“Manufacturing of handbags sold at tens of thousands yuan brings little profits that can only used to buy two bottles of mineral water, profit margin is as thin as a piece of paper!” Chief of Administration of a handbag factory Zhang Jie said. The factory was located in Dongguan City, South China’s Guangdong Province. It is almost a common voice of many luxury handbags OEM factories.
This enterprise in an OEM mode produced COACH, Prada, ARMANI, Burberry and other several brands with an annual output of 1.6 million -1.7 million luxury brand handbags. Its OEM production of the Coach brand was among the top ten in the brand’s global production.
Zhang Jie said, the gross profit of the luxury goods OEM will not be over 10 percentage compared to the costs, the foundry enterprises in order to maintain the business must rely on the the mass production. For example, a 3,000 yuan (US$ 480) COACH handbag, the factory sold to the trading company in Hong Kong at only 120 yuan (US$ 19.2), the cost of production was 100 yuan (45 yuan for the cost of materials, 20 yuan for labor costs, 35 yuan hydropower rent and other costs), thus only 20 yuan will be the profit. In case of bad cost control, production of a luxury bag usually brings only 5 yuan (US$ 0.8) profit which can only be used to buy two bottles of mineral water.
Game of place of origin: to meet the consumer psychological needs
According to insiders, consumers chasing luxury handbags are usually caring about the place of origin which is also known as effect of place of origin and it is a major selling point of the luxury goods.
In garment factory in Zhongshan City, Guangdong Province which had been an OEM factory for a number of luxury brands, general manager of the plant WANG Wen-liang told the “Economic Information Daily” reporter, that the factory had once manufactured clothing for a British brand, most of the processing steps were completed in the factory in China, only the nail buttons and zippers were not installed and then shipped back to Britain as semi-finished product. After buttons and zippers had been installed, the finished products will be legitimately labeled as ‘Made in British’ and then be exported to other countries. The game of place of origin is compliance with the law, but also meeting the consumer psychology needs, it has become a commonly used “hidden rules” in the OEM business.
Source: Xinhua Net