevin Sharp, whose Trilipiderm was mostly wholesale, said the pandemic had shown the value of close contact with your own customers, and the brand aims for more than 80 percent direct. He described selling as a relationship business, not one with Amazon. Andrea Lisbona of Touchland said the brand’s direct channels support data-driven growth.

The margin gap in the filings is one input when a founder compares channels, alongside how each channel acquires and keeps customers.

Direct sales eliminate the wholesale mark-up, but each channel requires different customer acquisition and retention strategies.

How founders split channels at launch

The 2021 founder interviews show how varied the starting mix can be. Natasha Jay’s Pump Haircare was 85 percent direct and 15 percent wholesale, with more than 250 salon partners. Jay said those salons had approached the brand unsolicited, and the brand is now investing to expand wholesale at home and abroad.

Face Halo, whose founder is Lizzy Pike, began online-only and was 75 percent wholesale when the feature ran. Touchland was digitally native for six months after launch, then moved into wholesale, and stood at 40 percent direct and 60 percent wholesale.

Reasons varied as well. Michelle Ranavat, whose brand was 60 percent direct, valued retail for driving sales and building brand awareness, and said some retail partnerships grew significantly during the pandemic. Christinah Nicolaisen, whose brand sold almost all direct, said being close to end customers gave fast feedback and speed to market on product development.

Eugene He’s Ceramiracle sold direct only in the U.S., and wholesale made up about 70 percent of the business overall. He said the mix shifts monthly and by season, and that ideally he wants almost a 50/50 mix.

Pricing one product across two channels

Digital Brands Group’s filing lists bundle discounts for its Avo brand. Customers who bundle two units receive a 40 percent discount, and those who bundle three units or more receive 60 percent. In a direct channel, terms like these are set by the brand itself rather than by a retailer’s markup.

The same filing says that when a collection is strong with wholesale buyers, the company usually gets higher quantities, higher margins and lower future markdown guarantees.

True Religion’s 2010 figures show the other side. Wholesale margin fell when extra discounts moved existing stock.

Photo: Syced · CC0 · via Wikimedia Commons