Landed Cost

Landed cost is the full cost of a unit delivered to the brand's own warehouse or distribution center: the first cost paid to the factory, plus inbound freight, duty and tariffs, cargo insurance, customs brokerage, and the drayage and handling that get the goods from the port to the receiving dock. It is the cost margin is actually earned against, and the number home and furniture, hard goods and imported apparel programs plan on, because there the gap between factory price and delivered price is large enough to change the buy.

Landed cost, FOB and first cost

Three cost terms get used interchangeably and are not the same. First cost is the factory's price for the goods themselves. FOB — free on board — is a delivery term: the vendor's price includes getting the goods onto the vessel at the port of export, and everything from that point is the buyer's, so an FOB price is a first cost with a defined handover point, not a delivered cost. Landed cost adds everything between the handover and the dock: freight, duty, insurance, brokerage, port fees, drayage and inbound handling. A quote sheet shows FOB; a margin plan needs landed.

Why it drives IMU

Initial markup is retail less cost over retail, and the result depends on which cost is used. Computed on first cost it flatters every imported item by the whole inbound stack, and not uniformly — a bulky, low-value item carries proportionally more freight than a dense, high-value one, so two items with the same FOB and retail can land at very different margins. Pricing off first cost sets the retail before the real margin is known.

The figures below are illustrative, chosen because they divide cleanly; they are not benchmarks and are not drawn from any brand. A dining chair has a first cost of 90 dollars FOB. Ocean freight allocated per unit is 12 dollars; duty at an assumed 10 per cent of the FOB value is 9 dollars; insurance and brokerage are 3 dollars; drayage and inbound handling are 6 dollars. Landed cost is 90 + 12 + 9 + 3 + 6 = 120 dollars. At a retail of 300 dollars, IMU on first cost is (300 − 90) ÷ 300 = 70 per cent; IMU on landed cost is (300 − 120) ÷ 300 = 60 per cent. Ten points of planned margin were never there.

Why it drives WOS

Cover is priced at landed cost, and in long-lead categories cover is large. The weeks of supply a furniture item holds is set by an ocean lead time and a container multiple, and the capital that cover ties up is the landed value of the container, not the FOB value on the purchase order. Continuing the illustrative chair: a container of 120 units is 120 × 90 = 10,800 dollars at first cost and 120 × 120 = 14,400 dollars at landed. The open-to-buy funding that cover is understated by the difference if the plan runs on FOB. The allocation by vertical guide shows the same container as a min/max decision; OTB planning for home goods shows how it reconciles with the receipt plan.

Duty, freight and currency all move between the buy and the landing, so landed cost is an estimate at commitment and a fact at receipt; and freight follows cube or weight rather than unit value, so the uplift is set per item, not as one factor across the line.

RetailNorthstar holds open-to-buy and margin in one data model, so a program planned on landed cost is measured on landed cost. See how RetailNorthstar handles OTB planning →