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Chapter 4

FSN 132 Chapter Notes - Chapter 4: Sole Proprietorship, Nordstrom, Old Navy

Course Code
FSN 132
Luann Lafrenz

of 4
Chapter 4: The Business of Fashion
- Business is the activity of creating, producing and marketing products or
services; objective is to make a profit
- Profit (net income): amount of money a business earns in excess of its
Economic Importance of the Fashion Business
- Fashion business is one of the largest employers in the country and
contributes significantly to the economy through materials, services, wages
- Growth of mass markets, production and methods contributes to new job
opportunities in fashion industry in design and market as well as production
Scope of the Fashion Business
- Fashion business has a lot of industries working to keep consumers satisfied
4 different levels and are separate entities but work interdependently to
provide the market with fashion merchandise
Primary Level
- Composed of growers and producers of raw materials of fashion: fibre, fabric,
leather, fur producers
- Earlier planning in colour and texture
- Up to 2 years’ lead time is needed before goods are available to consumer
Secondary Level
- Composed of industries manufacturers and contractors that produce the
semi-finished or finished fashion goods from the materials produced on the
primary level
- Designer and manufacturers of all apparel
- Work from 6 months 1.5 years ahead of consumers
Retail Level
- Ultimate distribution level buy their goods from secondary level and
supply them to consumers
- Retail level work with primary and secondary; make initial purchases for
resale to customers from 3-6 months before customer buying season
Auxiliary Level
- Composed of all the support services that are working constantly with
primary, secondary and retailers to keep consumers knowledgeable about
fashion media (print, audio, visual)
Diversity and Competition
- Giant firms, small companies, regional/local, business side by side, sole
proprietorship, conglomerates
- All of these must understand their customer
- Each company must compete with others for customers’ business- price,
quality or innovation; businesses sells the same things
Competition and Price
- Selling garments for less may bring you more business but it is less money so
still may need to cover cost and expenses
- Goal is to it will attract more customers and sell more with a good overall
profit (for low prices); competition is good to keep prices low
- Private sale shopping sites, businesses are increasing their competitiveness
to increase demand by limiting memberships
Competition and Quality
- Compete for customers by offering higher-quality goods; offering better fit,
durable fabric and better styling
- Increases choices available to consumers; maintain high status
Competition and Innovation
- Variety in types of merchandise and services offered to the public
- Changes in taste and technology brings innovation to garments; constantly
creating new business opportunities
Forms of Business Ownership
Sole proprietorship (single)
- Ability to keep all profits, simple to form and easy to resolve, ownership
- Unlimited financial liability, lack of continuity, management deficiencies
Partnership (a few)
- Ease of formation, greater financial capacity, less red tape
- Unlimited financial liability, interpersonal conflicts, harder to resolve issues
Corporation (many owners)
- Specialized management skills, easy to transfer ownership, greater financial
- Difficult and costly ownership form to establish and dissolve, tax
disadvantage, legal restrictions
Business Growth and Expansion
- Rise of corporate giants which grew mergers, acquisitions, internal
expansion led to demise of old famous sole-proprietorship
- Corporate growth and expansion occurs internal growth, mergers and
Internal Growth
- Ability to offer more services and broader assortments of merchandise
- Horizontal growth- expands its capabilities on level which is already
successful; (apparel add new lines or new branches)
- Vertical growth: expand its capabilities on levels other than its primary
Mergers and Acquisitions
- In a merger, one company is sold to another; forms a larger corporation’s
greater purchasing power or they want to sell stock to obtain financial
resources needed for expansion
- Operating economies can be done by combining companies
- Diversification additions of various lines, products or services to serve
different markets may also be a reason; ex: Banana Republic, Gap and Old
The Franchise
- Growing business arrangement is franchise- contract that gives an
individual the right to own a business while benefiting from the expertise of
an established firm
- In return, the franchisee pays parent company the sum and royalties
- Mostly found in fast-food, convenience stores, car dealers, retailing
- Franchisee gets into business quickly and benefit from training programs
and mass purchasing offered by franchisor, provided with a ready market
that identifies the store name thus assuring customer traffic
- Franchisor control over its distribution network, limited liability, less need
for capital expansion royalty and fees add to profit of parent company
- Franchisee Find profits small in relation to work and time, limited
flexibility at the local level, risk of franchise arrangements organized to sell
- Franchisor slim profits that it may want to own stores rather than franchise
- Legal arrangement where firms are given permission to produce and market
merchandise in the name of the licensor for a specific period of time they
are paid royalty fee (2-15%)
- US is largest single market for licensed merchandise worldwide
- First designer to license name was Dior ties
- Many fashion labels extend into home furnishing through licensing
- Popular TV shows have spawned apparel and other products based on their
themes/characters are licensed
- Advantage: Highly recognized name = connotes high quality, also symbolizes
The Designer’s Role
- Different opportunities in the field of design fashion, furnishing,
- Designs must reflect consumer attitudes and expression to artistic ideas;
must be produced at profit and within wholesale price range = designers
have to consider availability and cost of materials, image that firm wants to
maintain, production techniques
Types of Designers
1. High fashion or “name” designers: establishing image and designs for
company, ready to wear lines, license their name to manufacturers
2. Stylist-designers: work for manufacturers and adapt design of others; create
variations of less expensive fabrics for a lower target market
3. Freelance designers: sell sketches of their designs to manufacturers; not
involved in selection of fabrics/business decisions for their design
Sources of Design Inspiration
- Designers get inspired everywhere; art shows, expositions, theatre, music