Optimizing Cost of Goods Sold (COGS) for Modern Retail Brands

Before you can optimize something, you need to understand what you’re actually optimizing. 

Cost of goods sold (COGS) represents every direct cost associated with producing the products you sell. Sounds simple enough, but the devil lives in the details and those details vary dramatically depending on your business model, product category and sourcing strategy.

For most retailers, COGS includes raw materials like fabrics, components or ingredients required for manufacturing. It covers direct labor costs, whether that’s wages paid to factory workers or fees paid to contract manufacturers. 

Manufacturing expenses like cutting, sewing, assembly or processing all count. So does packaging, from labels and boxes to protective materials that get your products retail-ready. Don’t forget freight-in costs and duties, all those transportation and import expenses that hit before inventory reaches your warehouse.

If you outsource manufacturing (and most retailers do), these costs usually show up bundled in vendor invoices, often without the transparency you need to make smart decisions. Vertically integrated brands get more control over their internal costing models, but that comes with the responsibility of more accurate forecasting and ongoing monitoring.

What is not Included in COGS?

Here’s what doesn’t count: indirect costs like marketing, warehousing, overhead or sales salaries. 

Those absolutely matter for overall profitability, but they sit outside COGS and need separate management strategies, but that can most definitely be affected by your approach to optimizing COGS. 

Each component within your COGS structure holds opportunities for efficiency gains, but also carries risk. Without clear visibility into cost makeup, teams end up focusing on surface-level savings while missing the structural inefficiencies that could have far greater impact on their bottom line.

In many retail organizations, COGS are treated as a line item on financial reports rather than a lever for real strategy. And this is where modern retailers can take advantage of the competition. 

When teams fail to engage with COGS early and consistently, the consequences ripple across the entire business. This can look like eroded margins, inventory imbalances, delayed product launches and missed market opportunities.

One of the biggest mistakes retailers make is treating COGS as a set-it-and-forget-it number. Teams enter cost estimates during product development and never revisit them. 

Without mechanisms to monitor changes in material costs, freight rates or supplier fees, retailers end up making critical decisions based on outdated or completely inaccurate assumptions.

Fragmented ownership creates another layer of problems. 

Finance owns the budget, sourcing manages vendor negotiations and product teams decide what to build, often without shared frameworks or unified data sets. This disconnect leads to misaligned targets and missed opportunities to reduce costs through smarter design or packaging decisions.

Manual cost management compounds these issues. When cost inputs live in spreadsheets or get passed around via email, everything slows down. Decision-making suffers, errors multiply and teams lose the ability to model alternative scenarios or prepare for market volatility.

Perhaps most damaging is the lack of vendor transparency. Without clear cost breakdowns or collaborative forecasting, it becomes nearly impossible to negotiate effectively or identify hidden cost drivers that could be addressed without compromising quality.

COGS optimization doesn’t fail because teams lack good intentions, it fails when they lack structure, insight and visibility across functions.

The retailers winning today’s marketplaces make intentional COGS choices, both upstream and downstream, that eliminate waste, improve efficiency and protect margins. Here are the five areas where forward-thinking brands are unlocking meaningful savings.

Product Design for Cost

Design decisions made early in the product lifecycle can have a disproportionate impact on final costs. 

Simple changes like adjusting materials, consolidating trims or modifying construction methods can decrease cost per unit. The key is incorporating cost considerations into the design process instead of applying them retroactively once development is already underway.

In fashion and apparel, for example, reworking a fit block or simplifying hardware can deliver immediate margin gains without altering the customer experience. 

For consumer packaged goods (CPG), consolidating SKUs or rethinking packaging often yields dual benefits, lower costs and reduced environmental impact.

Smarter Sourcing and Collaboration

Long-term cost efficiency is driven by transparency, lead-time accuracy, flexibility and consistent quality. 

Retailers that treat vendors as strategic partners rather than order-takers tend to gain access to more favorable terms, early insight into cost fluctuations and joint opportunities for process improvement.

High-performing sourcing teams go beyond negotiating unit prices. They explore regional sourcing options, model landed cost comparisons and build agile supply networks capable of adapting to global shifts without breaking stride.

Production and Packaging Optimization

Manufacturing workflows and packaging formats often remain unchanged for years, creating hidden inefficiencies that steadily erode profitability. 

Revisiting production techniques, batch sizes or machine configurations frequently yields measurable gains. The same principle applies to packaging, especially when current formats were designed around legacy needs instead of today’s logistics realities or shelf requirements.

Retailers are increasingly adopting modular packaging strategies or minimizing components altogether to reduce costs while improving speed and sustainability metrics.

Supply Chain and Logistics Alignment

Cost doesn’t magically end at the factory gate: freight, duties, warehousing and distribution play major roles in determining true landed COGS metrics. 

Brands that integrate supply chain teams into product planning from the very beginning are better equipped to minimize air freight usage, optimize container loads and plan strategically around minimum order quantities.

End-to-end visibility allows teams to avoid costly last-minute shipping decisions or fragmented deliveries that inflate per-unit costs across entire product lines.

Data-driven Forecasting and Modeling

Understandably, many cost overruns stem from poor forecasting practices. Inaccurate demand projections lead to overproduction, excess inventory and unnecessary markdowns. On the cost side, relying on static assumptions leaves teams completely blind to fluctuations in raw materials or freight expenses.

But forward-thinking retailers build models that anticipate change by layering in historical data, supplier input and external market signals. The ability to simulate “what if” scenarios and compare sourcing options in real time enables faster, more confident decision-making when market conditions shift.

The most successful COGS strategies combine design intelligence, sourcing expertise, operational efficiency and data analysis into integrated approaches that continuously improve over time. COGS becomes not just a financial line item, but a high-level vision of resilient and sustainable production.

The clearest COGS insights come from watching how real retailers solve their actual cost challenges. 

Across categories, from fashion to footwear, retail to cosmetics and personal care, brands are fundamentally rethinking how they manage COGS in order to build more agile, resilient operations that can adapt to whatever comes next.

So what does COGS optimization look like? Let’s say a large fashion brand shifts cost visibility earlier in the workflow and consolidates materials across multiple styles. Downstream, this leads to reduced rework costs, lowered material waste and improved time-to-market. 

A consumer electronics retailer, as another example, may face nagging landed-cost variability due to unpredictable freight expenses and frequent last-minute air shipments. By working to align production timelines with logistics capacity, the retailer could expedite shipping costs and dramatically improve margin accuracy at the individual SKU level.

For a sustainable cosmetics company, packaging might be an unexpected cost optimization goldmine. Where legacy systems required custom shipping cartons and added significant fulfillment labor, an updated approach to COGS optimization could standardize components, reduce variation and lower packaging costs while accelerating efficiency in their distribution centers.

In each of these real-world examples, the retailer moved from reactive cost control to proactive cost design, supported by better data, improved collaboration and smarter timing throughout their processes.

In the short-term cutting costs here and there might solve today’s problem, but sustainable retail growth demands a long-view approach. 

The most successful companies treat cost of goods sold not as a static line item, but as a dynamic system to monitor, model and continuously improve.

This discipline starts with clear ownership and cross-functional alignment. Merchandising, product development, sourcing, supply chain and finance teams must all contribute to a shared understanding of how decisions, both large and smal, affect overall cost structure.

Early engagement proves critical. The best cost decisions happen when visibility starts at the concept stage. 

When cost strategy gets pushed back too late in the process, options shrink and trade-offs become more expensive. Bringing cost models and supplier input upstream gives teams adequate time to optimize without compromising launch timelines.

And without consistent workflows and shared data systems, even the most brilliant strategies eventually falter. Retailers need infrastructure that enables cost tracking at every stage, supports scenario planning and makes it easy to compare alternatives across vendors, timelines and design options.

Finally, COGS optimization isn’t a one-time project; it’s an ongoing feedback loop of planning, executing, analyzing and adjusting. The brands that continuously review performance, learn from past seasons and adapt faster tend to stay ahead of both cost volatility and competitive pressure.

Turning COGS optimization into a core capability requires the right people, the right processes and the right tools all working toward a common goal: profitable, sustainable growth.

Optimizing cost of goods sold is a product, sourcing and planning challenge that demands precision, speed and seamless collaboration across teams. Modern retail success requires platform solutions built specifically for this complexity.

Centric Software’s agile, “single source of truth” platform gives retail, fashion and consumer goods brands the comprehensive tools needed to control costs from initial concept through final delivery. 

With deep visibility into product details, supplier data and sourcing decisions, teams can track, analyze and simulate cost changes in real time, before they impact bottom-line performance.

Whether you’re developing new products, negotiating with vendors or adjusting for sudden market shifts, the right platform makes it exponentially easier to identify cost drivers early in the product lifecycle and collaborate seamlessly across design, sourcing and planning teams.

By transforming cost data into actionable insights, Centric PLM enables teams to move faster, work smarter and protect profitability across every product category.