TXC: 008 Week 3 Notes
TXC: 008 Week 3 Notes TXC 008
Popular in The Textile and Apparel Industries
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This 7 page Class Notes was uploaded by Demi Chang on Saturday October 8, 2016. The Class Notes belongs to TXC 008 at University of California - Davis taught by Elizabeth Mukiibi in Fall 2017. Since its upload, it has received 5 views. For similar materials see The Textile and Apparel Industries in Textiles & Clothing at University of California - Davis.
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Date Created: 10/08/16
TXC 008: Week 3 Notes I. The Business of Fashion Fashion is a business affected by the same advances and economic forces that affect all other businesses. A. Economic Importance of Fashion Business 1. Business of fashion contributes to the economy through the materials and services it purchases, the wages and taxes it pays, and the goods/services it produces. For example, silk requires employment of silkworm farmers, manufacturers, etc. 2. Growth/Development of mass markets, mass production methods, and mass distribution have contributed to the creation of new job opportunities. More young people have entered the fashion business and have a marked effect; innovation and change are great factors in fashion’s economic growth. 3. Global Fashion Industry Flow The Levels of Fashion Industry (Four Segments): a) Primary Level: Composed of raw material producers (i.e., cotton farmers, and weaving mills). It is the earliest stages of planning textures and colors. It is the furthest from the consumer in terms of product and timing of delivery before in store date for merchandise, often two years. (fibers/yarns) Primary level sells to Secondary Level. b) Secondary Level : Produces the semi-finished or finished goods from materials produced on the primary level (i.e., vendors and wholesalers) . Composed of manufacturers and contractors, and designers. They design/manufacture women’s, men’s, and children’s apparel/accessories. They work from six months eighteen months ahead of the time goods are available to the consumer. c) Retail Level: Composed of retailers who buy their goods from the secondary level and sell to consumers. (i.e., department stores, outlets, boutiques). They are the main distributor of fashion to the consumer and prepares three to six months in advance to receive goods in a timely manner for sale. d) Auxiliary Level: The only level that functions with all the other levels simultaneously. This includes support services, performing publicity and advertising functions, trend reporting, market tips. B. Antitrust Laws: Government Regulation that affect the Fashion Business 1. Sherman Antitrust Act and Clayton Act: Prevented monopolies and restraint of competition. Clayton Act defined specific restraint like price fixing. 2. Product/Labeling Laws to Protect Consumers: This includes prevention of false advertising, providing fiber information, etc. C. Fashion and Profit Motive: 1. Companies are in business to make a profit. Privately held companies are owned by individuals, partners, or groups. Publicly held companies are owned by shareholders who purchase stock in the company and get dividends. 2. Publicly owned companies publish annual reports reviewing the company’s business activities. 3. People will buy or sell stock depending on how well the company is performing. A company making a profit attracts people to buy stock. 4. Sole Proprietorship: owned by one person or two who share control and risks. Sole Proprietorship is the most common type of business in the U.S. a) Sole Proprietorship Advantages: i. Ownership of all profits ii. You’re your own boss iii. Freedom to make decisions quickly and take action without getting permission from others iv. Ease and low cost of organizing and dissolving the business v. tax savings vi. Individual might take a partner for additional capital for expansion or to benefit from the partner’s expertise in an area in which the sole proprietor might have little knowledge/experience. b) Sole Proprietorship Disadvantages: i. Unlimited liability means that all debts are your responsibility ii. Partnerships and public companies usually have limited liabilities. D. Forms of Business Ownership 1. Sole Proprietorship: Single owner. (Explained above). 2. Partnership: Few owners. More financial capability than sole proprietorship, less red tape than a corporation. However, more financial liability, group conflicts, and harder to dissolve than sole proprietorship. 3. Corporation: Many owners. Limited financial liability and more financial capability, easy to transfer ownership and gain specialized skills from many people. However, costly to dissolve ownership, tax disadvantage, and legal restrictions. E. Business Expansion and Growth 1. Internal Expansion/Growth: a) Horizontal: When a company expands its capabilities on the level on which it operates currently, e.g., retailer opens more stores. b) Vertical: When a company expands its capabilities on levels other than its primary function, e.g., an apparel company begins to produce its own fabric, or retails its manufactured goods. 2. E xternal Expansion/Growth: a) Mergers/Acquisitions: Merger describes the sale of one company to another. When one b) Conglomerate mergers are mergers or acquisitions between companies in unrelated c) Diversification: Where a company adds various lines, products, or services to serve 3. Franchise: Franchises are purchased operations that conform to the franchisers directives, and benefit from the franchiser’s names, buying power, and merchandising expertise. ⅓ of all retail sales come from franchising efforts. Franchising Licensing (i.e., Lululemon) 4. Licensing: A legal agreement between a designer and a manufacturer. Licensing allows the manufacturer to produce and market a product under the designer’s name. a) In 1950, Christian Dior is the first designer to license his name to an outside manufacturer. The product licensed men’s ties. b) Today, popular fashion labels include Ralph Lauren and Donna Karan, who license their names for a variety of goods like apparel, home furnishings, accessories, and fragrances. BCBGMaxazria signed a license agreement with New Wave Fragrances, a manufacturer/distributor of fragrances and beauty products. Even manufacturers use licenses to manufacture clothing. c) Advantages of Licensing: Manufacturers have a highly recognizable name attached (literally!) to the merchandise, connoting high quality. Licensor does not endure the risks of production. d) Disadvantages of Licensing: An ever expanding empire lose its exclusivity. Poor quality products reflect on the name of the designer, or licensor, not the licensee. The manufacturer also endures the designers loss of popularity. II. Birth of a Fashion: Designers, Manufacturers, and Retailers ● Must study all available trends ● Be Everywhere, see everything, remain current and in touch with the consumer. ● Fashion start with consumers and the charting; forecasting and satisfaction of consumer demand is the industry’s main concern ● Although many precautions are taken to ensure the success of new designs fully, ⅔ will fail each season. ● Common reasons for failure are: 1. Introduction too early for widespread acceptance 2. Introduction of styles considered too extreme by the general public 3. Introduction of styles with appeal to a limited audience A. Types of Designers 1. High Fashion/ Name Designers: Responsible for the full range of decisions of a fashion house, as well as for establishing the image and creating designs for the company. They design ready-to-wear lines and custom designs, and many license the use of their prestigious names to manufacturers of accessories, fragrances and cosmetics, and home fashions. For example, Vera Wang is a name designer that also creates ready-to-wear lines for Kohl’s. 2. Stylist Designers: Working for manufacturers, they adapt other designs of name designers. They usually create these variations in cheaper fabric to appeal to a lower priced merchandise at the late rise or early culmination stage of the fashion cycle. 3. Freelancer Designers: Sell sketches of original designs or adaptations to manufacturers. Freelancers typically work out of design studios. They do not involve in fabric and color selection or business decisions required to manufacture their designs. B. Types of Manufacturers: 1. Designer Market: At the top of the chain, they produce innovative high fashion apparel that is very expensive. 2. Bridge Market: Between very expensive designer and high quality better merchandise. 3. Better Market: Below Bridge with correspondingly lower prices and less panache. 4. Moderately-Priced Market: Adaptations of styles in the ‘rise” stage of the fashion cycle. 5. Budget Market: Creates mass produced close copies of goods in the “mass acceptance” stage. C. Types of Retailers: 1. Fashion Leaders: Innovators in the fashion cycle and works in the designer market (Neiman Marcus, Nordstrom). 2. Traditional Retailers: In the late rise, early culmination of the fashion cycle and the bridge/better/moderate market (Macy’s and Dillard’s). 3. Mass Retailers: In the late culmination of the fashion cycle and moderate market (J.C. Penny and Kohl’s). 4. Discounter Retailers: In the late culmination of the fashion cycle discount market (Wal-Mart and Target).
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