# The acronym decoder: speaking fashion fluently
A buyer sits across from a supplier and says: "The MOQ is too high, the FOB kills our GMROI, and last season our full-price sell-through was only 55%. I need better OTB flexibility." Nine acronyms in one breath. If you cannot decode that sentence, you cannot operate in this industry. By the end of this lesson, you will.
Fashion runs on abbreviations because the supply chain is long and the margins are thin. Every acronym is really a lever: a cost, a risk, or a profit signal. Learn what each one *tells you about the business* and you stop memorizing definitions and start reading a company.
First, the scale of the field you are speaking about.
Treat all of these as order-of-magnitude figures, not precise readings. Definitions (apparel only vs. apparel plus footwear plus accessories) vary widely between sources.
For a free, credible annual snapshot of the sector's direction, see the McKinsey State of Fashion report.
A SKU is one uniquely identifiable variant of a product. A single T-shirt style in 4 colors and 5 sizes is 20 SKUs, not one product.
Why it matters: SKU count is a proxy for complexity. More SKUs means more inventory risk, more warehouse cost, and harder forecasting. When an executive says "we are rationalizing the assortment," they mean cutting SKUs. Zara famously carries fewer SKUs per style but refreshes them constantly; a department store carries enormous SKU counts and eats the markdown risk.
The smallest quantity a factory will produce per style or per color. A factory might quote an MOQ of 500 units per colorway.
Why it matters: MOQ dictates who can play. A small brand wanting 50 units of a jacket cannot use a factory with an MOQ of 1,000. High MOQs force over-ordering, which becomes unsold inventory. MOQ is the number that quietly decides whether a young brand survives its first season.
These three describe *the same garment at different points in its journey* and different price levels.
The price of the goods loaded onto the ship at the country of origin. The buyer takes on shipping, insurance, and duties from that point.
Example: a dress with an FOB of 12 USD in Vietnam.
The all-in cost once the goods arrive in your country with freight, insurance, and import duties included. LDP is what the product *actually* costs you.
Example: that 12 USD FOB dress, after freight and a hypothetical duty, might carry an LDP of 16 USD. That 4 USD gap is pure erosion of your margin if you did not plan for it. Tariff changes (a live issue for US importers in the 2020s) move directly through this number.
Also called MSRP in the US. The price the brand suggests the product sells for. Example: the dress carries an RRP of 59 USD.
The chain in one line: FOB 12 → LDP 16 → RRP 59.
The single most important retail productivity metric. It answers: for every dollar tied up in inventory, how many dollars of gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.Voir la définition complète → did I earn?
Formula:
GMROI = Gross Margin ($) / Average Inventory Cost ($)Worked example:
That means every 1 USD invested in this inventory returned 2 USD of gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.Voir la définition complète →. A GMROI above 1.0 means the category is earning more margin than the cost of the stock it ties up. Many apparel retailers target a GMROI in the 2.0 to 3.0 range, though this varies enormously by segment (fast fashion runs high, luxury handbags very high, deep-discount low). Use it to compare categories inside one business, not as a universal pass/fail line.
The budget a buyer still has available to purchase new stock for a given period, after accounting for what is already committed and expected sales.
Simplified:
OTB = Planned Sales + Planned Markdowns + Planned End Inventory - Current Inventory - On OrderWhy it matters: OTB is the discipline that stops a buyer from over-committing. When someone says they have "no OTB left," they cannot chase a hot reorder even if demand is screaming. Tight OTB management is why disciplined retailers avoid the markdown spiral.
The percentage of received stock sold in a period.
Sell-through % = Units Sold / Units ReceivedExample: you received 1,000 units, sold 700. Sell-through = 70%.
The percentage sold *before any markdown*. This is the number that separates a healthy business from a promotional one.
Example: of those 1,000 units, only 550 sold at full price (the other 150 sold on discount). Full-price sell-through = 55%. That is the number in our opening scene, and it tells you the line was over-bought or mispriced.
Rules of thumb (estimates, vary by segment): a strong full-price sell-through for a fashion season might sit around 60 to 80%; luxury aims higher, off-price and deep-promotion models much lower by design. Always ask *at what price* the sell-through happened. A 90% sell-through achieved through 50% markdowns is a warning, not a win.
🎬 [VIDEO: "Retail Math Basics: Sell-Through, Markup, and Margin" - youtube.com - a short, clear walkthrough of the core retail calculations buyers use daily]
Vérification des acquis
1. A brand carries a single dress style available in 3 colors and 6 sizes. Conceptually, why does this represent 18 SKUs rather than 1 product?
2. An executive announces they are 'rationalizing the assortment' by cutting SKU count. What business problem is this most directly intended to address?
3. The lesson argues that fashion acronyms should be understood as 'levers' rather than memorized as definitions. What is the underlying reasoning?
4. Select ALL correct answers about why the market-size figures in this lesson should be treated as order-of-magnitude estimates.
Sélectionnez toutes les réponses correctes.
5. Select ALL correct answers about what a rising SKU count tends to signal for a business.
Sélectionnez toutes les réponses correctes.
When you evaluate or operate a fashion business, run these practical checks. Each maps to an acronym above.
1. SKU productivity. How many SKUs generate 80% of sales? A long tail of dead SKUs signals assortment bloat and hidden inventory cost.
2. MOQ vs. order reality. Are MOQs forcing over-ordering? Compare units ordered to units actually sold at full price.
3. LDP, not FOB. Never assess margin on FOB. Rebuild it to LDP. In the current tariff environment, ask specifically how duty changes flow through LDP.
4. GMROI by category. Compute it per category, not just company-wide. It exposes which lines fund the business and which quietly destroy value.
5. Full-price sell-through, by season. The headline sell-through hides the markdown story. Demand the full-price figure. Falling full-price sell-through across seasons is a red flag about brand desirability.
6. OTB discipline. Ask how OTB is managed. A business that regularly blows through its buy budget will carry chronic excess stock.
7. Markdown rate and inventory ageing. How much stock is more than one or two seasons old? Aged inventory is trapped cash.
The vocabulary is the same across the industry, but leverage is not. Large groups (Inditex, owner of Zara; H&M; LVMH; Kering; Nike; Fast Retailing, owner of Uniqlo) dictate MOQs and FOBs to suppliers and command shelf and consumer attention. A small independent brand faces high MOQs, weaker FOB pricing, and thinner OTB flexibility. Same acronyms, opposite bargaining position.