The Business of Fashion (Study Guide)

The Business of Fashion Key Concepts ● The four levels of the fashion business ● The three common forms of business ownership ● The role of franchising and licensing ● The role of the designer, the manufacturer, and the retailer in the fashion business Economic Importance of the Fashion Business 4 Levels of the Fashion Industry The Primary Level ● The primary level is composed of growers and producers of the raw materials of fashion ● Leather and fur producers who function in the raw materials market ● Earliest part of the planning for colors, patterns, and textures ● Goods may often be imported from third world emerging nations, where textiles are usually at the earliest form of industrialization ● Up to 2 years lead time by primary level companies is needed goods will be available to the consumer The Secondary Level ● The secondary level is composed of industries, manufacturers, factories, and contractors that produce finished fashion goods from the materials produced on the primary level ● This includes manufacturers of children’s, men and women’s apparel, leg and body and underwear, accessories, cosmetics, and home furnishing ● Companies work up to 6 - 18 months ahead of the time that goods are available to the consumer The Retail Level ● The ultimate distribution level ● Different types of retailers who buy goods from the secondary level and then supply directly to the consumer ● Work with the primary and secondary level to insure the consumer gets what they want ● Retailers make initial purchases for resale to consumers from 3 - 6 months before it hits the stores. This lead - time can be shorter in regards to fast fashion. The Auxiliary Level ● The only level functions with all the other levels simultaneously ● Composed of all the support services that work constantly with primary producers, secondary manufacturers, and retailers to keep consumers aware of the fashion merchandise produced for ultimate consumption ● Consists of advertising media, print (editorial), audio (music and radio), visual (tv, movies and social media), fashion consultants and researchers (forecasting companies) ● Be specific! Who would be the best at The Auxiliary Level to help consumers with… ● The latest fashion trends? ● The newest colors in the market? ● What celebrities are wearing that your consumer will want to emulate? Diversity and Competition Competition and Price ● Head to head retail competition trends to keep prices down, which is good for the public ● Lover price point will attract more consumers and sell more product that your competitors, and hopefully make a good overall profit Competition and Quality ● Rather than sell your jeans for less than your competition, you may choose to compete for customers by offering higher quality goods ● Although you may charge more for your jeans, you offer a better fit, higher quality fabric, and better styling ● This provides a practical incentive for businesses to maintain high standards and increases the choices available to consumers Competition and Innovation ● Our economic system not only encourages variations in quality and price, it also encourages immense variety in the types of merchandise and services offered to the public ● Changes in taste and technology bring about innovation so your new jeans could be frayed or unfrayed, designer, or non - designer etc ● The economy and competitive environment are constantly creating new business opportunities, resulting in diversity of businesses Forms of Business Ownership ● Ownership of a fashion business can take on many different legal forms, each carry privileges and responsibilities. ● The 3 most common forms of ownership are: Sole proprietorship Advantages ● Ability to keep all profits ● Simple to form and easiest to dissolve ● Ownership flexibility Disadvantages ● Unlimited financial liability ● Limited capital ● Management deficiencies ● Lack of continuity Partnership Advantages ● Ease of formation ● Complementary management skills ● Greater financial capacity than sole proprietorship ● Less red tape than corporation Disadvantages ● Unlimited financial liability ● Interpersonal conflicts ● Lack of continuity if partner dies ● Harder to dissolve than sole proprietorship Corporation Advantages ● Limited financial liability ● Specialized management skills ● Greater financial capacity than other forms of ownership ● Economies of large - scale operation ● Easy to transfer ownership Disadvantages ● Difficult and costly form to establish and dissolve ownership ● Tax disadvantages ● Legal restrictions ● Depersonalization Government Regulation of Business in Book Business Growth and Expansion Internal Growth ● A company’s ability to grow internally determines its ability to offer more service and a broader assortment of merchandise and increase profits ● This can create new products and new jobs ● An apparel company could add new lines to diversify its product offerings. A retail store could open new branches (Ex. Donna Karan expands to DKNY) Mergers and Acquisitions ● In a merger or acquisition, a sale of one company to another occurs with the purchasing company usually remaining dominant ● Companies merge with larger companies for: ○ The ability to have greater purchasing power ○ The ability to sell stock to obtain the financial resources for expansion ○ The desire to increase sale The Franchise ● The right to own a business while benefiting from the expertise and reputation of an established firm. ● In return the franchisee pays the parent company (the franchiser) a set sum to purchase the franchise and royalties on goods/services sold. Licensing ● A legal arrangement where firms are given permission to produce and market merchandise in the name of the licenser for a specific period of time. The licenser is then paid a percentage of the sales called a ”royalty fee”. The royalty fee averages anywhere from 2-15%. The Designers Role ● Designers are everywhere and design for everything, including fashions, furnishings & housewares. ● They must continually study their consumer and whom their designs are intended for. ● All designs must be produced with a profit at the firm’s wholesale price range. ● Consequently, designers must take into account cost of materials, labor costs and production techniques. ● Great designers use their creativity to overcome these limitations and produce salable, exciting designs.