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Chapter 2: Fashion Merchandising Organizations

Chapter contents: 2.1 Introduction 2.2 Types of fashion merchandising organization 2.2.1(a) The buying agents 2.2.1(b) Store-owned buying offices 2.2.1(c) Cooperative buying offices 2.2.2 Independent trading companies 2.2.3 Offices of manufacturer-importer

2.3 The major service offered by a fashion merchandising organization 2.3.1 Private label programme 2.3.2 Group purchasing 2.3.3 Centralized buying 2.3.4 Other merchandising services 2.4 The major organizational structures for fashion merchandising activities 2.4.1 Functional division type 2.4.2 Product/market division type 2.4.3 Matrix organization type

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Objectives After studying this chapter, you should understand the following:  the various types of fashion merchandising organizations  major merchandising services offered by these organizations  the major ways to establish merchandising organizational structure

Case Study The merchandising agent, Fashiontex, received a set of lab-dip (colour dyeing samples) from the supplier, for final confirmation as the pre-production standard in dyeing process. The team checked the samples with the original standard provided from its European buyer and found the sample very satisfactory. The colour shades submitted from the supplier were nearly 100 percent the same as the original ones. The team was very confident that the buyer would accept it and grant approval for bulk production. In normal procedure, the team would have sent the sample to the buyer's head office for final approval before giving approval to the supplier. Because the production progress was much behind schedule however, the team consented to acceptance, whilst they sent one set of the samples for buyer reference. Upon receipt of the samples, the buyer was very angry and rang Fashiontex immediately to reject the samples. The team could not figure it out. Even though the European buyer expressed appreciation of the performance of the supplier, they still could not accept the sample. This was because the buyer's head office centralized all buying decisions and consolidated the final approval to worldwide suppliers. It could not afford to have even one of its worldwide suppliers inconsistent with the others. This type of organization was adopted to ensure consistency of all merchandises procured from different suppliers in different countries. In this case, although the Fashiontex’s supplier could submit nearly perfect samples, it was highly likely that the buyer adjusted the 2

standard in accordance with another suppliers who provided the majority in quantity of this collection; i.e. Fashiontex’s supplier had to match another supplier's standard.

2.1 Introduction This case demonstrates how the relations between merchandising organizations affect the operation and decision making in the merchandising process. Indeed, merchandising is a function, which does not work in isolation. It interacts with other functions in an organization, as no organization exists just simply to develop merchandise. In this unit, you will learn about the types of fashion merchandising organizations and how the organizational functions can be affected by the service offered. For the scope of fashion merchandising, the principles of structuring the organization are then described.

2.2

What are the types of fashion merchandising organization?

Figure 2.1 show the major types of organization participating in fashion merchandising and their relationship in the chain of fashion business : 2.2.1. Store Buying offices. These organizations serve as the buying representative of retail stores to access source opportunities of fashion production and to follow up work around the world. Buying offices are not a substitute for the roles of store buyers. Indeed, buyers still control the actual buying decision. These offices serve in an advisory function, keeping minute-to-minute information up to their affiliated store buyers. In common, there are three types of fashion store buying offices as follows:

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Textile Mill Products Yarn Spinners, Weavers Knitters, Dyers, Finishers

FIGURE 3.1 APPAREL BUSINESS ORGANIZATIONS

Regional Merchandising Organizations Trading Companies Apparel Manufacturers

Store-owned Buying Offices

Buying Agents

Cooperative Offices

International sources

Domestic market Domestic Manufacturerimporters Wholesalers Retailers

2.2.1(a) The buying agents. The majority of resident buying offices are independent companies that act as external agents to help store buyers to procure store merchandises. These offices charge their affiliated stores a fee for services. 2.2.1 (b) Store-owned buying offices. These offices are owned privately by each single retail institution. The institution may be a single store company or a corporation that acquires and controls a chain of retail companies. These offices may be located internationally, helping their own store expedite the purchase of an enormous volume of store merchandises, or the highly exclusive merchandises bought to store-owned specification and labels. 2.2.1 (c) Cooperative buying offices. They are jointly owned and operated by a group of non-competing stores. They are also called associated buying offices? The 4

group-member stores served by this type of buying office share similar buying policies and merchandise profiles and sources. The operation expenses are absorbed by each member store, in proportion to their sales volume and the amount of services rendered. These offices, when located abroad, are equipped with experts to handle import/export transactions, to control specified quality, and to ensure expedition. These offices also provide a consolidated centre for shipping, finance and customs operation. 2.2.2 Independent trading companies. They are companies that deal with transactions in their own name. They act as middlemen to facilitate fashion buying worldwide. They also act as liaisons between manufacturers and various countries’ buyers. 2.2.3 Offices of manufacturer-importer

Manufacturers, who seek better production opportunities or greater volume capacity elsewhere, may use overseas production for their domestic orders. It is commonly referred as manufacturer-owned overseas sourcing. They employ overseas representatives responsible for planning, control of material and garment production. The production facilities may be privately-owned or joint ventures with overseas partners. In most cases, they subcontract the orders out to another manufacturer.

2.3 What are the major functions and fashion merchandising organization

service offered by a

In regard to merchandising functions and service, fashion companies would decide how to carry their discretionary functions of doing product development, assisting buyer’s visits, following up work and assuring proper shipment. Besides the provision of market information and buying assistance, merchandising organizations mainly offer three utilities: (1) private label programme, (2) group purchasing and (3) centralized buying: 5

2.3.1 Private label programme. Exclusivity is an important aspect expressing the uniqueness of a fashion store. It provides a guideline for customers trying to select from a wide variety of similar products or brands. Most stores mark these designs privately with owned labels. These private labels carry their own specifications, material qualities, colourways and size combinations to compete with manufacturers’ and other stores’ labels. As such, merchandising companies attempt to work closely with some manufacturers to establish customized designs and collection lines. The merchandising mostly relies on very close liaison within a limited number of buying offices and manufacturers, to maintain consistent standard of styling, design philosophy and quality, from season to season. When the merchandise volume reaches a significant size, the work of merchandising is handled better by an owned buying office rather than by working through external parties. 2.3.2 Group purchasing.

When a number of stores group together to place orders for identical or similar types of merchandise items, it is generally called group purchasing. Taking advantages of economy of purchasing scale, merchandising organizations are able to procure their own products or labels at a very advantageous cost and develop specific items for exclusive distribution. It is trade practice of co-operative buying offices and wholesalers to present retailers with a full collection of seasonal samples at a trade show before consolidating final orders. Merchandising then involves the development of salesman samples to collect market feedback beforehand. 2.3.3 Centralized buying

Centralization refers to the centralizing of the authority for making merchandising planning and control within the top management level. Then authority is exercised and delegated coherently throughout the whole organization. Similar to the principles of group purchasing, centralization of merchandising decision making provides the following features:  When merchandising decisions are regarded as the most 6

critical, centralized buying places decision making at the top management level and achieves consistency throughout the organization on issues of image, quality, delivery, and so on.  Centralization permits specialization of buying duty and merchandising functions. Groups of specialized experts can then be more alert to the changes of markets and become more ‘professional’s in terms of their negotiation skills, product and cost knowledge.  Centralization provides opportunity for consolidating significant order quantity to achieve outright bargaining power and administrative force.  It cuts down on administration duplication. However, centralized buying probably leads to the following problems:  Organizations may not be so responsive to divisional or geographical needs and changes. When a merchandising company is very large and operating internationally, it takes time to communicate within the organization and with external parties. Time and opportunities may be lost. Decisions may be made less efficiently.  The high performance quality of centralization is much reliant on the dedicated delegation within the organizational structure; otherwise, communication and decision making may be hindered in somewhat gray areas. The next section will describe this in more detail.

2.3.4

Other merchandising services

 Standardized buying. Standardized buying refers to the control of consistency of merchandising work and the matching of merchandise procured from different regions for product categories and collection labels.  Promotional services. Merchandising organizations can assist their clients with planning and executing promotional campaigns. These offices also conduct clinics in planning sales promotions, special events, trade shows and even training for their clients.

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2.4 Some concepts about organizational structures for fashion merchandising activities By now, you have gone through the types of fashion merchandising organizations and their characteristics. You may realize that their scope of activities and their quality of performance are largely reliant on how they structure the organizations and how they divide their responsibility. In the following section, we shall see fundamentally how an organization can be structured and what the managerial issues will be stemmed in. Conventionally, we can find three major ways : by functions, by product/market, or in matrix form.

2.4.1 Functional division type. This brings all closely related activities together into one unit, and divides the organization departmentally? For instance, an fashion merchandising company is divided into departments of (a) design and development, (b) production and technical coordination, (c) shipping and transportation, (d) sales and merchandising, (e) accounting, (f) human resource. Therefore, a design team manager in such an organization will be responsible for the design and product development of all fashion products for the company. Perhaps functional organization is the most basic form of departmentalization. It is usually adopted in companies with limited lines of fashion product and allows efficient use of specialized resources. Staff in such an organization can be specialized into a narrow range of skills and hence supervised relatively more easily. However, when an organization grows or operates cross-regionally, the speed of response to the market becomes an apparent problem. In the meantime, it is difficult to determine which department is accountable for a particular performance, no matter whether it is good or bad. Each functional expert tends to focus on his or her own area and minor performance.

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FIGURE 2.1 ORGANIZATIONAL CHART (DIVISION-BY-FUNCTION)

Managing Director

Design & Development

Shipping Manager

Human Resource Manager

Finanace & Control Manager

Production & Technical Support

Sales & Merchandising Manager

Merchandiser

Assistant Merchandiser 1

Assistant Merchandiser 2

Assistant Merchandiser 3

2.4.2 Product/market division type Most large fashion organizations are organized on the basis of types of product or market division. When a company becomes too complex for the functional structure, managers will generally create semi-autonomous divisions, each of which designs, procures and serves its own product categories or marketplaces. When a fashion company divides its organization by product, there would be sections or departments responsible for corresponding products or related product categories. It is very logical when certain products call for particular knowledge or processing methods that differ significantly from those of the rest. The difference between technical knowledge of producing woven and knitted items is a good example. The principle can be extended to the division by customer group or design brand carrying a variety of products. When a fashion company divides its organization by marketplace, there would be sections or units conducting all activities for the predetermined region or location. This arrangement is very 9

common when manufacturing or business activities of fashion product is highly regional-specific. Since the majority of international fashion trading are restricted by discretionary import/export control systems, this type of organization can help to integrate a company’s resources on a geographical basis. Fashion companies organized in product/market structure have several advantages. Since all activities, skills, knowledge and facilities for a particular product category or market are grouped together, it is easier to coordinate and supervise activity progress. It is more responsive and accurate in making decisions for individual products and markets, so divisional personnel can have greater authority and accountability. However, since the organization now becomes product or market orientated, expenses in administration and manpower tend to increase or even duplicate unawares.

Managing Director

General Office Manager

Manager, Finance and Control

Shipping Manager

General Merchandising manager, Lightwear

General Merchandising Manager, Heavywear

General Merchandising Manager, Accessories

Human Resource Manager

Merchandising Manager, Casual

Merchandising Manager, Men's

Merchandising Manager, Women's

Chief Designer

Merchandiser

Senior Quality Controller

Assistant Designer

Assistant Merchandiser 1

Assistant Merchandiser 2

Assistant Merchandiser 3

Quality Controller

FIGURE 2.2 ORGANIZATIONAL CHART (DIVISION-BY PRODUCT/MARKET)

2.4.3 Matrix organization type In matrix structure, staff is under dual authority. One chain of command is functional or divisional, as presented in figure 2.3, diagrammed vertically in the organizational chart. The second is the lateral chains that lead to project teams or committees with 10

members responsible for assigned areas of specialization in certain projects or committee missions.
Managing Director

Office Manager

Manager, Finance and Control

General Shipping Manager

Manager, Production & Technical Support

General Product Planning and Development

General Sales and Marketing Manager, Men's

General Sales and Marketing Manager, Ladies'

Project/Account A

Finance controller A

Shipping Supervisor A

Technical Officer A

Merchandiser/ Designer A

Sales Executive A Team A

Sales Executive Team A

Project/Account B

Finance Controller B

Shipping Supervisor B

Technical Officer B

Merchandiser/ Designer B

Sales Executive Team B

Sales Executive Team B

Project/Account C

Finance Controller C

Shipping Supervisor C

Technical Officer C

Merchandiser/ Desinger C

Sales Executive Team C

Sales Executive Team C

Figure 2.3 Matrix organizational chart

The advantage of this structure is that it brings specialized skills and know-how to handle a project or problem with maximum efficiency. A project team can be very mobile and give plenty of cost-saving flexibility. In addition, it can stimulate interdisciplinary cooperation and understanding, especially for the work that is not routine and situation-specific. By creating a team comprising technicians, designers, traffic experts, lawyers, marketing staff, accountants, and merchandisers, the company could diversify its fashion business into the operation of retailing or new potential business areas. A matrix structure can prevent organizations from Over-structuring, that is, having the features of high job specialization with detailed duty differentiation, significant hierarchical control and vertical communication, autocratic style emphasizing on loyalty and obedience, and low rate of innovation. A sensitive organization makes continual the process of adjustments, which are in tune with the needs of the market place. To become sensitive to environmental changes, companies are then inclined to consider structural decentralization to disperse authority for contingent response. Merchandising staff should have varieties of competence to deal with different kinds of emerging challenges. 11

Annex The concept of organizational decentralization is fundamentally contrary to those of a highly centralized one. A decentralized organization is one, which spreads authority, for committing resources, or making decisions, throughout levels of organization, as compared with a centralized organization that exercises authority only from top management downwards through the various levels. Merchandising companies that decentralize properly and effectively would have the following features:  Routine decision making is delegated to lower levels, so that central management can concentrate more on long term planning.  Making decisions near the points of action reduces response time. Hence it further increases the flexibility to cope with changes in supply and consumer markets.  The organizational communication time and distance can be optimized. Quicker decisions and fewer possibilities of communication errors occur. Decisions are closely incorporated with day-to-day realities  Decentralization increases the motivation of divisional autonomy. It is believed that people are more willing to take responsibility when they are trusted and valued independently. The practice is preferably adopted with those whose work natures require them to execute personal judgment in daily duties, and whose work is not based on rigorous office procedure. Merchandising activities are much characterized by this individualism and autonomy. However, conversely decentralization may lead to issues of control of consistency, dilution of negotiating and purchasing power, duplication of administrative resources, and waste of resources or loss of authority. You can describe them on these similar grounds.

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Chapter 3: The Basic Merchandising Process and Principles

3.1 Introduction 3.2 The fashion merchandising cycle 3.2.1 Anticipation of fashion business and fashion trend 3.2.2 Development of product programme and specification 3.2.3 Merchandise sourcing and procurement 3.2.4 Organizing production 3.2.5 Arrangement of merchandise shipment 3.2.6 Auxiliary activities 3.3 Organizing merchandising functions 3.4 The table summarizing all essential merchandising activities in a business cycle in three organizational levels

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Objectives After studying this chapter, you should understand the following:  the major steps of fashion merchandising  the more detailed activities involved in such various steps  the way in which the activities can be organized for systematic expedition The following is a case that always happens in fashion merchandising practice. It illustrates the importance of delicate planning of merchandising activities at the beginning of each business cycle. Case Study This was a chilly day of December in Hangzhou. Winnie, the Fashiontex's merchandising team leader accompanying two German buyers, was holding a meeting with a leading Hangzhou supplier to procure ladies’ silk blouses. The company, for which the German buying team served, was one of the top-listed retailers in Europe and focused on mass market general textile merchandise distribution. The volume of quantity ordered and the delivery were the important criteria for them in selecting suitable suppliers. In normal procedure, Winnie would help the buyers to evaluate the capacity and performance of potential suppliers for order allocation. In this case, the merchandising team and buying team however did not have much freedom to choose silk suppliers. This was because China’s silk provided more than 90% of the worldwide export silk market. Since great demands for silk garments were anticipated in the coming year, the German buyers planned to commit themselves to a very large order quantity. In order to obtain the most advantageous order prices and stable supply throughout the next year, Winnie suggested they make a Block order, i.e. a contractual agreement committing the whole year’s silk supply, with detailed content for each style order to be confirmed two or three months before stipulation of individual shipment deliveries. Because of the tight supply of silk fabric, the supplier should have adequate information to reserve the production capacity for yarn spinning, weaving and dyeing 14

processes. The block order should therefore indicate the appropriate fabric quality adoptions, colour frame, the possible number of style variations, the numbers of shipment seasons, the average price levels, and the expected monthly delivery quantity and schedule. Then, how to plan and organize the subsequent activities became critical questions - both for the buyers, to control dedicated order progress, and for the suppliers, to support the business. By now, Winnie started to make a dedicated workplan to control the progress of this business in the coming year. Questions began to form in her mind. What essential activities should be taken into account? How could they be well organized? When and how could buyers and merchandisers finalize details of each order? When and in which ways could the merchandising team control the progress and quality of monthly orders? Winnie was even then considering how to make an overall picture of this business.

3.1 Introduction This case demonstrates that many things will be taken in account in the process of fashion merchandising. The merchandising team in this case should plan for and control the coming merchandising activities. In practice, merchandising involves many multi-disciplinary activities that require close connection and integration across the whole business process. In this chapter, we will describe the major steps in the fashion merchandising business cycle mentioned in Chapter 1. Reviewing the essential elements in the fashion merchandising cycle will help you to understand, better and more quickly, the techniques of organizing and expediting merchandising functions, which are dealt with in the next part of this chapter.

3.2

The fashion merchandising cycle

As introduced in Chapter 1, a fashion merchandising cycle has several 15

distinct phases. Do you recall them? We have introduced it at our early classes. They are : (1) Anticipating fashion business and fashion trend; (2) Developing product programme and specification; (3) Sourcing and allocating fashion merchandise procurement; (4) Organizing production; and (5) Arranging merchandise shipment. 3.2.1 Anticipation of fashion business and fashion trend. This involves market information search and analytical planning to understand the concurrent market preferences and the major factors of fashion adoption. This understanding is to foresee what fashion product will be accepted in coming seasons. The anticipation includes observation of general market-wide developments and the environmental opportunities for fashion merchandising. Furthermore, the process focuses on the characteristics of existing merchandises and the strengths and weaknesses of the merchandise on the basis of market popularity. Basically, there are two types of fashion and fashion merchandise adoption: traditional adoption and reverse adoption. Refer to our previous material. 3.2.2 Development of product programme and specification. Following the identification of market trends and preferences in the previous phase, development teams, comprising designers, buyers, and merchandisers, attempt to define criteria to develop the portfolio programme in terms of fashion features that appeal to customers’ choice. It comprises the choice of colours, cutting, silhouette, texture, trimming adoption and workmanship. A new seasonal design collection is sometimes compiled as a portfolio that is established to extend the existing product line, as shown in Figure 3.1. In practice, varieties of portfolio are developed for one season and screened until the final one is consistent with the company’s objectives.

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Anticipating market trend

Determining Material Availability

Design idea : * use of colour * print patterns * shape & silhouette * trimming etc

Portfolio Sketch Programme

Sample making

Anticipating market trend

Determining Material Availability

Design idea : * use of colour * print patterns * shape & silhouette * trimming etc

Portfolio Sketch Programme

Sample making

Figure 3.1 PROCESS OF PORTFOLIO PLANNING

Table 3.1 shows the schedule of major Business seasons in a one-year portfolio programme for Northern Hemisphere markets. 17

Table 2.1 Schedule for major seasonal portfolio programmes in one-year Northern Hemisphere markets Concept and Season Fall Fall/winter Holiday Spring Spring/Summer Summer Holiday design development Jan Jan Jan/March June September November March April/May April/May August November Late January Early August October Mid-October January Mid-March Mid-May Latest buying period Common delivery time to retail market

Of course, the number of seasons for design and merchandise development depends on the firms or retailers that the teams work with for specific markets. It also depends on the length of time for material supply and production.

3.2.3 Merchandise sourcing and procurement. In this phase the merchandiser searches for sourcing possibilities, which could optimize the profitability, assures the least uncertainty in the supply market, schedules timely delivery and arranges the financing aspect. Procurement refers to activities of purchasing, storing, handling traffic, receiving and inspecting incoming material and salvage. The merchandiser should be alert to various sourcing restrictions and the methods to allocate the bases of supply according to predetermined sets of business criteria and the company objectives that have been described in more detail in the later notes. In most cases, merchandising functions in this phase involve material management and order placement to achieve a timely production schedule. In brief, the procurement includes:  information research of supply market, trade or legal restriction (like quota control or tariff variations);  checking requisition; 18

 analyzing quotations of both material supply and the manufacturing process;        evaluating and choosing suitable suppliers; scheduling delivery and order placement; negotiation and writing of orders; checking regulatory conditions of trade; following up for delivery; verifying invoices; corresponding with suppliers and buyers.

3.2.4 Organizing production. This phase emphasizes how to arrange production, define quality level, make schedule of material requirement and delivery, and allocate control personnel. The process involves detailed expedition of material ordering and receiving, inspection, resolving technical problems and arrangement of finished product packaging and dispatch. Merchandisers here should be clear on the technical specifications and their tolerance levels for errors.

3.2.5 Arrangement of merchandise shipment. In this phase the merchandiser evaluates shipping ordering systems, to decide transportation modes and routes, studies packaging and handling methods and finally advises the best arrangement of delivery. Merchandising would assist shipping and finance operation in proceeding adequate and accurate documents for order settlement.

3.2.6

Auxiliary activities. In addition to the activities that are distinctly within the responsibility of merchandising, there are a number of duties that are typically shared with other departments, as mentioned in the section 1.3 of Unit 1. Among these duties are:  office practice; 19

      

laboratory testing and inspection; material searching; budget; development of standards and specifications; supervision of production progress; inventory control; construction of project programme.

3.3 Organizing merchandising functions As illustrated in the previous case, it is of extreme importance to design and coordinate merchandising activities that are performed by a large number of parties. Good coordination provides the foundation guidance to plan and control activities in consistent ways. Typically, we can organize the merchandising function into three levels and three intervals. Three levels include: 1. top-level organizational functions that concern the top-most direction-giving of a fashion merchandising business and provide commitment to a relatively long period. In brief, it can be defined as the systematic planning and organization of the direction of an fashion merchandising company so as to achieve specific objectives in long term; 3. mid-level managerial functions that commence within the guidelines of the top-level organizational plan and mainly emphasize the more detailed process of resource planning and control within a specific programme; 3. bottom-level operational functions that specify thorough detail of programme implementation. It assigns sorts of manpower and facilities to a particular job so as to complete the desired results within a specific period. Three intervals include: 20

1. daily functions that focus on the actions done daily and routinely. It is short term and subject to the day-to-day changes of merchandising programme progress; 3. seasonal programme functions that are more comprehensive and link the performance of numbers of activities each season; and 3. annual programme functions that are more tactical and concern the impact of the trade cycle on the merchandising activities, like the forecast of cyclical fluctuations; the development of new regional buying, and identification of consumer demand in longer term.

3.4

Delineated Merchandising functions in various levels of organizational activities You may remember the very detailed ways of activity breakdown in a merchandising cycle. The following table attempts to reiterate again the essential merchandising activities in a business cycle in three organizational levels. The allocation of duty for which a merchandiser may be responsible depends on size of company and organizational structures, product categories carried, and how the management style delegating duties.

Table 3.2 Merchandising functions in various levels of organizational activities

Top level 1. Anticipating fashion business and fashion trends

Middle-managerial level 11. identifying consumer/industrial markets and their market characteristics like: desired price range, the number of buying seasons, preferred quality level, optimal quantity for each style etc.

Operational levels 111. observing traditional fashion adoption fashion trend leaders' opinion focuses 113. attending to reverse fashion adoption consumer market-wide preference, like the street-fashion. and their

13. forecasting adoption of

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fashion in coming seasons

3.

Developing product portfolio programme & specification

21 identifying the scope of business, e.g. categories of product, price range, distribution channels and target buyers

211. understanding trade patterns 213. understanding distribution methods and members of distribution channels 213. end-use consumers 214. merchandise features 215. price and cost levels 216. design and material features 217. quality standard 218. delivery programme 219. manpower and equipment resources planning

23. defining specifications for all the above by means of :

221.

graphic presentation

(design sketches/portfolio report) 223. budgets and forecast 223. merchandise plan 224. 225. 226. 227. delivery schedule quality specification staffing and team financial credit

and manuals organization preparation 23. setting policies and procedures for sample making, product testing 231. making first trial garment sample (proto-sample) 233. making colour, prints, construction samples

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233. processing laboratory testing of product performance required by customers or by regulation 24. presentation of samples(trade show, mini fashion show, display, business consent etc) 241. arrangement of collection/line samples screening and selection 243. recording any comment for product verification and improvement 25. finalizing programme details in buying/production plans 251. quantity consolidation 253. final merchandise programme confirmation

3. Sourcing and allocating fashion merchandise procurement

31. selecting supplying countries and manufacturers :

311. evaluation of environmental trade regulation 313. evaluation of regional sourcing criteria (in terms of capacity, quality, security, reliability, flexibility, lead-time, technical know-how, material availability, etc) 313. determining order placement options 314. assigning buying team tasks and duties 321. identifying the most

33. negotiating procuring terms and conditions:

advantageous trade/delivery terms and conditions 323. arranging shipment

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schedule 323. other roots of mutual obligation (unit price, goods description, expiry date, inspection standard, packing methods, etc)

33. with shipping and accounting department, create/transfer foreign trade credit control

4. Organizing production

41. processing material requisition and delivery details

411. fabric supply and costing 413. accessories consumption estimation 413. determining correct adoption of care label instruction.

43. processing inspection 421. choosing in-line inspection scheme 423. choosing final inspection scheme 423. staffing inspection team 424. facility and equipment acquisition planning 43. expediting progress of production sample making and confirmation 431. issuing recapitulation as reminder for any progress details 433. inquiring regularly order progress 433. when necessary, make field visits to ensure progress to be on time

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44. specifying manufacturing, packaging and handling standards

5. Arranging transportation of merchandise shipment

51. scheduling shipments

511. ship space estimation 513. transporting facility estimation 513. carrier rota plan

521. providing detail 53. preparing commercial/ financial documentation information and documents for shipping and accounting departments for payment settlement. 53. preparing insurance documents

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Chapter 4: Managing Fashion Merchandise and Development

4.1 4.2

Introduction General attributes of fashion products and factors determining successful merchandise development Who develop merchandises? Identifying customer expectation in fashion market The process of selecting product line Determinant factors of fashion demand Fashion diffusion cycle

4.3 4.4 4.5 4.6 4.7

(Reference: Johnson & Moore (11998) Apparel Product Development, Prentice Hall, Upper Saddle River, NJ)

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Objectives: After study this chapter, you should understand the following:  the attributes of successful merchandise development  what parties are often involved in the activities of merchandise development  identifying customers’ expectations  the determining factors that affect the change of fashion preference  the concepts of life cycle for fashion product management In many situations that we are concerned for product planning and development, we may ask the questions: What are the major differences between the scopes of activities between product design and product development? What factors should we consider to establish successful merchandises? How can a product concept be recognized and communicated technically? How can we categorize the fashion items in terms of types of retail distribution? Before we look at these questions, let us see the following case illustrating the processes of finalizing seasonal production items for a private label.

Case study:
Gwynneth Mayer carried a large printout of forecasting data and arrived at her office in the Gene-sport Ltd’s headquarters. The company, as a German manufacturer-importer, produced and distributed skiwear in its own private label brands for European and North American markets. It was a crisp December morning in Dusseldorf in 1997. This morning Gwynneth would start to confirm commitments for producing its 1998-99 lines of fashion skiwear with inadequate information about how the market would react to the lines. Actually, no clear indications had yet existed about how the company’s current 1997-98 lines performed. Gwynneth knew that further hesitation would delay delivery to her clients and that late delivery would eventually reduce the exposure that consumers would have to Gene-sport products. In fact, in recent years greater product variety and more intense competition had made accurate predictions harder. Two possible results always happened. One was that, at the end of each season, the company kept excess merchandise for those styles and colours that retailers had not purchased; styles with worst selling records were discounted seriously. But on the other hand, some popular styles were run out of stock. Considerable profit was lost for such reason. That moment Gwynneth savoured the morning fresh air in front of a window and started to contemplate if the development process

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could be re-arranged better.

The development process for the 98-99 line began in February 97 when the Gene-sport’s development team and management attended the annual international outdoors wear show in Munich, Germany. The show became a major indicator for the forthcoming trend. By May, the development team drafted the forthcoming product concepts. The sketches and technical specifications were sent to the Gene-sport’s buying agent in Hong Kong for coordinating prototype sample production in July. The prototypes were made from the leftover from the previous seasons in three different manufacturing suppliers, two of which were located in Nanjing and one in Bangkok. The Bangkok supplier potentially occupied the largest proportion of the coming production. All the final prototypes were necessarily sent back to Dusseldorf for final approval by September. Gwynneth then invited all her clients to a presentation show so that they could make consent for the 98’s tentative blocking quantity. Adapted style, quantity and size combinations were then consolidated and confirmed for bulk production. But it was still deep winter. Majority of Gwynneth’s clients believed that it was not the right moment to finalize the details for next winter season and should have waited the sales information until to March. But the minimum lead-time for bulk production and end market distribution would at least take 7 months. In case the production orders were confirmed in March, it might have made the delivery too late. That moment she wondered to know what were the possible sales patterns for the coming season and if the demand would change. How could she take the plunge?

4.1 Introduction
Gwynneth’s case illustrates that development of fashion merchandise is a set of activities beginning with perception of a market opportunity and ending in production, sale, and delivery of a fashion item or a fashion merchandise mix. The ultimate success of the product planning and development is highly dependent on how well a company can predict market response to different styles and design input. It is deemed that the effective introduction of product concepts relies on several logistic-related activities, which deliver right collections to end markets 28

at the right time. In the following discussion section, we would present in detailed way a set of considerations that aim at bringing together the marketing, design, and manufacturing functions in fashion merchandise development processes. It is peculiarly reminded that design is only a part of the activities of merchandise development. Design is not always the only focus for introducing fashion innovations (including new product features and new product concepts). In actual practice, there are a great number of distinctions between the scopes of duty in fashion design and those in fashion merchandise development.

4.2 General aspects of fashion products and factors determining successful merchandise development 4.2.1 The contextual aspects in developing types of fashion product. In Table 4.1, the pertinent contextual aspects of fashion product design and development processes are summarized. Two fashion design tasks can be broadly categorized into two types:  the high fashion category which focuses on trendy but volatile fashion novelties. These companies optimize the performance through a range of exclusive chain and counter operations in order to target designated market segments.  the mass fashion category which focuses on the well-known manufacturers' or stores' brand concepts and values. These companies serve their markets through resourceful sale teams interacting with dispersed retailers. The product novelties are relatively stable and value-oriented.

Table 4.1 The generalized contextual aspects of design tasks
Category_1 High fashion Category_2 Mass fashion

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End marketplace Highly distribution approaches

operation-standardized Large sales coverage by means of

specialty chains or counters types of sales channels. that distribute small quantity but wide range of product lines

Product characteristics

Image and trend oriented; uniqueness individualism and life

Items in each product line allow style Stable variety of classic and casual items Strong with strong social or group stores' conformity; manufacturers’ identity; functionally or value-based innovating

Competition in the sense of mix-&-match;

Team Collaboration approaches

Cross-functional contact at all Procedural communication flow; operational levels; Informal, horizontal and opinion-rich discussion Technical problem-type discussion

Supplier management mechanisms

Co-operative development; "Paternalistic" liaison; Preferred sourcing; Long term contracting

supplier Competition-based supplier selection; "Opportunistic" alignment; Multiple sourcing; Transaction-based contracting

Perceived novelties in design works

Wide varieties of product lines Process based design task seeking for and features; Product based design innovating task methods; Long distribution life cycle and make-up processing

seeking for perceived fashion Relatively less seasonal; superiority and trendiness; Very seasonal, volatile perishable ; Short distribution life cycle

From the table, we can see that the design task for the high fashion business endeavours the product attribute innovation in a market 30

environment that is complex and turbulent. The design processes should be supported by mechanisms that entail sufficient adhoc and market-oriented collaboration in team structure. On the contrary, the design task for the mass fashion category favours integration mechanisms that effectively share, discuss and record information in complex but relatively stable business environment. As such, the team structure is characterized by a strong expert-oriented outlook and the communication flow is inclined sequential and in a structured way.

4.2.2 The factors determining the successfulness of a new product development. From the perspective of a businessman in a for-profit company, successful merchandise development results in merchandises that can be produced and sold profitably. Yet, profitability of a merchandise item or a merchandise mix is quite difficult to foresee and assure. But we can relate few dimensions more specifically to profit and make use of these dimensions to assess the performance of development activity effort : 4.2.1 Quality How good or how consistent is a merchandise (/mix) resulting from the development effort? In common, quality is reflected in market share and the price that customers are willing to pay. A company would confine activities of development to certain desired quality levels that are measurable or cognitively perceived.

4.2.2 Merchandise cost Cost determines how much profit accrues to a company for a particular sales volume and a particular sales price. Conclusively, it includes costs of goods procured, sustained and sold. 4.2.3Development time Fashion carries the inherent characteristics of change and tightly relates to the issues of time/season consistency. ‘How quickly’, ‘how responsive’, ‘how frequently’ etc become main 31

concerns. To appreciate this issue, we can compare the development times between athletic wear in national label and that in exclusive chain label. 4.2.4 Risk. It concerns how much the uncertainty of market demand for the developing merchandise in the phase of development process and the corresponding impact on the overall performance of merchandising businesses.

4.3 Who develop merchandises? Development is an interdisciplinary task requiring contribution from nearly all the functions of a firm. main functions: 4.3.1 Design function Fundamentally, it involves three

leads to definition of the best physical features of fashion merchandise to meet customers’ wants. In essence, product design and development for textile and garment products are regarded as evolutionary and tractable from main streams of consuming culture. It can be methodological or intuitive. Anyway, companies introduce seasonal new product pertaining to their own objectives, perceived values and images. In the course of implementation, the function involves manufacturing design and feature design.

4.3.2 Marketing function mediates the interactions between the company and the customers. It facilitates the (i) identification of market opportunities, (ii) definition of target market (customers’ voice), 32

(iii) positioning of merchandise value against customer’s cognition. 4.3.3 Manufacturing function is mainly responsible for designing and operating the production process. Pertaining to technical restrictions and cost considerations, initial product concepts and features may be refined through series of the manufacturing processes. 4.4 How can we identify customer expectations in fashion? We can easily trace out evolution of fashion cycles but there is no guarantee in our foreseeability in fashion future. There is no time series, no time correlation coefficient. It is not mathematical and we cannot find a genius of forever fashion design. So, before focusing on issues of what is wanted, we should comprehend clearly the customer’s intrinsic needs in fashion. The following set of guidance may be helpful : 4.4.1 Ensure that the merchandise is focused on customer personal needs (aesthetics, security, expression of selfs, youth, acquisitiveness, etc .. in terms of personal motives) 4.4.2 Ensure that no critical components of customer behavioral needs is missed (convenience, exclusiveness, choice of variety, shopping ambiance etc.... in terms of making behavioral decisions) 4.4.3 Establish merchandise development policies /directions in consistent with the above two and specify them in terms of fashion language, i.e. theme/story, colour, size, silhouette, cut, fabric, assortments, details, fits, coordination, texture, hand feel, impression, etc.  tangibles

4.4a What is the generalized processes of selecting product lines?

33

4.4.1

portfolio generation (strategic or graphical report introducing a new product into an established product line; it describes how well any new item will work within an existing product line),

4.4.2 line selection (screening), 4.4.3 competitive benchmarking of “successfuls” (earmarking the best items/practices) and 4.4.4 establishment of (a) merchandise plans, (b) merchandise specifications and (c) sample development.

(let’s see the following example in which Gap establishes her women’s lines in this fall/winter) http://www.gap.com

34

Further, Gap decomposes the Ts line in several themes; each of which carries several co-items in mix-&-match

The women’s lines provided for this Fall/winter in Gap.

So let’s imagine how large a merchandise base would be in a trade season. In reality the development of the merchandise base takes lots of resources and goes through series of market investigation. Buying and merchandising learn from tremendous painful experience.

35

4.4b In the course of product development, what are the major purposes of prototype sample development? Prototype samples are used for the purposes of: a. Learning - analytical purpose for modeling product features or functions b. Communication - visual, tactile, tangible representation of a product. It can be applied for participants involved to communicate the sorts of interest. c. Integrative standard - reinforcing consistency for comprehensive standard in development process. It helps to integrate all perspectives in different functions for a product development task. d. Milestone - tangible goals to demonstrate progress and to enforce the schedule.

So, attempt to define functions and purposes for the following types of sample in typical trade practices: Functions and purposes: Enquiry sample

Counter sample

Proto sample

Approval sample

Salesman sample

36

Promotion sample

Display sample

Pre-production sample

Production sample

Shipment sample

Inspection/testing sample

4.5 What are the major factors determining a fashion demand? 4.5.1 Price Analogous to general merchandises, demand in quantity of a fashion is mainly subject to the price level itself: when the price level is high, the quantity demanded is relatively low; when the price level is decreasing, the quantity will then accordingly increase. In economic sense, it is what we call normal goods. However, it is not a rule. Remember the stereotyped example of margarine. In many cases, fashion with the higher price level has better attractiveness and can give rise to a wave of demand in a particular period. That is why we have to look into more detailed some other 37

determinants of fashion demand. 4.5.2 Purchase Power Fashion is about wants rather than needs; we spend a certain amount of income to buy clothes. So, with higher income, we likely spend more on fashion. Of course, it is not absolute to every people. But we can say sure that higher purchase power will accelerate the fashion cycle and drive forward depreciation of existing fashion. It also co-relates to a certain to few social phenomena, says, expressions of affluence in terms of material (materialistic) and appreciation of finer things in life (quality of life). 4.5.3 Leisure time Similarly, we cannot exactly associate fashion demand with this factor. But people with more leisure time would be indeed encouraged additional consumption; e.g. sportswear and leisure casuals. 4.5.4 Status of women??? A controversial factor. contemplate this by your own belief. But we cannot neglect that being single, being independent liberalize the social attitude towards working women. So consider their expenditure on career wear. In reality, more than 40% of the Hong Kong export garments to U.S. account for ladies’ wears. Seasonal change Changing seasons accelerate the fashion cycle. And customers living in year-round warm or chilly climates will have less fashion needs than in those places with clear-cut seasonal climates. Religion and Custom It can be referred to the cultural mechanisms of fashion evolution. (being a member of groups with certain kinds of conformity and shared recognition) 38

4.5.5

4.5.6

4.5.7

Customer perception Today’s consumers become more knowledgeable and sophisticated. Fashion is now a two-way street : what consumers want inspires designers creativity as much as designers influence what consumers want.

The above factors are only just few of those we quote as major determinants on fashion demand. In reality, we can categorize them into the following groups : a. Behavioral determinants e.g. buying habits in different ages b. Socio-cultural determinants c. Techno-economic determinants e.g. transformation of economy d. Demo-psychographic determinants e.g. attitudes of each social group.

4.6

How can the concepts of product life cycle be applied in managing today’s fashion diffusion in markets?

Life cycle concepts are commonly applied in today’s product development and management areas. In reality, these concepts evolve a number of generic techniques for companies to manipulate their product development. They include product modularization (car making, printer making, textile processing), design for variety, design for assembly, life cycle product design and so on. All the techniques follow a key concept that products have their own life cycle in term of popularity in market. Here we do not discuss these techniques or review the base of life cycle principles, but we delve deeper into the essence of a fashion product life. Unlike most other products, fashion is intensely cyclic and follows an orderly but very short periodical pattern (in practice, retailers commonly anticipate lines of novelty around two months long). Let us go through stages of the following: 4.6.1 Introductory stage In this first stage, a ‘fashion concept’ is worn/introduced by “innovators”. Such innovators may be renowned 39

designers, stars and fashion pacesetters. It is always premium-priced to capture upper layers of social class or fashion segment and to compensate restrained volume in heavy initial investment. Limited volume is distributed in exclusive outlets so that it is generally perceived as superiority in sense of fashion leading. For such type of products, short supply lead-time is preferred. It is then starting to capture public awareness. 4.6.2 Growth stage The concept diffuses out and “trend setters” promote the concept (it is dressed for persons with high celebrity). Designers and department stores widely interpret this as contemporary trend and enhance effort to promote. The stores’ inventory builds up as a keen demand is expected. It is therefore advertised in high fashion publications with strong perceived image and values. The sales progressively increase and start to attract subsequent layers of consumer segments

4.6.3.1 Acceptance stage I It is then much featured in window displays and advertisements. It is commonly regarded as best seller and a line of fashion ‘cash cow’. Since the popularity increases, the distributors seek for better sourcing as a result of intense demand and eagerness for better accounting performance. Offshore sourcing prevails. This moment, sales volume continues increasing and requests more sales points to absorb. 4.6.3.2 Acceptance stage II The sales figures approach to peak level. The market is saturated with the concept and/or imitated items/knockoff. Wide alternative versions are available in the market and penetrate into every sale corner of marketplace. Consumers become ‘price sensitive’ and more concerned with the monetary value than image or self-issues. The distributors are forced to emphasize on cost efficiency. 40

Some innovators are then tired of vigorous competition with sheer unit earning and looking for effective substitutes for the present fashion preference. 4.6.3.3 Acceptance stage III The sales seem declining. The distributors decrease the level of inventory and extensively promote the fashion as valued items. In this situation, importers offer bottom/budget price. Consumers becoming more rational and choose a ‘better off’. High fashion houses start to offer 2nd line labels to differentiate the original ‘concept’. 4.6.4 Decline stage From this moment, demand drops and reflects the change of preference. It can be said as a fading item and stepping out of trend. In literal sense, it is perceived as loss generators and high risk of market failure. To summarize, this framework attempts to model the temporal change of a fashion preference. Actually, the concept is analogous to that of product with a life cycle time. The cycle regards popularity changes of product in a pattern that it passes through stages of introduction, rise, culmination, and decline.

41

Better known in society; being defined as fashionable; volume increasing; competition becoming keen; better supply sources in volume and price is being demanded

Sales relies on heavy promotion; trend is being diffused thorough all society classes; wide variety of pricing; market is tired of the fashion

INTRODUCTION GROWTH STAGE STAGE

Sales approaching to peak; market are bing saturated with mass imitators; vigorous competition skimming out of profit; volume are being offered

innovating, premium priced; limited distribution; perceived as superiority

VOLUME OF UNITS SOLD

ACCEPTANCE STAGE

DECLINING STAGE

Diffusion cycle of a market acceptance

Therefore, Product Diffusion Cycle is to predict demand of a product in consumer or industrial markets. It is also used to simulating the possible development of the product popularity and the dispersion along a period. Of course, in reality the development of the product diffusion is not so necessarily smooth as that illustrated in our example. There are unlimited possibilities of a curve movement in types of this model. However, when we just focus on a general merchandise demand preference (a concept, style, item or even idea) for a relatively short period, its development may be nearly analogous to the diffusion cycle. Now let us imagine what a product manager can do with regard to this product management concept. We presume two business environments as follows: 1. There are a lot of customers and suppliers in a specific market. The market-entry barrier seems not significant (i.e. it is easy 42

Demand drops and consumer preference shfits way from it; lowest fashionability; loss generator and being regarded as market failure

Promoted by trend setters; sales progressively accelerating; caputring society awareness

to enter into this kind of business; probably because of low-capital investment, or difficulty of making differentiation in product, distribution or utility. Very competitive. Customers enjoy nearly absolute freedom to choose or not to choose. 2. There are few supplier but adequately large in the number of customers. The demand preference is relatively steady and indeed, it takes a considerable time and investment effort to establish and maintain the demand. Creating a “new” is risky or even regarded cannibalistic to the existing supplier owned products. Now give your suggestion.

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