Fashion Marketing Management 9789385059490, 9788193644614

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Fashion Marketing Management

Fashion Marketing Management

Dr. V. Ramesh Babu, Mr. A. Arunraj

WOODHEAD

PUBLISHING INDIA PVT LTD New Delhi, India

Published by Woodhead Publishing India Pvt. Ltd. Woodhead Publishing India Pvt. Ltd., 303, Vardaan House, 7/28, Ansari Road, Daryaganj, New Delhi - 110002, India www.woodheadpublishingindia.com First published 2019, Woodhead Publishing India Pvt. Ltd. © Woodhead Publishing India Pvt. Ltd., 2019 This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission. Reasonable efforts have been made to publish reliable data and information, but the authors and the publishers cannot assume responsibility for the validity of all materials. Neither the authors nor the publishers, nor anyone else associated with this publication, shall be liable for any loss, damage or liability directly or indirectly caused or alleged to be caused by this book. Neither this book nor any part may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming and recording, or by any information storage or retrieval system, without permission in writing from Woodhead Publishing India Pvt. Ltd. The consent of Woodhead Publishing India Pvt. Ltd. does not extend to copying for general distribution, for promotion, for creating new works, or for resale. Specific permission must be obtained in writing from Woodhead Publishing India Pvt. Ltd. for such copying. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation, without intent to infringe. Woodhead Publishing India Pvt. Ltd. ISBN: 978-93-85059-49-0 Woodhead Publishing India Pvt. Ltd. Master E-ISBN: 978-81-936446-1-4

Contents

1.

2.

3.

4.

Introduction to fashion business

1

1.1

Fashion business

1

1.2

Fashion cycle

2

1.3

Dynamics of fashion

6

1.4

Factors influencing fashion movement

10

1.5

Classification of textile and apparel industry

13

References

19

Apparel marketing

21

2.1

Introduction to marketing

21

2.2

Fashion marketing

24

2.3

Fashion markets

37

2.4

Consumer behaviour in fashion

47

2.5

International marketing

54

References

59

Fashion merchandising

61

3.1

Types of merchandising

61

3.2

Fashion merchandising

65

3.3

Product planning and development

78

3.4

Fashion forecasting

89

3.5

Merchandise planning

93

References

98

Apparel merchandising

99

4.1

Introduction to apparel merchandising

99

4.2

Sampling

105

vi

5.

6.

7.

8.

Contents

4.3

Apparel merchandising procedures

112

4.4

Time and action (T&A) plan

124

4.5

Merchandising plan

132

References

148

Retail and visual merchandising

149

5.1

Introduction to retailing

149

5.2

Process of retail merchandising

152

5.3

Retail merchandise planning

158

5.4

Retailing formats

167

5.5

Visual merchandising

173

References

185

Sourcing

187

6.1

Introduction to sourcing

187

6.2

Sourcing decision

193

6.3

Sourcing in apparel industry

197

6.4

Factors affecting sourcing of fabric and trims

200

References

207

Garment costing

209

7.1

Introduction to garment costing

209

7.2

Steps involved in costing of garments

213

7.3

CMT (cost of making) cost

215

7.4

Trims and accessories cost

221

7.5

Shipment cost

238

7.6

Cost sheets for ladies, men and children’s wear

240

References

248

Export documentation

249

8.1

Export documentation

249

8.2

Classification of export documents

253

8.3

Terms of delivery and pricing

266

8.4

Export financing

271

References Index

274 275

1 Introduction to fashion business

Abstract: The chapter 1 discuss the Fashion Business as big business sector and how the fashion life cycle influence the fashion business. Further this chapter explains the acceptance of fashion, Dynamics of fashion, season change and fashion change. Additionally, the chapter describes the Factors influencing fashion movement and Classification of textile and apparel industry. Key Words: fashion, business, seasons, life cycle, ready-made garments.

1.1

Fashion business

Fashion is a big business. The fashion industry employs more number of people. The term ‘fashion business’ is generally with reference to all companies and individuals concerned with the design, production and distribution of textile and apparel goods.1 Unlike any other industries such as automotive products manufacturing industry and tobacco industry, the fashion industry is not a clearly defined entity. During recent years, the general interest in fashion has increased enormously. Fashion determines what people will buy. Change in fashion is the motivating factor for replacing clothes, cosmetics, furniture, housewares and automobiles. Fashion causes changes in customer goods, and at the same time, makes people want for the new product. Fashion business includes all the industries and services connected with fashion: design, manufacturing, distributing, retailing, advertising, publishing and consulting or any business concerned with fashion goods and services.

1.1.1 Fashion: Big business sector Fashion essentially involves change defi ned as a succession of short-term trends or fads. The competitive ethos of the fashion industry revolves around seasonality. The industry has interest in developing new products for the customer at the expense of existing items and the customers appreciate the continual change in the fashion products and services. Most important is the need for fashion and the need for change in fashion (Fig. 1.1). Therefore,

2

Fashion Marketing Management

Figure 1.1

Fashion business

identifying customer needs is essential to the industry. The continual change in fashion involves the exercise of creative design skill which results in products that range from the basic to the rare and elaborate. The creative design brings in the need for change. Hence, the ability to identify products that the customer needs and will buy is important and essential to the industry. Marketing can provide this knowledge and the skills of knowing the creative designs and customer needs, allowing for the success and growth of the industry. The application of marketing plays an important role to make fashion a big business.

1.2

Fashion cycle

Fashion cycle refers to the rise, wide popularity and then decline in acceptance of a style. The various stages of fashion cycle are as follows (Fig. 1.2): •

Introduction – Where new style, colour, texture, and so forth are introduced as ‘high fashion’ to target customers.

•

Rise – Where copies or knock-offs enter market as duplicates.

•

Culmination – Where the fashion is at its peak for sufficiently longer period.

•

Decline – Where boredom sets in, and the sale is on a decline. Declines are faster.

•

Obsolescence – Where a strong distaste for style occurs, and sales is at its lowest level.

3

Introduction to fashion business

Figure 1.2

Fashion cycle

It is impossible to predict the length of cycles. Rapid developments in communication have speeded up fashion cycles. Because of this, intense competition also sets in. An appetite for constant newness/change is insatiable for the consumers. Economic depression like war periods could lead to breaks in cycle. Broken cycles pick up after normalcy from where it has stopped. Long-run fashion cycles take more seasons to complete cycles, whereas short-run fashion cycles take fewer seasons to complete the cycle. •

Silhouettes are long-run fashions as they do not change drastically.

•

Details which undergo subtle changes are short-run fashions.

•

Colours, textures, which were once thought as short runs have been considered as long runs as studies have shown that emotional and psychological changes influence colour.

•

Accessories (shoes, handbags, jewellery, millinery, gloves, belts, scarfs, cosmetics, etc.) are regarded as apparel items and have full fashion cycles. They are long runs.

•

Classics have the longest runs. Examples are sweaters, cardigans, jackets, and so forth.

•

Fads which are here-today-gone-tomorrow have the shortest runs.

1.2.1 Philosophies of fashion: style, distinctive characteristics The five fundamental philosophies of fashion are: i. Customers are the ones who create fashion and not the designers. Consumers decide when a style no longer appeals and which one will be favoured.

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Fashion Marketing Management

ii. Fashions are not based on price. iii. Fashions are only evolutionary in nature (i.e. styles evolve gradually from one to the other). They are rarely revolutionary. Designers always keep current trends in mind and make modifications in designs. iv. No amount of sales promotion can change the direction of fashion. v. All fashions end `in excess. These philosophies do not change from season to season or year to year. They provide a solid foundation for fashion identification and forecasting.

1.2.2 Concepts of fashion acceptance Fashion is first accepted by one society or group of people and goes on to be followed by other groups.2 There are three concepts related to the adoption of fashion (Fig. 1.3). They are as follows: 1.

Downward flow theory (trickle-down theory) – Here, fashion is first accepted by people at the top of the society who form the higher income group, and later on adopted by people at the lower level group, who form the low-income group. ‘Haute couture’ are major fashion houses of the world, run by internationally recognized famous designers. They show their collections – which are their own original creations – at international fashion shows and sell their garments for exorbitant prices.

Figure 1.3

Concepts of fashion acceptance

5

Introduction to fashion business

2.

Horizontal flow theory – Here, fashion is adopted by people at similar social level or income levels. They are accepted by peers, friends and others who are of an equal status. These are also called the ‘designer wear’ or ‘prêt-à-porter’ and are ready-to-wear garments sold at exclusive department or specialty stores. Designs are not unique but are produced in limited numbers.

3.

Upward flow theory (Trickle-up theory) – Here, fashion is first accepted by the young low-income group, and moves to higher income group (e.g. khaki pants, jackets, cowboy dresses, etc.). ‘Mass market’ or ‘street fashion’, as it is called, are cheaper versions of garments that are produced and sold to the people of lower income group.

The more affluent will buy several haute couture outfits but turn to designer wear for every day. Women who mostly buy designer ready-to-wear may occasionally splash out on a couture dress for a very special occasion. Those who generally buy only mass marketing clothes may still buy designer wear occasionally if only from discount stores.

1.2.3 Buyer groups Buyer groups are classified as below (Fig. 1.4): •

Fashion leaders

•

Fashion followers

•

Fashion victims

Figure 1.4

Fashion buyers group

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Fashion Marketing Management

Fashion leaders: Are those who look for new fashion and wear it before it becomes generally acceptable. Among them are ‘fashion innovators’ (who actually create fashion), and ‘fashion role models’ (who influence other people’s way of dressing). Fashion followers: They follow fashion only after they are sure of trends. This can be classified on the basis of the time of acceptance of new fashion. •

Early adopters

•

Late majority

•

Laggards

Fashion victims: They blindly follow a brand without any discernment and any analysis.

1.3 Dynamics of fashion ‘Dynamics of fashion’ refers to a basic force and the laws relating to the force that explain its patterns of change and growth.3 Two types of changes have a profound effect on the apparel business (Fig. 1.5). They are: •

Fashion change

•

Season change

Figure 1.5

Dynamics of fashion

Introduction to fashion business

7

1.3.1 Fashion change Fashion is a natural instinct in people. Men and women are fond of adorning themselves to look more attractive and unique. Generally, fashion refers to the change in style of garment. If a particular style is accepted by a particular group of people (fairly large group), over a sufficient length of period (fairly large period), it is called ‘fashion’. Many fashions can also coexist. If however the style acceptance is only short-lived and has affected relatively few of the total population, it is ‘fad’. Fashion is a vital, ever-changing force. Fashion change occurs because consumers get bored with whatever is widely accepted. They constantly seek new and different variations. The variations can be in colour, style, fabric, silhouette, design and so forth. Everything we do daily is influenced by fashion – what we wear, how we live, what we eat, how we spend our leisure time, how we travel, where we work and so forth. The change in fashion is more and more dynamic because of newer fibres being discovered, newer technologies emerging, developments in communications and so forth. Some of the terms related to fashion are as follows: •

High fashion – Styles or designs accepted by a limited group of fashion leaders – the elite consumers, who are the first to accept fashion. They are sold in small quantities and at relatively high prices.

•

Mass fashion (volume fashion) – Styles widely accepted and sold in large quantity.

•

Style – It is the characteristic or distinctive appearance of a garment (e.g. jackets, skirts, trousers, etc.).

•

Silhouette – It is the outline or contour of a costume. It is also called shape or form (e.g. straight, tubular, bell shaped, back fullness, etc.).

•

Design – It is a specific version of style (e.g. gored skirt, pleated skirt, etc.).

•

Classic – A style or design that satisfies a basic need and remains in general fashion acceptance for an extended period of time (e.g. sweaters, coats, etc.).

•

Details – Individual elements that give the garment its silhouette (e.g. pant length, width, shoulder, waist, sleeve, etc.).

•

Texture – It is the look or feel of the material (woven, knitted or nonwoven). It can affect the appearance of a silhouette, giving it a bulky or slender look based on smoothness or roughness. Texture influences drape, changes light reflection, and makes wearer brighter or duller.

•

Colour – It includes shade, tint, and so forth.

8

Fashion Marketing Management

1.3.2 Seasonal change It refers not only to changes in weather, climate, and so forth but also includes holidays, cultural changes, traditions, and so forth. People no longer buy products to keep them dry and warm or cool and comfortable. They buy them because the product can make them feel masculine/feminine, sporty, rugged, different, sophisticated, young, glamorous, sensual, rich, successful, and so forth. 1.3.3 Timing and product presentation The timing of development of new products and presentation is largely dependent on ‘seasons’ and ‘fashion’. The combination of fashion change and seasonal change makes the apparel business the most change-intensive business in the world. Apparel professionals plan and implement product changes based on interpretations of target customers’ needs and wants. Deadlines and delivery dates have to be met. Managing change requires careful timing. A fashion or seasonal product that hits the market a few days later may be totally unsaleable. Fashion business is unique because of the following factors: They have: 1.

Long lead times: That is, planning for product presentation starts many months in advance with fashion forecasting, product development, and finally product manufacture.

2.

Higher markdowns: Once a product is unsold after the end of a particular season, it is useless and has to be sold only at a discount.

1.3.3.1 Seasons The four major seasons are spring (around February), summer (around May), autumn (around August) and winter around (November). In general, springs/ summer and autumn/winter have been clubbed as two major seasons for the marketing of garments. Clothes are basically designed for various seasons. For example, Summer wear: These are lightweight fabrics, more absorbent fabrics and the garments have more revealing designs. Loose-fitting garments made up of cotton, linen or viscose are generally preferred. The garments are made of cool colours. Winter wear: These are made of heavyweight fabrics, which have more thermal retention properties (like wool, acrylic, etc.). The garments are designed to give full cover to the body and also to give a tight fit. Warm colours are preferred. Knitted fabrics give good drape and hence are preferred.

Introduction to fashion business

9

In-between seasons, and for specific occasions, most other fabrics and garment designs are used. Thus, seasons greatly influences fashion. Due to global warming, it has been observed in practice that weather has become unseasonal – summers are too long, and winters are milder or more severe. This change in seasons very much affects fashion as the garments which are released during those seasons are designed at least 8–12 months in advance. Planning for ‘product launch’ for a fashionable garment, for example, ‘winter wear’ starts early in the month of September, and the various activities carried out during 10–12 months period are given below: 1.

Early September – Here, development of new concepts is carried out, last year’s range is analysed and good and bad sellers are identified.

2.

Late September – Here, screening and further product development take place.

3.

Early to mid-October – This is the second phase of screening where visits to fabric fairs take place.

4.

November through to end of January – Product development is finalized, test marketing is carried out and sampling and negotiations with suppliers and agents are carried out. In this period, production and range planning is carried out.

5.

Mid-February – Marketing strategy is formulated – the promotional mixes (product, price, place and promotion) are finalized.

6.

April to May – Production and quality checks are carried out.

7.

July to August – Launch of products in stores.

Thus, the product is launched or presented to the customers, at least 3 months ahead of the season. For this launch, planning must be carried out 10–12 months ahead of the time of product launch for the season. 1.3.3.2 Fashion Fashion is fast changing. The life cycle of fashion is getting decreased because newer fibres, fabrics and technology are being developed. Successful merchants must determine what their particular target group of customers is wearing now and what it is most likely to wear a month or 3 months from now. They must be able to interpret at what stage the current fashion is. By careful observation of the buying pattern, once the acceptance of a particular style is proved, the product line can be added. But quick response to fashion must be there.

10

Fashion Marketing Management

1.4

Factors influencing fashion movement

There are many factors which influence fashion movement. Some accelerate fashion and others retard fashion movement. These are described below: Accelerating factors: •

Increased buying power of consumers

•

Increased leisure

•

More education

•

Improved status of women

•

Technological advancements

•

Sales promotion

•

Changes in seasons

Retarding factors: •

Decreased buying power

•

Habits and customs

•

Religion

•

Sumptuary laws (laws relating to dressing – based on religion or moral grounds)

•

Nature of merchandise

•

War, calamity, natural disasters, and so forth

1.4.1

Effect of environment, people and economy on fashion The conditions under which we live is called ‘environment’. Environment differs from one target group to another. The four major environmental factors affecting fashion and demand is elaborated below (Fig. 1.6). •

Demographics and psychographics: Demographic refers to the consumer groups based on population distribution, age, sex, family life cycle, race, religion, nationality, education, occupation and income. Psychographics reflect purchasing patterns and distinguishes users of products. It helps companies understand behaviour of present and potential customers. The variables covered under psychographics are personality, attitude, interests, personal opinions, actual product benefits desired and so forth.

Introduction to fashion business

Figure 1.6

11

Factors influencing fashion movement

•

Economic factors: It includes consumer income – their personal income, their take-home pay and disposable income (the amount left to spend), discretionary income (the amount left for luxuries after needs are satisfied), population characteristics and technological advancements. The inflation rate (i.e. demand in excess of supply) and recession (i.e. scarcity of money), both reflect consumer’s buying patterns.

•

Sociological factors: Changes in fashion are caused by changes in attitudes of consumers, which in turn is influenced by changes in social patterns. The key sociological factors are leisure time (which inf luences casuals, sportswear, leisurewear, beachwear), ethnic inf luences, status of women (includes jobs for women, money available with them, their education, their social freedom and mobility, etc.), social mobility, physical mobility, war, disasters, crises and so forth.

•

Psychological attitudes of the consumers: The five basic psychological factors that influence fashion demand are boredom (leads to desire for change), curiosity (to experiment), reaction to convention (young people rebel to conventions), need for self-assurance (to overcome inferiority) and a desire for companionship (to seek a mate).

12

Fashion Marketing Management

1.4.2 Fashion influencers Designers, manufactures and retailers influence fashion by providing an unending series of new styles, from which consumers choose those that best express their lifestyle and personality.1 The timing of introduction is important. 1.4.2.1

Role of designers

The advent of computers, designing, software and television has opened countless new avenues for designers. Ever-expanding opportunities exist. Great designers produce saleable and exciting designs. Designers must be aware of current events, socio-economic conditions and psychological attitudes of consumers. In order to predict the movement of fashion, the following are essential: 1.

Identifying trend – It is finding out the direction in which fashion is moving. Manufacturers and merchants try to recognize each fashion trend to determine whether it is moving towards or away from maximum acceptance.

2.

Sources of data – Information about fashion trends can be accessed from various sources such as record of sales, customer lifestyles, economic status, educational levels and so forth.

3.

Interpreting influential factors – The influential factors include current events, styles, sales promotional factors, importance of timing (season, stage of fashion life cycle, etc.).

1.4.2.2

Types of designers

1.

High fashion designers – Who are known to create new designs. They are called haute couture.

2.

Stylist designers – Who adopt successful designs and make slight modifications in it.

3.

Freelance artist designers – Who sketch for manufacturers. Some may be original creations.

A designer must take a fashion idea and embody it in a new style. Insight and intuition always play a large part in a designer’s success. Constant experimentation is a must. As one fashion reaches the decline stage, a designer must have new styles ready to be launched. 1.4.2.3

Manufacturer’s role

Manufacturers can be classified into three groups, namely (a) high fashion and innovative apparel manufacturers, (b) manufacturers who adapt styles which have survived introduction stage and (c) manufacturers who mass produce

Introduction to fashion business

13

for the budget market, and who do not produce any new style. Manufacturers must have the ability to anticipate the public’s response to styles and must act immediately. In the fashion industry, the survival of the fittest means the survival of those who contribute the most to the birth and growth of fashions that consumers buy. Quick response to fashion is very essential. 1.4.2.4

Retailer’s role

Retailers do not create fashion but encourage or retard the selling process. Retailers are again classified into three types – (a) fashion leaders who introduce new styles which are expensive, (b) traditional retailers who feature those designs that are on the rise (this category of retailers are in large numbers) and (c) mass merchants who feature only widely accepted fashions, which are in the culmination stage. They deal with mass-produced garments and those which are cheap. Some retailers are so intuitive or creative that they go a step ahead of their suppliers in anticipating the styles their customers will accept. Such retailers accelerate the introduction and progress of new fashions. Product development is becoming more and more important for major retailers. Instead of simply selecting what the producers are offering, retailers must carefully shop the market, selecting styles they feel will be of interest to the customers. When customers are ready to buy, they must have the products in stock. No amount of retail effort can make customers buy styles in which they have lost interest. The retailer must understand his or her customer’ fashion preferences and offer assortments in it.3

1.5

Classification of textile and apparel industry

1.5.1 Scenario of the apparel industry Apparel industry has evolved from hand-sewn ‘custom-made garment’ (RMG) to mechanized, automated, robotized, mass-produced ‘RMG’. It is a highly labour-intensive industry because of the variety of product categories, endless change in fashion – change in both materials and styles. Its business success depends on how the ‘customer needs’ are met.2 Today, the international apparel industry has become more and more competitive, and the survival requires the following: •

High level of technology and higher productivity

•

Quick response to fashion changes

•

Reduced cost

14

Fashion Marketing Management

•

Product performance

•

Improved quality

Apparel industry largely comprises the following activities: •

Sourcing textiles from national or international markets

•

Merchandising product range and product line

•

Manufacturing

•

Marketing to retailers/consumers

1.5.2

Types of textile and apparel industry based on sectors Textile and apparel industry is generally classified into five sectors: the fibre sector (comprising natural, semi-synthetic and synthetic fibre production units), the textile sector (comprising the production of yarns, fabrics, namely – weaving, knitting, non-woven sectors), processing sector (dyeing, printing and finishing units, industrial textile), accessories and trims sector (manufacture of interlinings, zippers, threads, trims, buttons, hooks, loops, fasteners and other accessories mentioned below), apparel manufacturing sector (apparel contractors inclusive), apparel retailing sector (comprising manufacturer–retail outlets, department stores, specialty stores, discount stores, etc.) (Fig. 1.7). 1.5.3 Types of apparel industry based on products The apparel industry caters to the needs of men, women, teens, preteens, boys, girls, children, toddlers and infants of various age groups. Women are more specifically classified as women, misses, junior and petite (Fig. 1.8). •

Outerwear – Suits, coats, overcoats, jackets, snowsuits, ski jackets, parkas, anoraks, sweaters, and so forth.

•

Furnishings – In the garment sector, it includes the manufacture of shirts, slacks, blouses, trousers, skirts, nightwear, sportswear, tops, bottoms, underwear, party wear, evening wear, bridal wear, maternity wear, socks, stockings and so forth. This category can also be classified as formals, semi-formals and casuals. In the home furnishings sector, it includes curtains, upholsteries, bedspreads, kitchen textiles, toiletries and so forth.

•

Intimate apparel – Underwears, banians, foundations, lingerie, loungewear, allied garments and so forth.

•

Heavy outerwear and work clothes – Jackets, waterproof outer wear, work shirts, work pants, uniforms and so forth.

Introduction to fashion business

15

Figure 1.7 Types of textile and apparel industry •

Leather, fur goods – Leather jackets, sweaters and so forth.

•

Accessories – Shoes, handbags, jewellery, millinery, gloves, neckwear, belts, scarves, handkerchiefs, sunglasses, umbrellas, wigs, cosmetics miscellaneous items.

•

Others – Closures (buttons, zippers, snaps, elastics, hook and loops, etc.), and trims (bindings, pipings, laces, appliques, labels, etc.)

16

Fashion Marketing Management

Figure 1.8 Types of apparel industry

1.5.4 Apparel industry based on ownership Apparel industry is classified based on ownership as below (Fig. 1.9): 1.5.4.1

Proprietorship concern

Here, one individual owns the organization, assumes all risks and operates the business for his or her own personal interest.

Figure 1.9 Apparel industry based on ownership

Introduction to fashion business

17

The advantages of such a type of concern are: •

There is no division of profit

•

One derives personal satisfaction by running it

•

One has freedom and flexibility to take any decision

•

Ease and low cost of organization or dissolution

The disadvantages are: •

One has to operate with limited resources

•

It would be difficult for a single person to manage

•

There is limited scope for expansion

•

Employees are not much benefited

•

Lack of continuity

1.5.4.2

Partnership concern

This is a type of organization, which is an association of two or more individuals to start the organization for profit. Some of the types of partners are working partner, silent/sleeping partner, secret partner and so forth. The advantages of such a unit are: •

The ease of organization

•

The ease of management

•

The ease of expansion

•

The ease of capital availability

•

Tax savings and so forth

The disadvantages are: •

Unlimited liability exists

•

Any decision-making is complicated

•

Differences of opinion crop-in and so forth

1.5.4.3 Private limited concern Here, up to 20 individuals have a stake in the organization. The advantages and disadvantages are the same as partnership concerns. As more individuals have joined together, the investment could be large, and high technology can be incorporated in the unit.

18

Fashion Marketing Management

1.5.4.4 Public limited concern This is a type of legal organization, where shares are issued to the general public who have a stake in the company based on the number of shares they own. The corporate structure consists of three groups – the stockholders, the directors (who own the majority of shares), and the executives (who carry out business on behalf of all stakeholders). The advantages are: •

Limited liability to shareholders

•

There is a transfer of ownership

•

Capital is not a problem

•

The level of technology can be high

•

Professionals can be employed, and so the management can be effective

1.5.4.5

Cooperatives

It is a group of persons which owns it and operates it with a service motive and not for profit. 1.5.4.6

Franchise

This arrangement is a contract that gives an individual or group of people the right to own a business while benefiting from the expertise and reputation of an established firm. In return, the individual, known as the ‘franchisee’, pays the parent company, known as the ‘franchisor’, a royalty on goods or services sold. Franchises may be sole proprietorships, partnerships or even public limited companies. The advantages are: •

Franchisee can get into business quickly.

•

Franchisee can benefit from training programs given by franchisor.

•

Franchisee is provided with a ready market that identifies with the store or brand name.

•

For the company, it ads profit without much effort.

Disadvantages are: •

Limited flexibility of franchisee

•

Profits may be meagre for franchisee.

•

Risk of buy-back arrangements

Introduction to fashion business

1.5.4.7

19

Licensor

Here, the licensor gives permission to others to produce and sell merchandise in his name. The licensor is paid a percentage of the sales, for example, designers licensing either the use of their original designs or just their names without design.

1.5.5 Business growth and expansion The growth or expansion of business can happen in a variety of ways: •

Internal growth: In internal growth, the management brings in more money and expands its business. It can horizontally (where the same business is expanded) or vertically (where related business or organization is established). For example, a person owning a garment unit starts a weaving unit, it is ‘backward expansion’. If he starts his own retail shop, it is ‘forward expansion.

•

Mergers and integration: Mergers, also called ‘integration’ and ‘acquisition’, refer to the sale of one company to another where the purchasing company usually remains dominant. Operating economies can be achieved by this way. Here again, horizontal integration refers to the addition of the same type of business (like a garment unit being purchased by another garment unit). Vertical integration refers to the addition of backward or forward processes. For example, if a garment unit buy fabric production unit then it is called ‘backward integration’ and if a garment unit buy a retail showroom then it is called ‘forward integration’.

•

Conglomerate: Conglomerate is a company consisting of a number of subsidiary companies in unrelated industries, For example, Amul Company entering into garment manufacturing, Godrej getting into soap manufacturing, and so forth.

References 1.

Grace, E (1978), Introduction to fashion merchandising, Prentice Hall, New Jersey.

2.

Kotler, P and Armstrong, G (1999), Principles of marketing, Prentice Hall of India, New Delhi.

3.

Jackson, T (2001), Mastering fashion and merchandising management, Mc Millan Press, London.

2 Apparel marketing

Abstract: The chapter 2 explains the concepts of Apparel marketing and scope of Fashion marketing. Marketing functions and marketing mix related to fashion industry are discussed in detail. Fashion markets, retail and wholesale markets, International and domestic markets, Textile fibre and fabric markets are described in this chapter. Role of Consumer behaviour and their influence on fashion marketing are discussed. Finally, the scope of International marketing and differences between international and local marketing are compared. Key Words: marketing, marketing mix, fashion markets, consumer behaviour, international marketing.

2.1

Introduction to marketing

Marketing is a total system of business activities designed to plan, price, promote and distribute want-satisfying goods and services to the benefit of the present and potential customers to achieve organization objectives.1 The analysis of this definition brings forth certain characteristics such as: • It is a total system of business activities, which are undertaken with a view to satisfying customer’s wants, that is, the business action should be market or consumer oriented. • It is an integral process with not only one activity but also a sum of several activities taken together and hence it is the result of the interaction of many activities. • Marketing programme starts with recognizing the consumer needs through producing goods/services to satisfy them. • Marketing must maximize profitable sales in the long run.

2.1.1 Definition The American Marketing Association (AMA) defi nes Marketing as ‘the performance of business activities that direct the flow of goods and services from producer to consumer or user’.2

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Fashion Marketing Management

The above definition includes a wide range of activities such as: •

The activities that begin before the production process, namely research on design, styling and demand for the product

•

Pricing

•

Marketing of services (entertainment, lodging, transportation)

•

Marketing of money, financial services and insurance

• Advertising provision of sales tools and promotion aids to the dealers Thus, according to the AMA’s definition, marketing includes all activities that move goods and services from producer to consumer. If the firm does not meet the customer needs, the firm will not survive. The fashion firms depend upon customers making repeat purchases and the key to such loyalty is the satisfaction of the customer’s needs with the garments which are stylish, durable and easy to care for, comfortable, perceived value of money and all the other criteria deemed relevant by the buyer. The notation of seeing the business from the perspective of the customer does not preclude concern for profit. If profit is not actively sought, then the firm’s ability to meet customers’ need in the long term will be greatly diminished. Marketing comprises a range of techniques and activities, some of which are highly familiar to public. Less public aspects include product development and branding, pricing, publicity, sales promotion, selling, forecasting and distribution.

2.1.2 Objectives of marketing The broad objectives of marketing are: •

Appreciation of marketing practices and influences in the marketing situation

•

Develop policies and frameworks

•

To determine marketing, mix that aim to satisfy the needs and wants of the customers

•

To satisfy the needs and wants of customer

•

To create adequate profits for the growth of the enterprise

•

To raise the standard of living of people

Marketing is the process of identifying and satisfying the customer needs, wants, demands and making them delightful Needs: A human need is a state of felt deprivation of some basic satisfaction. People require food, clothing, shelter and few other things for survival. These needs are not created by their society or by marketers; they exist in the very texture of human biology and the human condition.

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Apparel marketing

Figure 2.1

Needs, wants and demands

Wants: Wants are desires for specific satisfaction of these deeper needs. We need food and want rice, wheat. We need clothing and want formal dresses for office wear pyjama kurtha for social occasions. Although people’s needs are few, their wants are many. Human wants are continually shaped and reshaped by social forces and institutions such as religious, groups, schools, families and business corporations. Demands: Demands are wants for specific products that are backed by an ability and willingness to buy them. Wants becomes demand when supported by purchasing power. Many people want a Mercedes; only a few are able and willing to buy one. Companies must, therefore, measure not only how many people want their product but also more important how many would actually be willing and able to buy it. Marketers do not create needs; needs pre-exist marketers. Marketer along with other influences in the society influences wants. Marketers influence demand by making the product appropriate, attractive, affordable and easily available to target consumers (Fig. 2.1).

2.1.3 Marketing concept Marketing can be production-driven marketing or sales-driven marketing. Production-driven marketing concentrates on manufacturing and limits their marketing efforts to take orders and shipping their production. Sales-driven marketing is to produce more goods and to stimulate demand for their goods by developing sales forces and training them to sell to as many customers as possible. However, most companies were not customer oriented instead, it was company oriented, it means, producing what the company could produce and getting the sales efforts to create demand.

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Fashion Marketing Management

The focus was shifted from company oriented to customer oriented and the approach is known as the marketing concept. Under the marketing concept, companies identify the consumer needs and wants, and then create goods or services that satisfy them. All the company’s efforts are devoted to producing what the consumer wants. Besides giving more attention to consumers, companies now give more thought to the competitors so that they can produce a product or service that sets them apart from their competition and makes their product more appealing to customers. As marketing can be complicated, a business should develop an overall marketing plan for its product. A major concern in a marketing plan is the market, that is, the groups of people who want or need a product and who have the money and the authority to buy it. Within this market, there are market segments or subgroups with distinctive needs and interests and certain common characteristics. When a company approaches their market in this manner, this is known as market segmentation. Market segmentation means dividing the heterogeneous market into smaller customer divisions with certain relatively homogeneous characteristics that the firm can satisfy. To avoid spreading its resources to thin, they focus on specific target markets, which are specific groups of customers within the segment to whom a company wants to sell a particular product or service. A business cannot make a profit unless it has customers. To find out what they need or want needs market research. Once targeted, it is important for the business to find the marketing mix that produces the greatest profit.

2.2

Fashion marketing

Fashion marketing is the application of a range of techniques and a business philosophy that centres upon the customers and the potential customers of clothing and clothing-related products and services in order to meet the long-term goal of the organization. Fashion marketing is different from many other areas of marketing.2 The very nature of fashion where change is intrinsic which gives different emphasis to marketing activities. Furthermore, the role of design in both leading and reflecting consumer demands results in a variety of approaches to fashion marketing. Within the fashion industry, there is enormous variation in size and structure of business serving the needs of customers. Designers should know to approach problems as though there were no constraints on time or cost so that creativity flourishes. Marketers should know to understand the aesthetic dimension of a design or many qualitative aspects of product development. The above outlines concentrate on differences in perspective between marketing and design personnel. Naturally, there are areas where they share the common values. Good designers and marketing personnel both recognize the need for thorough

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preparation and the excises of professional skill, both understand the importance of communication, although with differing emphasis on the visual and process components and both tend to be in agreement about the functional aspects of clothing, such as whether a garment is waterproof or machine washable. The designer may see the marketing person as one who constrains freedom and imagination, while the marketer may see the designer as undisciplined and oblivious to costs and profitability.

2.2.1 Views on fashion marketing by designer and marketer 2.2.1.1

Design centred

According to this view, marketing is seen as synonymous with the promotion. Customers and potential customers are seen as people to be led or inspired by creative styling, that is, favourably promoted. At the extreme, it is rationalized that the only people who can appreciate creative styling, in a financial sense, are the more wealthy sections of society. Research within such perspective is limited to monitoring the activities of others who are thought to be at the forefront of creative change, that is, film directors, musicians, artists and so forth.

Figure 2.2 Views on fashion marketing

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Fashion Marketing Management

Table 2.1 Views on fashion marketing by designer and marketer Designer Sample statement

Fashion marketing is the same as promotion

Assumption Orientation Alleged drawbacks

Sell what we can make Design centred High failure rates rely on intuition

Marketer Design should be based solely on marketing research Make what we can sell Marketing centred Bland designs stifle creativity

Principle weakness of this approach is that it depends ultimately on the skill and intuition of the designer in consistently meeting genuine customer needs and consequently earning profits (Fig. 2.2). 2.2.1.2

Marketing centred

Marketing is dominant and regards the designer as someone who must respond to the specifications of customer requirements as established by the market research. Merchandisers exert a considerable amount of control on the designer. This results in certain blandness in the design content of garments. Taking profitability into account, this restrictive prescription for design seems to work for many firms (Table 2.1).

2.2.2 Scope of fashion marketing Marketing scope can be better understood in terms of functions performed by marketing manager, director, or /department. In most of the business enterprises, the marketing department is a division and marketing manager is the head of the division. The major purpose of this department is to generate revenue for the business by selling goods and services to the customers. In order to achieve this purpose, the marketing manager performs the following four functions and these are shown in Figure 2.3. 2.2.2.1

Functions of research

Marketing research In the words of W. J. Stanton, ‘marketing research is the systematic search for and analysis of facts related to a marketing problem’. Thus, marketing research helps in analysing the buyer’s habits, relative popularity of a product, effectiveness of advertisement media and so on. Its major aim is to provide the marketing manager with timely and accurate information so that better decisions can be made. The scope of marketing research is very wide. It covers all the area of business, which has bearing on the marketing function.

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Apparel marketing

Figure 2.3

Scope of marketing

Its emphasis is shifting from fact-finding, information, gathering activity to a problem-solving and action recommending function. Product Planning and Development A product is something, which is offered by a business firm to customers to satisfy their needs. It has great importance in all other areas of marketing management. Product planning and development involves a number of decisions, namely what to manufacture or buy? How to have its packaging? How to fix its price and how to sell it? The design, quality, colour, size and other features of the product can be determined by conducting market research. The product department will be guided by the requirement of the users. It is necessary to plan and develop products, which meet the specifications of the customers. Products are the

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Fashion Marketing Management

foundation of any marketing programme. The success of marketing department depends on the nature of the product offered to the customers. The product must be so designed and developed that it meets the requirements of the customers. 2.2.2.2

Functions of exchange

Buying and assembling Procurement of raw materials, semi-finished or finished products/services has gained great importance for the modern industrial and commercial enterprises more so due to globalization. Raw materials are purchased for the production by the industrial enterprises and finished goods are purchased for resale by the commercial enterprises. Whatever may be the case, the marketing department plays an important role. It is the marketing department which will supply the information regarding the needs and tastes of the customers. Coordination between purchasing officials and the marketing officials will help in purchasing right types of materials or goods at right time and in right quantities. Procurement today is highly scientific and very demanding and requires managerial skill. Selling Selling is an important aspect of marketing under which ownership of goods is transferred from the seller to the buyer. Sale may take in the form of a negotiated sale or an auction sale. In case of negotiated sale, bargaining or haggling arrives at the terms and conditions between the buyer and the seller. However, in case of an auction sale, there is no scope for negotiation between the seller and the buyer. The buyers assemble at the place of auction and bid against one another for the goods which are on sale. The goods are sold to the highest bidder. Negotiated sale may take the following forms, namely a)

Sale by inspection

b)

Sale by sample

c)

Sale by description

d) Sale by grade e)

Sale by brand

2.2.2.3

Functions of physical treatment

Standardization, grading and branding Standardization means setting up of specifications of a product/service. Grades of agricultural products are based on these specifications and standards. Industrial goods are given brand names by their manufacturers to convey to the customers that their goods conform to certain well-defined standards. These activities promote the sale of products. The ISO certifications, ISI marks are benchmarks of quality.

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Packaging Packaging is primarily done to protect the goods from damage in transit and to facilitate easy transfer of goods to customers. However, now it is also used by the manufacturer to establish his branded products as distinct from his competitors. Another activity connected with packaging is labelling. Labelling means putting identification marks on the package. The label is an important feature of a product. It is that part of a product which contains information about the producer and the product. A label may be a part of a package or a tag attached directly to the product. The label is used to communicate brand, grade and other information about the product. Packaging has become one of the essential features of modern marketing. It acts as a multipurpose arrangement. It gives protection to goods on its route from manufacturer to consumer. It even protects the goods during its life with the user. Packaged goods are generally more convenient to handle. Packaging also gives individuality to a product. It makes easier for the consumer to identify a product by looking at its package. Packaging facilitates the sale of a product. It acts as a silent salesman of the manufacturer, particularly at a place where there is widespread use of selfservices, automatic vending and other self-selection methods of retail selling. Sometimes, packages are duly sealed to ensure products of right quality to the consumers. In the absence of sealing, unscrupulous dealers may distribute duplicate products to the consumers. Storage and warehousing Goods are generally produced in anticipation of the demand. They have to be stored properly in warehouses to protect them from any damage, which may be caused by ants, rats, moisture, sun, theft and so on. The storage of goods in warehouses has become an indispensable service these days. Producers, manufacturers, traders, mercantile agents, importers and exporters engaged in business have to store their goods in warehouses. Goods are produced or procured well in advance of the demand. They are stored in warehouses till they are actually sold in the market. Thus, warehousing creates time utility. In addition, modern warehouses perform certain marketing services as well such as grading, packaging, labelling and so on. Transportation The products are to be transported to each and every customer. Transportation provides the physical means which facilitate the movement of persons, goods and services from one place to another. Transport plays a significant part in the economic, social and political development of a country. Rapid industrialization and exchange of goods and services cannot take place unless sufficient facilities for transportation are available. It is with the help of various means of transport

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Fashion Marketing Management

that raw materials are transported from the place of their production to the industrial centres where they are converted into finished products. It is again transportation that facilitates the movement of goods from the producers to the users. By doing so, transportation removes the distance problem and creates place utility. Transportation creates time utility in goods and services because speedy transport minimizes the time of their transit. Transport leads to regional specialization. A region may specialize in the production of those goods and services for which it is most suited. This leads to production of goods and services in different regions at the lowest possible cost. Transportation also plays a crucial role in the price mechanism. It tends to equalize and stabilize the prices of various commodities by moving them from the areas where they are surplus to those areas where they are in short supply. 2.2.2.4

Functions of facilitating exchange

Salesmanship Personal selling is an important method of selling goods. It is widely used in retail marketing. Salesmanship or personal selling involves direct and personal contact of the seller or his representative with the purchaser. It is the oldest known form of selling and is the most important and recognized method of selling. The art of salesmanship has undergone a big change. The attitude of salesman towards the customers and vice versa has also changed. This change has gone hand in hand with the changing concept of ethical standard in business. Earlier, caveat emptor (let the buyer beware) ruled a sales transaction but now the satisfaction of the customer is more important. A salesman finds out what his customer needs and does his best to meet it from the merchandise at his disposal. Selling has become a science of human relations and an art of getting along with people so effectively that sales resistance may be reduced to the minimum. Advertising Advertising has become an important function of marketing in the competitive world. It helps to spread the message about the product and thus promotes its sale. It facilitates the creation of a non-personal link between the advertiser and the receivers of the message. The importance of advertising has increased in the modern era of large-scale production and tough competition in the market. Business firms use several media of advertisement to sell their products. These include newspapers, magazines, radio, television, cinema halls, hoardings, window displays and so on. Pricing Determination of price of a product is an important function of a marketing manager. Price of a product is influenced by the cost of product and services

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31

offered, profit margin desired, prices fixed by the rival firms and government policy. A sound pricing is an important factor for selling the products to the customers. The price policy of a firm should be such that it attracts all types of customers of different means. A good price policy helps in determining the varieties of a product to be made or procured to satisfy the demands of various kinds of customers. Financing Financing and marketing functions of a business are interlinked with each other. The marketing department has an important say on policies of the finance department in regard to cash and credit sales. Financing of customer purchasing has become an integral part of modern marketing. The provision of goods to the customers on credit basis is an important device to increase the volume of sales. A manufacturer also has to provide credit facilities to wholesalers and retailers. As a matter of fact, credit is the lubricant that facilitates the operation of the marketing machine. Insurance A large number of risks are involved in the exchange of goods and services. Insurance helps to cover these risks. It facilitates the smooth exchange of goods by covering risks in storage and transportation. Loss or damage to goods or property may arise due to fire, theft, natural calamities such as flood or earthquake and so on. People employed in business firms are also liable for the risks of injury or loss of life due to accidents in the workplace. Business firms are able to provide for protection against these risks by insurance companies. This can cover the risks on payment of a nominal premium and recover the loss, if any, arising out of the risk. a)

Market is the place or area in which buyers and sellers function.

b)

The aggregate of factors or conditions within which buyers and sellers make decisions that result in the transfer of goods and services.

c)

The aggregate of demand of the potential buyers of a commodity or service.

2.2.3 Marketing functions Classification of marketing functions as discussed above. Figure 2.4 is based on the traditional approach of the study of marketing. A new list of marketing functions has recently been adapted to suit the changed concept of marketing. These functions are: 1.

Contractual – Searching for buyers and sellers

2.

Merchandising – The fitting of goods to market requirements

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Fashion Marketing Management

Figure 2.4

Marketing functions

3.

Pricing – Selection of price to induce customers to accept the goods

4.

Propaganda – The creation of customers

5.

Physical distribution – The transporting and storing of goods

6.

Termination – The end of the marketing process

2.2.3.1

The contractual function

The contractual function is the process of searching out the market, that is, buyers. It consists of finding out the potential buyers where they are located

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and how they could be reached. Further activities included are selecting a proper distribution channel, choosing appropriate media to reach the customers and discovering consumer needs. From the point of view of the buyer, this function consists of finding the most suitable source for the goods. 2.2.3.2

The merchandising function

This is a function that involves the coordination of selling with production. It includes the process of selecting the product to be produced and stocked with a necessary emphasis on the size, appearance, form, quantities to be bought, time of purchase or production and so on. The term is most precisely defined as product planning. This function helps ‘to make an adjustment of merchandise produced or offered for sale to customer demand’. 2.2.3.3

The pricing function

Pricing function is mainly based on the economic values of a product to be bought or sold. Pricing is very important and should be given a greater role. A product is finally approved by the consumers only if the price is acceptable to them. This makes it necessary on the part of the sellers to evaluate the possible prices for the products even before the products are brought to markets. In spite of past experience and most scientific approach, pricing function proves to be difficult. A perfect price cannot be reasoned out. 2.2.3.4

The propaganda function

This function comprises all methods used by the sellers to influence and induce the buyers to buy products. Normally, it would include all advertising and personal selling activities. These activities aim at increasing sales. 2.2.3.5

The physical distribution function

This function relates to transportation and storage activities which have been discussed earlier. 2.2.3.6

The termination function

This function is the final link in the process of marketing where the seller and the buyer arrive at an agreement. These essentials are settled at this stage: the quality, the quantity and the price of the product to be exchanged. Since these elements are subject to negotiation, the process is also termed as the ‘negotiation function’. It is remarked that ‘the termination function is the consummative act for which all other functions have been preparatory’. This function includes a series of jobs a seller has to contemplate to complete the whole of marketing process. It includes determination of terms of sale, delivery

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dates, credit arrangement, the guarantees and service policies. However, it should be remembered that marketing does not end with the payment for and the acceptance of goods. There often remains a moral and legal obligation on the part of the seller that he has also to ensure satisfaction of the consumers. The above discussion elaborates on various types of classifications that are used for explaining the process of marketing. It is an accepted fact that marketing is made up of a number of activities. However, this unanimity is not found in classifying the functions. The selection of classification significantly depends on the necessity, circumstances and purpose of the study. From the theoretical point of view, it is not the classification that is important but the functions that are important. Unless all the functions are performed most efficiently, the produce will accumulate in the godowns yielding no value at all. This would cause risks and losses to producers. It is these functions which give life and blood to the products and create a market for them. In other words, production is meaningful only when subsequent marketing functions are performed most effectively and efficiently.1

2.2.4 Marketing mix The marketing mix is a combination of four major elements known as the four ‘Ps’ that respond to the needs of the intended customer (Fig. 2.5).

Figure 2.5

Marketing mix

Apparel marketing

•

Product – Ideas, goods, services

•

Pricing

•

Promotion

•

Place – Distribution

35

In fashion industry, which is highly competitive and is characterized by change, the role for good fortune cannot be easily made. Fashion industry is well known for the high failure rate of new business and irregular price reduction on the product lines that are not sold. The failures are in part of reflection of the enormous risk of fashion but some are also due to inadequate or inappropriate application of the marketing process. If marketing is properly applied, marketing will help to reduce some uncertainty in the fashion industry and cut down the number of business failures.2

2.2.5 Fashion marketing and fashion industry The vast output and profits from the fashion industry come not from the designer collections seen on the catwalk but from items sold in high street stores. A few less experienced reviewers emphasize that the designer collections on the catwalk will be sold in the next season but the influence of the designer collections on everyday apparel purchase is complex. The main concern of fashion marketers is, therefore, the design and the sale of the garment to the majority of the public. The activities of the fashion marketing personnel are listed below. The important point to understand is that the job titles do not always accurately reflect the activities many people do. •

Fashion marketing research

•

Fashion product management

•

Fashion promotion

•

Fashion distribution

•

Fashion product positioning and pricing

Given above are the examples of the activities to be carried out by the marketing researchers, product managers, promoters, distributors and costing personals. (Fig. 2.6). 2.2.5.1

Fashion marketing research

A fashion marketing researcher may investigate the market shares of competitors and trends in those shares. Through a group discussion with

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Fashion Marketing Management

Figure 2.6

Fashion marketing process

potential customers, the researcher may discover that a possible brand name has a negative connotation and needs rethinking. 2.2.5.2

Fashion product management

A design manager may be concerned with producing a range of shirts for a major retailer. The shirts must coordinate with other garments such as jackets, trousers and ties all of which may be provided by other manufacturers. The design manager may collect and pass on information to ensure designers are adequately briefed. Later the manager will be required to sell the designs at a presentation to the retailers, usually in the face of fierce competition. The designs manager’s knowledge of the retailer’s customers and an awareness of his or her own company costs will enable an effective marketing function. 2.2.5.3

Fashion promotion

A manufacturer of corporate workwear may have produced a range of clothes suitable for staff working in small independent restaurants. After careful research and planning, the manufacturer may decide that a brochure is needed as a part of the promotional effort. The brief to be given to the person preparing visual and textual material for the brochure will include an estimate of the number of brochures needed and a list of addresses – essential for fashion marketing task. 2.2.5.4

Fashion distribution

An owner of a retail outlet selling her own specially designed millinery wishes to expand needs to research a few options including franchising her business, obtaining concessions in selected departmental stores and linking with a leading women’s wear designer to produce new complementary ranges

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each season. Marketing research, an analysis of the status of the business, along with the preparation of a future marketing strategy are the major fashion marketing activities needed here. 2.2.5.5

Fashion product positioning and pricing

A major retailer discovers that a competitor is selling imported silk lingerie similar in design and quality to its own, but at prices that are 20% lower. A fashion marketing decision must be made about the positioning and pricing of the product, taking into consideration the strategic goals to the company as well as a price sensitivity of its customers.

2.3

Fashion markets

A market is a place for buying and selling, for exchanging goods and services, usually for money. The fashion market is unusual because until early this century it is was most solely the domain of kings, queens, aristocrats and other important people. Fashion also can be a reflection of the individual. Clothes are often chosen to reflect among other factors our age, gender, lifestyle and personality.1 Because fashion is both a reflective and yet creative discipline, it is necessary for the marketers to be aware of the factors surrounding the market and develop a broad understanding of the issues that can affect the garments that are seen in any high street store. Consumer demand for clothing is now more fragmented and discerning. Retailers are wary of carrying high levels of stock and many different styles and fabrics are available. These have all resulted in the mass market for clothing.

2.3.1 Types of markets: Retail and wholesale markets The geographic market to be served by an apparel firm is determined by the definition of ‘target market.’ An apparel firm may serve a regional, national or international market, at the retail level, the wholesale level, or both. The options of an apparel firm for distributing merchandise include: 1.

Manufacturer-owned retail outlets

2.

Mail-order distribution

3.

Use of a road sales force for selling to retail buyers

4.

Use of apparel markets

5.

Combinations of these

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Fashion Marketing Management

A market is a place for buying and selling, for exchanging goods and services, usually for money. ‘Fashion market’, which was solely the domain of the rich upper class people, has influenced the middle and even the lower class people. Fashion reflects the personality, age, gender, lifestyle and so on.

2.3.2 Fashion market The fashion market is at various levels (Fig. 2.7). These are described below: 1.

Haute Couture are major fashion houses of the world, run by internationally recognized famous designers who exhibit their original creations. They exhibit their creations at national and international fashion shows and events, at least twice a year, which are highly fashionable and high-priced garments.

2.

Designer wear, also called as ‘prêt-à-porter’, are also ready-to-wear garments. They are not original creations but modifications in original designs. These garments are also of high quality and high price, and are sold in boutiques or exclusive department or specialty stores.

3.

Mass market also called street fashion is the place where most people buy their clothes. They are imitations or cheaper versions of high fashion garments and are intended for the lower income groups.

2.3.3 Textile markets The enormous appeal of fabric – and the fibres, of which it is composed – lies in its many varied textures, finishes, uses and colour. These are created by the textile fibre and fabric industries, two specific industries that work closely together to produce an end product called fashion textiles (Fig. 2.8). The production of fibre and fabrics is the first step in the manufacturing of clothing. As a result, textile fibre and textile fabric manufacturers are considered primary suppliers. Textile market

Fibre market

Fabric market

2.3.3.1 Fibre Fibre – an extremely fine, hairline strand invisible to the eye – is the smallest element of fabric. Fibre gives the fabric its colour, weight, texture and durability. Fibres are either natural or man-made. The uses of man-made

Figure 2.7

Levels of fashion markets

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Fashion Marketing Management

Figure 2.8

Fashion flow chart

fibres are ancient while most of the man-made fibres have been invented in the past 50 years. Limited quantities of a new or a modified man-made fibre are usually first produced in a pilot plant on the experimental basis. If research indicates that both the industry and consumers will accept the new product, mass production begins. New applications of the fibres are then explored and new industries are consulted and encouraged to use it. While this procedure is going on in one chemical company, there is always the possibility that another company may be working along similar lines to develop a competitive fibre. The company that is first to develop a new fibre has no assurance that it will have the market to itself for long. There are many brands which are man-made fibres such as nylon, rayon, acetate on the market and many companies produce various acrylics, for example, acrylic

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produced by DuPont as Orlan, by Monsanto as Acrilian, and polyester fibres by DuPont as Dacoron, Fibre Industries as Fortrel. The fierce competition among various producers of man-made fibres is tied to the fact that each product can be made specifically to the customers’ demands. In one season, demand may rise for a fibre that is stretchable, offers warmth without weight and also it is wrinkle resistant. Producers of man-made fibres may sell their fibres to the fabric manufactures in one of the three ways: •

As unbranded products with no restrictions placed on their end use and no implied or required standards of performance claimed.

•

As branded or trademarked fibres with assurance to customers that the quality of the fibre has been controlled by its producer but not necessarily with assurance as to either implied or required standards of performance in the end product.

•

Under a license agreement, whereby the use of the fibre trademark concerned is permitted only to those manufacturers whose fabrics or other end products pass tests set up by the fibre producer for their specific end uses or applications.

All major producers of man-made fibres and smaller firms offer a number of services to direct and secondary users of their products. Producers of natural fibres, working through their association offer services such as •

Technical advice as well as technical know-how on weaving and knitting techniques.

•

Assistance to textile and garment producers and retailers in locating supplies.

•

Fabric libraries that include information about sourcing, prices and delivery schedules. Research in a fabric library saves precious time spent on shopping the market for trend information.

•

Fashion presentations and exhibitions for the textile industry, retailers, garment manufacturers, the fashion press and occasionally the public.

•

Extensive literature for manufacturers, retailers, educators and consumers about fibre properties, use and care.

•

Fashion experts who address groups of manufacturers, retailers or consumers staging fashion shows and demonstrations.

•

Educational films and audiovisual aids for use by trade, schools and consumer groups.

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2.3.3.2 Fabric Midway between the fibre and the fi nished garment is the fabric. Textile fabric is any material that is made by weaving, knitting, braiding, knotting, laminating, felting or chemical bonding. Most apparel articles and accessories are made out of the basic material. For decades, there was no pattern of organization in the textile fabric industry. Later, textile industry mergers generally assume one of the two forms. The first is for a company to buy all or part of a competitor in order to dominate a segment of the market. The second and less popular strategy is for a company to diversify by buying an apparel company that manufactures clothes out of imported apparel fabrics. The specification of the weaves, colours and finishes should be made far in advance to the textile mill as the textile mill has to produce textile fabric with the latest trends. This information comes from fashion designers, predictive services and fashion directors. The market centres for textile fabrics are not at the mills but in the fashion capital of the country. Every mill of importance has a showroom. A fabric buyer or designer for a garment maker, or a retail store apparel buyer or fashion coordinator, only has to walk to the showrooms to obtain firsthand information of what fabric the market offers. Some mills sort and select the fibres to be used, spin them into yarn, then weave or knit them and finish which includes dyeing, adding fire retardant, glazing, waterproof and pressing. It may also include treating fabric for non-shrinkage and permanent press. Fashion influence decisions every step in the process. These textile mills market the fi nished fabric to garment manufacturers or upholstery manufacturers. Some mills produce only the yarn. Others weave or knit fabric from purchased yarn but do not carry the process beyond the greige state. There are separate companies that do the processing such as bleaching, dyeing, preshrinking, and print or impart desired characteristics to fabrics. Here, the goods are brought to the market, that is, exchanged or sold from one company to the other company for producing finished fabrics. It is probably correct to say that the textile converter is the real middleman of textile industry. Textile converters buy greige goods from the mills, have the goods processed to order by the finished plants and sell the finished goods to garment makers. Textile converters must know the top trends in colours, patterns and finishes. They must be able to understand fashion fully and must be able to anticipate demand. The textile industry works several seasons ahead to give fabrics of latest trend in the market. Fibre producers usually work 2 years ahead of the season.

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The fibre producers present their products early to the textile mills so that they will have enough time to plan their colours and product lines. The fabric markets present their products a year ahead of the season. The first presentation is for the manufacturers of apparel and accessories, after which they present their finished products to retail stores and the press so that they can publish upcoming trends. The importance of identifying dominant trends becomes more and more important each year as the competition becomes keener and the market becomes increasingly global. Today’s well-integrated and diversified fabric companies speak with great fashion authority. They also employ merchandising and marketing staffs who expertise in fashion trends. A dramatic change in the mindset of the textile producers and marketing managers has broadened the product mix, quickened the response time required to meet customer demand and made possible shorter runs of more innovative and fashionable fabrics. Currently, retailers, apparel manufacturers and the fibre and fabric manufacturers are working together to explore new and innovative ways to move the textile products through the pipeline to reach the ultimate customers more quickly and efficiently.

2.3.4 International markets Global competition in textile field has been a difficult matter for many countries. For a long time, the domestic market was in an enviable position of having customers than the international markets. But today the trend has changed. Today’s fashion industry is being reshaped by globalization. Globalization has changed where goods are made, where they are sold and how each company fits into a network that includes both competitors and partners throughout the world. Most fi rms in the fashion industry have found it necessary to restructure their organization and their operations – either to be an apart of global activities – or to adjust because of the effects of globalization. Although trade among nations has been a fact for centuries, today’s globalization of business occurs with speed and intensity that transforms the industry in ways never seen before. Imports and exports have been a major consideration for nations. Each country tries to sustain and expand its economy by exporting products it has in abundance or can produce efficiently and importing those it needs or cannot produce efficiently. Although trade among nations occurred for centuries, it was slow and often dangerous matter, particularly in early times. In the earliest days, there were no ways to communicate with people in distant countries. Even after the development of postal services and telephones, communication with the individuals in other countries was slow by mail or costlier by telephone.

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In contrast, advances in modern communication have exploded in the last decade. Computers and fax machines facilitate instant and inexpensive communication by buyers and sellers of different countries. Other developments have contributed to a global economy. International banks can transfer currency electronically and exchange one country’s currency to another with ease. Additionally, international trade bodies develop and oversee rules to guide trade among nations. All of these advances have led to an interconnected global economy. Today, manufacturers and retailers communicate daily with their partners in other countries. For apparel manufacturers, the buyer may develop product lines in forms and sketches and markers may be transferred electronically to facilitate where garments are cut and sewn to meet the manufacturer’s specification. If a problem occurs as the product is being made, this is handled through calls, faxes and electronic mail. If a manufacturer in India feels that the neckline is not deep enough, then sketches can be faxed to the buyer and forth until the issue is solved. Fashion merchandise can be global products in the sense that is more complicated. A garment made in India may be made of Taiwanese fibre, woven into fabric in China and then shipped to the United States. This interlinked stages of production result in products whose origins are hard to identify. These global products result from manufacturing operations in several countries. Success in exporting may vary depending on currency exchange rates. For example, if dollar is weak relative to other currencies, it is easier to sell US products than when the dollar is strong. Marketing activities across national boundaries are termed as ‘international marketing’. According to Hess and Careroa, ‘international marketing’ is the performance of business activities that direct the flow of goods and services to consumers or users in more than one nation. Marketing activities include buying, selling, transportation, storage and warehousing, fi nancing, risk bearing, pricing, advertising and sales promotion. Due to globalization, domestic market, which was in an enviable position of being a supplier of raw materials for the garment industry has given a way for the international market. Cheaper raw materials are being bought from the international market. Each country tries to sustain and expand its economy by exporting products it has in abundance or can produce efficiently and cheaply, and importing those it needs or cannot efficiently produce. With the end of quota regime, and the advancements in communication, trade and transport sectors, sourcing goods from the international markets has grown by leaps and bounds. Internet and fax machines facilitate instant

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and inexpensive communication by buyers and sellers, while transfer of currencies electronically has eased the payment modes. All these have improved the connectivity across the countries, and the entire world has become a global village. A garment made in India, may be made of Taiwanese fibres, woven into a fabric in China and then shipped to United States and yet be economical. It is sometimes difficult to trace the origins of these global products.

2.3.5 Factors influencing domestic and international markets Marketing can be conceived as an integral part of two processes, that is, technical and social. So far as the technical aspect is concerned, international and domestic marketing are identical. Technical aspect includes non-human factors in marketing such as product, price, brand, packaging, warehousing, costs and so on and the basic principles regarding these variables have universal applicability. The social aspect, on the other hand, is unique in any given stratum as it involved human elements, namely the behavioural pattern of the consumers and the characteristics of the society such as customs, attitudes, values and so on. Thus, international marketing is identical to the domestic marketing as far as technical aspect is concerned but international marketing, to the extent, is visualized as a social process, and is different from domestic marketing (Fig. 2.9). Similarities: 1.

In both the markets, satisfying the basic needs of the consumers is of prime importance.

2.

Creation of goodwill is necessary for both the markets. For this, liberal guarantees and after sales service and quality are very essential.

3.

Research and development is important as the product needs to be continuously improved.

4.

The technique of marketing – product, price, cost, etc. – is similar to both the markets.

Differences: Sovereign political entities – in order to safeguard their national interests, each country will impose restrictions for imports and exports – like imposition of tariffs and customs duty, quantitative restrictions, exchange control, local taxes and so on. 1.

Different legal systems

2.

Different monetary systems

3.

Mobility of factors of production

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Fashion Marketing Management

Figure 2.9

Factors influencing domestic and international markets

4.

Differences in market characteristics – demand pattern, channels of distribution, methods of promotion and so on are different.

5.

Procedures and documentation will be different

2.3.6 Movement of textile products in the international and local market International markets deal with various laws and policies such as quotas system, international standards, eco-friendly materials and so on. When a company sells the products in the other markets from the home base, that is, export directly to other countries without importing any of the raw materials, it is called direct exports (Fig. 2.10). Competition from imports is a problem shared by all consumer-oriented domestic-manufacturing industries. The fashion industry in the United States has been among those most affected by imports of textile materials. Imported goods cost less initially, and duties and other charges are added to those costs. In areas where the cost of labour is high, finished goods are imported. Items can be produced domestically but if the country is not efficient of having machineries, the goods cannot be produced locally. The retailers move

Apparel marketing

Figure 2.10

47

Movement of textile products in the international and local market

the clothes from a designer or a manufacturer to the customer. In the local market, the manufacturer sells the goods directly to the customer in their own exclusive showrooms. In many cases, the wholesaler gets the goods from the manufacturer and gives it to the distributor who in turn takes it to the dealers and then to the retailers. Retailers are the people who interact with the customers, first estimate the demand and make sure that enough goods are at the market to meet the customers need. It is the retailer’s responsibility to select appealing goods to the customer in terms of style, quality and price. Most important is that the retailer should be sure that the goods arrive at the correct time when the customer is eager to buy them.

2.4

Consumer behaviour in fashion

Consumer behaviour in fashion is most important because the whole business depends on the consumer’s acceptance. It can be said that fashion means consumer acceptance. Among the countless definition about fashion, the one from Webster’s dictionary is ‘the prevailing or accepted style in dress or personal decoration established or adopted during a particular time or season’. The most widely recognized fashion authority, late Dr. Paul H Nystrom defined fashion in similar words as ‘nothing more or less than the prevailing style at any given time’. Thus, fashion is always based on a specific style. A style, however, does not become a fashion until it gains consumer acceptance, and it remains a fashion only as long as it is accepted.2 For example, bow ties, tapered jeans, crinoline skirts and chemise dresses are and will always be styles but they can only be called fashion if and when they become prevailing styles. It is clearly possible for a particular style to come in and go out of fashion repeatedly.

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The element of social acceptance is the very essence of fashion. Acceptance, however, does not mean that a style is necessarily worn by everyone or even by the majority of public. Acceptance can be and usually is limited to a particular group of people or to a particular location. Furthermore, what is popular among a particular age or occupational group may not be accepted by those of different ages or occupations. Consumers decide about the following matters before they get a garment. The single large decision ‘to buy or not to buy’ is broken down into several separate decisions that collectively comprise ‘to buy or not to buy’ decision. •

How to find out about new styles?

•

What style, colours and sizes to buy?

•

Where to buy from?

•

How to pay?

•

Which bulls to pay promptly?

•

When to buy?

•

How many items to buy?

•

Will any accessories need to purchase?

•

Whether to shop alone or accompanied?

•

Whether to try garment on?

•

Whether to order an out-of-stock size or colour option?

•

Which sales assistant to approach for help?

•

What to do if the product is unsatisfactory?

•

What will be the reaction if another similar alternative product available to the purchase?

If fashion marketers see consumer decisions as a series of smaller related problems to be solved, then the benefit comes in terms of planning activities to ensure that the customer is helped when it is needed. Fashion marketers should be interested in this post-purchase behaviour as it can relate to repeat purchases the level of customers’ complaints and word-of-mouth communication about the firm. The satisfied customers are likely to become regular customers. The goal of fashion marketing is to move customers along the following continuum from the promiscuous to the insistent.

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2.4.1 Customer demand The success and failure of a fashion industry depend on the consumer’s purchase of its products. To illustrate the power of the consumer, we might think of the whole fashion pipeline as a train. Different cars in the train represent various segments of a fashion industry: •

The fibre producers

•

Fabric manufacturers

•

Apparel marketers

•

Apparel retailer

The train goes nowhere without the engine and the consumer represents the engine. The consumer provides the momentum to make things happen for the rest of the train. Consumer demand for the products creates sales for the retailer, who then needs to buy more garments from the apparel manufacturer. As the garment firm produces more merchandise to send to the retailer, more fabric is needed from the fabric producers. As the fabric mill fills orders, it requires more fibres from the fibre producers. When customer spending occurs at a healthy pace, the whole fashion pipeline experiences prosperous times. When business conditions are favourable, the segments of the chain usually respond and work together with remarkable speed. It is, after all, an industry that must move its products quickly because of the importance of fashion timing. A few decades ago, various segments of the industry kept large inventories on hand so they could respond easily at each stage to fluctuation in consumer demand. Changes in the economy and the costs of doing business have changed that greatly. Retailers, apparel fi rms, and textile companies have experienced having large inventories on hand when spending dropped sharply, leaving companies at all these levels struck with inventories that could not be sold in the net fashion season. Companies suffered great losses as they disposed of these inventories by selling them very cheaply just to clear them out. Second, companies have become sensitive to the high costs involved in having huge investments tied up in inventories that are stored in the warehouse. Because of these changes in the economy and in ways of doing business, retailers, apparel producers and textile fi rms all work with much smaller inventories than in the past. Fewer keep larger inventories in warehouses awaiting orders. Instead, fi rms are now more inclined to match their orders to customers demand. Because, large inventories may not be on hand to accommodate demand; this means that the segments of the industry must work together closely to satisfy customer demands. Sometimes, fashion

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pipeline may not run smoothly. Changes in the economy or in consumers’ needs may influence consumer-spending patterns and create conditions that cause the industry to lose its momentum. A number of factors may cause this abrupt stoppage or slowdown in fashion business activity. Sometimes, these are wide-spread occurrences that affect the entire industry. For example, a downturn in the economy may dampen the consumers spending patterns. Nearly everyone involved in the industry is affected by this kind of slowdown – all the way back to the fibre producers, fabric suppliers, and of course, the apparel fi rms and retailers. Other suppliers to the industry are affected – those who provide zippers, buttons, threads, hangers for new garments, or transport services for merchandise. Workers may experience lay-offs or reduced workweeks. Sometimes, a slowdown in fashion spending occurs when the population reaches a stage when consumers begin to emphasize spending for areas other than apparel. For example, a widespread interest in building or refurnishing homes often results in reduced apparel spending in many households. Momentum in certain segments of the industry is affected when the industry miscues seriously in having products that consumers want in a season. These changes can affect specific segments of the industry or companies, with a ripple effect back through the pipeline. For example, manufacturers may introduce their lines with only very short skirts and many women avoid purchasing altogether because they find nothing they feel suitable for them. Firms that offer a variety of skirt lengths may have more customers than those offering only short skirts; firms that produced only tailored men’s wear suffered this slowdown in spending when men began to wear more casual office wear. Sometimes, the industry is not prepared to move as quickly as the consumer expects.

2.4.2 Types of customers There are various types of customers: Promiscuous – Will shop around for the best deal Occasional – Will rarely purchase from us Loyal – Will usually buy from us Insistent – Will only buy from us

2.4.3 Role of consumer behaviour in fashion marketing Fashion goods enable people to show identification with or separation from certain social groups. Clothing can be a symbol of belonging or alienation.

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Figure 2.11 A model of consumer behaviour

To understand the fashion consumers, and their behaviour towards fashion, the broader social forces that shape individual buying behaviour is assessed. These social dimensions include the family, social stratification, opinion leadership and cultural factors. Some people are more ready to adopt new fashion than others (Fig. 2.11). A central component of fashion marketing is satisfying ‘customer needs’ and profitability. To achieve these, it is necessary to understand consumers, their needs and wants and how they will respond to various marketing efforts. As when looking at social processes in consumer behaviour, people tend to live within a narrow social network. They interact with others of similar status and sets of interest. Therefore, a marketing researcher should find the answers to the following questions: •

Do many people share this view?

•

How many?

•

Do they have any other views that are more strongly held?

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Figure 2.12 The role of consumer behaviour in fashion marketing Consumer behaviour provides a range of concepts to help fashion marketers. Consumer behaviour is also closely integrated with all aspects of marketing, but most notably with the selection of target markets and the development of marketing mix (Fig. 2.12). 2.4.3.1

Consumer behaviour and target marketing

Each consumer is unique. Besides bespoke tailoring and couture items, most fashion marketing is concerned with the provision of standardized garments aimed at a particular group of customers. All consumers are different from others but they are similar to some other customers. The marketing of volume clothing demands that groups of consumers with similar needs be identified and then supplied with similar products. If the total market for clothing is considered, it can be seen that it really comprises many smaller segments, each with specialized needs. Obvious bases for the segments include age, gender and income. Less obvious, but as important, may be segments based on psychological or social characteristics that are common to a significant number of consumers. Changes in social structure or demographics cause new market threats, opportunities, and therefore different targeting imperatives. For example, now there is an increasing interest in environmental issues and research undertaken by ‘Mintel’ and others show that the vast majority of people are

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‘green’ supporters. Within the fashion market, consumers can be categorized according to the attitudes held on environmental matters. If significant numbers with the purchasing power are active supporters of environmental issues, then they probably would be interested in recycled or recyclable fabrics and fibres and in long-lasting clothing that is manufactured and cared for in an environmentally friendly manner. Investigation of consumer behaviour is sometimes designed specifically to identify particular groups of consumers with fashion interest and buying behaviour in common. 2.4.3.2

Consumer behaviour and marketing mix

The study of consumer behaviour not only provides a framework for identifying consumer needs and target markets but also enables the anticipation of consumer responses to marketing action. When studying the consumer, the interest lies not only in describing what the case is but also in predicting future behaviour. The marketing mix is the combination of elements that a fashion marketer offers to a target market. It comprises decisions made about products, prices, promotion, services and distribution that are assembled in a coherent manner to represent the firm’s offering to the customer. 2.4.3.3

Consumer behaviour and products

Products are brought because they meet needs. These needs may be mainly physiological such as the requirement for warmth or may include social needs. A psychological need, for example, may relate to vanity and self-image and manifest in a desire to perceive oneself as smaller or larger than reality. Styling skill may create garments that emphasize or reduce the aspect size as wished, but a limited amount of psychological sizing can also play a part. For example, a well-known garment manufacturer produces its leading brand with labels that are one size larger. The assumption is that some customers derive satisfaction and confidence from the size label that flatters aspirations or a particular self-image. 2.4.3.4

Consumer behaviour and promotion

The promotion of fashion items requires an understanding of consumers’ media habits so that the correct media can be chosen. Understanding consumer behaviour enables the selection of appropriate promotional messages. For example, fashion photography often seeks to reflect a particular lifestyle that the customer can identify with and then perceive that product as a vehicle to attainment of that lifestyle. The use of celebrities in advertisements also

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enables fashion firms to reach certain target audiences and influence consumers through the process of identification. 2.4.3.5

Consumer behaviour and price

Price for many people is a major indicator of quality. Style and design are sometimes difficult to judge, especially for the untrained persons. Therefore, some consumers take surrogate indicators of quality and in particular price. An understanding of the perceptual process and how consumers learn about prices and value help in constructing a pricing policy. 2.4.3.6

Consumer behaviour and distribution

The choice of an appropriate distribution channel and designing elements within that channel should be based on an understanding of the fashion consumer.3 Knowing when, where and how consumers wish to buy are obvious applications. Understanding and matching self-images and stores images and creating of particular store atmospheres to encourage certain moods need research and ideas from consumer behaviour.

2.5

International marketing

2.5.1 Meaning and definition International marketing is a part of the total marketing process. Marketing may be understood as human activity directed at satisfying needs and wants through the exchange process. To be more explicit, marketing means working with markets which, in turn, means attempting to actualize potential exchanges for the purpose of satisfying human needs and wants.1 Thus, marketing activities carried on by a marketer in more than one nation may be termed as international marketing. International marketing may be defined as ‘marketing carried on across national boundaries’. According to Hess and Careora, international marketing is the ‘the performance of business activities that direct the flow of goods and services to consumers or uses in more than one nation’. In this way, marketing activities, that is, buying, selling, transportation, storage and warehousing, fi nancing, risk bearing, pricing, standardizing, advertising and sales promotion and so on when performed in foreign markets across the national border may be called international marketing.

2.5.2 Scope of international marketing The scope of international marketing essentially includes exporting of goods and services in foreign markets. The exporter performs various

55

Apparel marketing

Figure 2.13

Scope of international marketing

activities other than exporting the goods and services (Fig. 2.13). These activities are: i. Establishing a branch in the foreign market for processing, packaging or assembling the goods according to the needs of the markets. Sometimes, complete manufacturing is carried out by the branch through direct investments. ii. Joint ventures and collaborations: International marketing includes establishing joint ventures and collaboration in foreign countries with some foreign firms for manufacturing and/or marketing the product. Under these arrangements, the company works in collaboration with the foreign firm in order to exploit the foreign markets. iii. Licensing arrangements: The company, under the system, establishes licensing arrangements with the foreign firm whereby foreign enterprises are granted the right to use the exporting company’s know-how, namely patents, processes or trademarks according to the terms of the agreement with or without financial investment. iv. Consultancy services: Offering consultancy services are also covered in international marketing scope. The exporting company

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offers consultancy services by undertaking turnkey projects in the foreign countries. For this purpose, the export company sends its consultants and experts in foreign countries who guide and direct the manufacturing activities on the spot. v. Technical and managerial know-how. The scope of international marketing also includes the technical and managerial know-how provided by the exporting company to the importing company. The technicians and managerial personnel of the exporting company guide and train the technicians and managers of the importing company.

2.5.3 International marketing versus domestic marketing Marketing can be conceived as an integral part of two processes, that is, technical and social. So far as the technical aspect is concerned, international and domestic marketing are identical. Technical aspect includes non-human factors in marketing such as product, price, brand, packaging, warehousing, costs and so on and the basic principles regarding these variables have universal applicability. The social aspect, on the other hand, is unique in any given stratum as it involves human elements, namely the behavioural pattern of the consumers and the characteristics of the society such as customs, attitudes, values and so on. Thus, international marketing is identical to the domestic marketing as far as technical aspect is concerned but international marketing, to the extent, is visualized as a social process, which differs from domestic marketing. 2.5.3.1

Similarities

The following points of similarities may be observed between international and domestic marketing: i. In both the markets – domestic as well as international – satisfying the basic needs of the consumers is of prime importance. The success of exporting company depends very much on this factor. It involves finding out what the customers want and how to meet their needs accordingly. ii. Creation of goodwill is necessary for both the markets. If a fi rm is able to win the faith of the consumers in the market, the task of marketing will be much simpler and easier in comparison to those who are not able to do so. For this purpose, the marketer should offer liberal guarantees and aftersales services to the customers on fairly extensive scale. iii. Research and development with a view to product improvement and adoption is necessary both for international and national marketing.

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By research, several new facts are found out and in the light of those facts, products are improved. iv. The technique of marketing, that is, non-human factors such as product, price, costs and so on are similar in both the markets. 2.5.3.2

Differences

The striking difference between international and domestic marketing lies in the environment in which the two take place. The important points of differences between international and domestic marketing are: Sovereign political entities Each country is a sovereign political entity and, therefore, they impose several restrictions for importing and exporting the goods and services in order to safeguard their national interest. The traders in international marketing have to observe such restrictions. These restrictions may fall in any of the following categories. i. Imposition of tariffs and customs duties on import and export of goods and services in order to make them costly in the importing country and not to ban their entry into the country completely. In the postwar period, due to the efforts of General Agreement on Tariffs and Trade, there has been a significant reduction in tariff globally and on a regional basis due to the emergence of regional economic groupings. ii. Quantitative restrictions are also imposed with an intention to restrict trade in some specific commodities. The major objective behind the restriction is the protection of home industries from the competition of the foreign commodities. iii. Exchange control is another restriction imposed by almost every sovereign state. The government, in some cases, does not ban the entry of goods in the country but the importer is not allowed the necessary foreign exchange to make the payment for the goods imported. However, in some cases, exchange control and quantitative controls are put together along with the grant of import license. iv. Imposition of more local taxes on imported goods with an object to make the imported goods costly is one of the restrictions in international marketing. Different legal systems Different legal systems are operated by different countries and they all differ from each other. Most of the countries following English Common

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Law modified it from time to time. Japan and Latin American countries are important exceptions to this rule. The existence of different legal systems makes the task of business persons more difficult as they are not sure as to which particular system will apply to their transactions. This difficulty does not arise in the domestic trade as laws are the same for the whole country. Different monetary systems Each country has its own monetary system and the exchange rates for each country’s currency are fi xed under the rules framed by the International Monetary Fund and, therefore, they are more or less fi xed. However, in recent years, the exchange rates are fluctuating and are being determined by demand-and-supply forces. Some countries operate multiple rates, that is, different rates are applicable for different transactions. Lower mobility of factors or production Mobility of different factors of production is less as compared to between nations than in the country, itself. However, with the advent of air transport, the mobility of labour has increased manifold. Similarly, the development of international banking has increased the mobility of capital and labour. In spite of these developments, the mobility of labour and capital is not as much as it is within the country itself. Differences in market characteristics Market characteristics in each segment are different, that is, demand pattern, channels of distribution, methods of promotion and so forth are quite different from market to market. If we take each country a separate market, we can assume different market characteristics there. These differences are accentuated due to the existence of government controls and regulations. However, this is a difference of degree only. Even in one single country, for example, India and the United States, these differences in market patterns may be found from state to state. Differences in procedures and documentation The laws of the country and the customs of trade in each country demand different procedures and documentary requirements for the import and export of the goods and services. The traders residing in the territory have to comply with these regulations and customs if they want import or export of goods and services. As there are differences in legal and monetary systems, in government regulations and controls, in market characteristics, in mobility of factors of production and in procedures, practices and documentation in foreign trade,

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the two marketing systems – international and domestic are quite different. As each country has to protect his or her own interest – political, financial and social, it has to put certain restrictions on foreign trade import to a trader, which is quite different as compared to domestic marketing. Restrictions are also there in domestic marketing but the procedures, systems and the rules and regulations are applicable equally in all the parts of the country and these are well known to the traders concerned.

References 1.

Kotler P, Keller K L, Koshy A and Jha M (2006) Marketing management a south Asian perspective, Pearson Education, India.

2.

Donnellan J (2002) Merchandise buying and management, Fairchild Publications, Inc., New York.

3.

Glock R E and Kunz G I (2005) Apparel manufacturing. 4th ed., Prentice Hall, New Jersey.

3 Fashion merchandising

Abstract: The chapter 3 describes the concepts of fashion merchandising and various types of merchandising. The functions and scope of fashion merchandising, line planning, line development and line presentation are discussed in detail. The principles and techniques of fashion merchandising explained in depth. Further the product planning and development, Product life cycle, product mix strategy, fashion forecasting and merchandising planning are elaborately discussed. Key Words: fashion, apparel, retail, merchandising, product planning, product life cycle.

3.1 Types of merchandising Merchandising can be defi ned as ‘product planning’. It includes internal planning needed to get the right product or service to the market at the right time, at the right place and in proper colours, quantities and sizes. Merchandising is the planning, development and presentation of product (lines) for identified target market(s) with regard to prices, assortments, styling and timing.1 Merchandisers may be involved in both the wholesale and retail levels of the apparel business. The following are the various types of merchandising (Fig. 3.1).

3.1.1 Fashion or buyer merchandising It involves the process of coordinating with buyers and interface with the design and production departments. Activities range from product development, getting approval, sourcing of material and order execution of a confirmed order. Functions of a fashion merchandiser: •

Communicate with buyer regarding orders

•

Develop samples/counter-sample as per requirements

•

Quote – cost/price

•

Get sample approvals – regarding fabrics/fittings/shade/trim/accessories and so forth

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Fashion Marketing Management

Figure 3.1 Types of merchandising •

Prepare a schedule for order execution

•

Source fabric/trim/accessories and so forth

•

Production interface

•

Perform lab tests and quality checks

•

Documentation

•

Dispatch and delivery

3.1.2 Apparel or vendor merchandising It involves the process of identifying, planning, executing and buying the product line for entire distribution activity for a season or more, on behalf of a brand of apparel. Functions of an apparel or vendor merchandiser: •

Decide on the total quantity required for the season by each category

•

Work with buyers on ‘range planning’ to maximize commercial opportunities

•

Prepare countrywise quantity break-up

•

Prepare vendorwise quantity break-up

•

Prepare vendor to contractorwise break-up

•

Prepare stylewise/sizewise/colourwise order break-up

•

Prepare jobwise/production line – skillwise break-up

Fashion merchandising

63

•

Have interface with the production department and plan for production

•

Product manufacturing and dispatching

3.1.3 Retail merchandising It involves the process by which individual or group of retail stores plan, create, organize and offer the right product mix to the local customer needs and also work on rapid response process to effect change or replenish the product as the customers want. Functions of a retail merchandiser: •

To estimate sales and plan stock levels

•

Plan and execute merchandise presentation with the available selling space

•

Maintaining stock, replenishing it at the correct time

•

Respond immediately to customer needs and explore seasonal selling opportunities.

•

Provide direct feedback to the manufacturer

•

To perform regular sales analysis and report progress to the management

•

To achieve sales targets and profit margins

•

Provide sales training

•

Handle complaints

Retail merchandising types: 1.

Buying line (planning and bringing right merchandise to store at the right time)

2.

Store line (to coordinate with store people, to train salespeople, to provide customer service, control expense, maintain building, maintain security, achieve sales)

3.1.4 Visual merchandising ‘Visual merchandising’ refers to the art of visual presentation of merchandise at the retail store with the ultimate aim of augmenting the selling process. It is a way to communicate store’s fashion, value, quality to prospective customers. Effective positioning and product differentiation are needed. The purpose of visual merchandising is to: •

Entice customer into the store

•

Present merchandise in a three-dimensional (3D) environment

•

Enhance store image

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Fashion Marketing Management

•

Effectively present the merchandise – to show off goods better

•

Build brand image

•

Maintain a consistent look nationwide

•

Focus on fashion

•

Show customers how to wear and accessorize it

•

Facilitate impulse buying

Selling process: 1.

Attract and hold the attention of the passer-by

2.

Arouse interest in buying the merchandise displayed

3.

Create a desire to want the product being featured in the store

4.

Win confidence of the store and the product

5.

Make the decision to buy

3.1.5 Misperception of merchandising In the apparel firms, the merchandising function is essential but not always performed by someone called a merchandiser. Some of the different job titles commonly used for merchandisers include merchandise manager, product development manager, product manager, designer and buyer.2 A designer may perform the merchandising as well as the design functions for some firms. When both merchandiser and designer are present, the merchandiser is likely to focus on product and line development, while the designer’s primary responsibility is the creation of groups of styles for the line. A product manager may be responsible for the product development process as well as supervising production. In a large retail firm, a buyer is often incharge of line planning and development. In an apparel manufacturing firm, a buyer may be incharge of sourcing materials. Large apparel firms may have a different merchandiser incharge of each product line or classification. In small companies, the owner/manager may carry out the merchandising responsibilities. Regardless of the job titles or size of a firm, merchandising involves directing and coordinating development of product lines from start to finish. Line content, fabrications, styling, diversity of assortments, pricing, midseason changes and revisions, visual presentations, and timing, are all part of merchandisers’ and responsibilities and decision-making.

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3.1.6 Types of merchandisers The strategic plan determines whether the apparel firm operates primarily at the wholesale level, the retail level, or both. Wholesale merchandisers are involved primarily in the manufacturing sector. Wholesale merchandisers may plan and develop lines that are presented at apparel markets for sale to retail buyers. If a firm is vertically integrated, wholesale merchandisers may be presenting directly to retail customers. Retail merchandisers work for firms that are primarily retailers and prepare lines for presentation to retail customers. Merchandisers may buy finished goods to develop assortments and/or use product development as a part of line development.

3.2

Fashion merchandising

Fashion today is a business. It includes all industries and services connected with fashion: manufacturing, distribution, advertising and marketing. Marketing is a total system of business designed to plan, price, promote and distribute to potential customers. Merchandising which is narrower than fashion marketing refers to planning the right fashion merchandise at the right time at the right place.3 Merchandising deals with the selection, orders, purchase and so forth of actual merchandise/product. One must understand that demand forecasting is the foundation upon which all retailers base the merchandise and its planning. Merchandise is chosen carefully to best serve the needs of the target market. The merchandiser requires special skills which include predicting what will sell and when it well sell best. A thorough knowledge of the merchandise, garment types and details, methods of production, qualities and f inishes are prerequisites to merchandising. Resources to avail the merchandise are numerous. The merchandisers must make careful analysis of potential vendor before purchasing merchandise.

3.2.1 Functions and scope of fashion merchandising 3.2.1.1 Line planning Line planning is the formulation of the parameters that will guide line development and presentation and influence sourcing and production processes. The line plan defines and limits the line (Fig. 3.2). The primary elements of merchandise planning are evaluation of the part season, synthesis of fashion trends and socio-economic issues and development of a framework for the coming selling season in the form of a line plan summary.

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Figure 3.2

Functions and scope of fashion merchandising

The line plan summary provides the framework for developing a line for a particular season. Line plan includes the dollar investment for merchandise lines and product classification for each selling season and each month of the year. The evaluation of the past season done by analysing extensive records of past season sales, the relative rate of sale of merchandise groups, brand names, individual styles, colours and sizes. Model stock plans identify the numbers of styles, sizes, colours that will be included in each product line and establish the percentage allocation for each.2 3.2.1.2

Line development

Line development, with subcategories of line concept, pre-adoption product development, line adoption and post-adoption product development, includes determining the actual merchandise that will fill out the line plan through some combination of product development and/or finished goods sourcing. Line development identifies merchandise that implements the line plan. Functions of line development are line concept, pre-adoption product development, line adoption, post-adoption product development. 3.2.1.3

Line concept

Establishing the line director by choosing suitable colours, materials, (selection, development, specifications) styling and so forth by fashion and colour forecast and trends. Once the line concept is established, there are two primary methods to complete line development.

Fashion merchandising

1.

Product development

2.

Finished goods buying/sourcing

67

Product development In the apparel firm, the product development evolves three phases: 1.

Pre-adoption

2.

Adoption

3.

Post-adoption

Pre-adoption: First process is design development by sheeting, draping or computer-aided design and work out with prices which is suitable for the gross margin profit and then last the materials for its end use applications. Line adoption: A line adoption meetings, merchandiser and designers present the proposed line or parts of line to the management team and where the discussion takes place recording merits, demerits and improvements of colour, style, design, size and so forth. And the selected design and style are evaluated and decisions are made about assortments, stocks, gross margin, prices, volume and so forth. Post-adoption product development: After line adoption, the styles are prepared for production where fit samples, patterns, quality specs, material assembly methods, detailed costing, pattern grading are taking place. Finished goods buying/selling Retailers buy the finished goods in the wholesale market in the current trend and study the fashion markets and with the above particulars they develop the line. New products are available in the market worldwide and this helps to develop a line. 3.2.1.4 Line presentation Wholesale is the product presented by means of fashion shows, wholesale markets, sales presentation, trunk shows and customer service. Retail is the product presented by means of discount, off-price, cutting, television, computer, special gifts, customer service, inverting, display hanger and so forth. 3.2.1.5 Sourcing Sourcing determines the method of acquiring the goods. Materials defi ne the nature and availability of the fabric, interlining, buttons, zippers and so on. Strong supporter relationships with material

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vendors are essential to successful execution of the merchandising process. Material supply determines the availability of piece, goods and findings for production of finished goods. Production with subcategory of production planning, assembly/finishing and packing/distribution includes process required to actually make the products and deliver them to the customer. Production makes goods that will be available for sale to ultimate customer.

3.2.2 Business and marketing plans Merchandising work within the firm’s strategic business plans and marketing plans that identify the primary products line(s), price range(s), size range(s), fashion emphasis(es) and quality level(s) appropriate to the firm’s mission and target market. The plan determines whether the apparel firm operates primarily at the wholesale level, the retail level, or both. Wholesale merchandisers are involved primarily in the manufacturing sector. Wholesale merchandiser may plan and develop lines that are presented at apparel markets for sale to retail buyers. Retail merchandisers work for firms that are primarily retailers and prepare lines for presentation to retail customers. Merchandisers may buy finished products to develop assortments. 3.2.3 Fashion lifecycle and merchandising activities The term fashion lifecycle refers to the rise (i.e. introductory stage), wide popularity (i.e. growth stage) and then decline in acceptance and finally the stage of obsolescence of a style. It is represented by a bell-shaped curve and not a circle because the style dies but and a new one takes its place. These four stages are discussed below. Understanding of the fashion cycle is basic to successful merchandising of fashion goods at wholesale or retail. The main volume of business, in manufacturing and retailing alike, is done in fashion that is widely accepted or well on their way to the top or peak of fashion cycle. A business that aims to attract a mass customer audience must concentrate on widely popular fashions or on those that show promise of rising into mass acceptance stage.4 The relative importance of various stages of the fashion cycle and how merchandising varies for each stage is given in Figure 3.3.

3.2.4 Fashion merchandising principles and techniques 3.2.4.1

Estimating demand

In order to select the right goods, merchandisers must know their customers thoroughly.

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Figure 3.3 Stages of fashion cycle and variation of merchandising for each stage Study of target market Customers for whom the store place primary importance and market surveys (age, sex, lifestyle, occupation, disposable income, personal choice in selected item). Demographics divide consumers into smaller, more homogeneous segments. Population is distributed by urban, suburban, age, sex, race, religion, nationality, education, occupation and income, more importantly, disposable income which they spend on fashion. Psychographics are studies that develop fuller, more personal portraits of potential customers, purchase patterns, personality, attitude, interests, hobbies, personal opinions and actual product benefits desired. These studies help to form the image of the consumer using the product and understand the behaviour of present and potential consumers (Fig. 3.4). An example: In India, today, it is observed that two major segments are emerging as the important customer.

Figure 3.4

Fashion merchandising principles and techniques

70 Fashion Marketing Management

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71

•

First, the teenagers and children who are influencing parents to buy not only garments but also all other fashion lifestyle goods such as televisions, cars, toothpaste and so forth.

•

Second, the mature age group between the ages of 25 and 35 are the new adventurous spenders.

•

Study of fashion and product life cycles: Introductory stage, growth stage and decline stage.

•

Kinds of services offered or prices at each stage (introductory offers, sales promotions, free gifts, discounts, clearance sales, etc.)

Tools to estimate demand a)

Want slips and customer opinions • When customer comes into the store and asks for something that is not carried, a note is made for request. • Several customers making such a request indicates demand for the item. The slip should indicate who demanded it as well. • The length of the time required to obtain the merchandise should be considered. By the time the goods are made in-house in a retail shop, the customers may already obtain it. The store may also learn from the interactions with customer while talking to them which is known as customers’ opinion.

b)

Trade publications The trade publication helps to assist the retailer – what products are available and what may sell. For example, if it is stated that product X will be advertised in the leading fashion publication, it shows a demand for that product. Along with this, market analysis and case studies are regularly published for retailers.

c)

Past sales performance When the product has already been sold in the past, information is readily available in the store on the following aspects: How did it perform? What was customer’s reaction? Will the reaction be the same? Or have people become bored with? For example, boot leg pants do not sell all seasons every time.

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d) Comparison shopping Many merchandisers see no wrong in going into competing stores to see what is selling. It is sound business practice to determine what other stores are carrying and what is selling. Many other things are also observed: ranging to a number of sales personnel to display ideas. Trips to exclusive stores will indicate what items can be kept in the future. 3.2.4.2

Resources

Where to get the merchandise? The buyer is responsible for actual buying process, which includes choosing the resource, selecting the merchandise, securing the best terms and placing the orders. The buyer is responsible for not only determining what and when to buy but also where and how much to buy and spend. In the fashion trade, the term ‘market’ has several meanings. It can refer to the total demand for any given merchandise (e.g. demand for sportswear in India). It also refers to the location where buyers and sellers meet for the purpose of trading. a)

In store sales (representatives visiting the store)

b)

Merchandise centres (wholesalers, manufacturers)

c)

Trade shows (international/domestic)

d) Catalogues (supplier catalogues and advertisements) e)

Buying offices (help in assistance for smaller stores)

f)

Internet and International fashion centres (websites, online orders)

a)

In stores sales Many representatives visit stores bringing samples of available merchandise. Advantage: No travel is required, the retailer has undivided attention of the representative and all records are available for reference if required. Also, store personnel can be called upon for discussions. Disadvantage: Sometimes, the samples may be limited; some vendors do not visit small or inaccessible stores.

b)

Merchandise centres Domestic market refers to fashion market located within any county (e.g. India in the present context) and foreign/export/international markets

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refers to those located outside India. Merchandise centres develop where a great number of sales offices, wholesale manufacturers are located. c)

Trade shows Trade shows usually occur once every season. It brings both the buyer and seller together in a commonplace. Face-to-face contact is made even with vendors not previously associated with, for example, Garment Tech Expo. Because of its carnival-like atmosphere, the merchandiser must not buy impulsively – always buy on the second visit.

d) Mail order catalogues The first mail order company was founded in 1872 by Aaron Montgomery Ward before the presence of automobiles. Sears followed in 1886. Then came the catalogue stores where customers could write their orders. Till today Sears, Montgomery Ward and JCPenney still cater by this method apart from having their own retail outlets. Once the domain of rural dwellers, the mail orders are now an accepted form of buying merchandise. e)

Buying offices The buying office provides not only market coverage but also relates value of merchandise to the stores. How will it sell in the store? It acts as the eyes and ears of the stores and provides the following information • Merchandise news • Special items • Reordering • Fashion activity The buying office also provides counselling services • A good buying office provides personalized service to the store. • To do this, knowledge of each store merchandise, unique character, clientele and so forth must be known. • The buying office represents leadership to a group of smaller stores to compete with larger chains.

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• The group buying activities benefit the smaller stores in the reduction of prices for consultation, better delivery and availability of merchandise and so forth. f)

Internet and international fashion centres • New York – Garment District (Madison Avenue) • London –British Fashion Council • Paris-Chambre Syndicale (shows two shows: January [spring summer] July [fall winter]) • Première Vision • Milan – Alta Moda • Germany – Interstoff trade shows in May and November. • Japan and Hong Kong • Fashion Design Council of India

3.2.4.3

Organise research material to start designing

a)

Thumbnail sketches

b)

While following forecast, remember to adapt the forecast to your customer profile. While designing, keep accessories in mind and factory requirements and capabilities available to you.

c)

Group ideas into common details, for example, all sketches using cuts are grouped and so forth, place appropriate fabrics and embellishments alongside.

d) Design board: Present final designs professionally along with fabrics, trims and other working details. The design boards are usually in two-dimensional format of flat sketches with front and back of garment separately. They could also be the realistic and detailed illustrations of garments. 3.2.4.4

Costing

Putting the right price for your collection or range depends on many factors. The actual (fabric, trims, transportation cost, etc.), overheads (labour, utilities, etc.) and profit margins must be taken into account. Knowledge of how the product will be manufactured is essential for pricing. 3.2.4.5 Presentation of range or collection to customer/client Presentations are professionally held for the customer as they are vital in marketing your product. Both visual and verbal methods are used. The

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customer also uses these presentations to select the final product to be manufactured. a)

Presentation of theme/inspiration: mood boards, storyboards and so forth.

b)

Presentation of range/collection: • Design boards are used to depict what constitutes the pieces, how they are made and so forth • Fashion plates: 3D illustration to help visualize how the ensembles are put together. • Illustration plates are used to visually depict how each piece will be worn and the relation of the garment to the body. • Specification sheets: Spec sheet is a working sketch to be technically complete for sending design into mass production. These are developed after the first sample has been approved. The designer for accuracy inspects the spec sheet. • Flat presentation drawing drawn to scale indicate season, buyer, style number, garment type and size, measurements, details of pocket and collar shapes, type of fastening, swatches of fabrics, trims, linings and so forth.

3.2.5 Role of fashion merchandiser The activity of the merchandiser involves product development, sourcing and activities that go far beyond buying. The merchandiser is the person who channels the creativity of the designer and the design staff so that the six ‘rights’ of merchandising can be successfully accomplished. These rights are: •

The right merchandise

•

At the right price

•

At the right time

•

In the right place

•

In the right quantity

•

With the right sales promotion

To these rights must be added another one ‘for the right customer’ because this customer is very important. The merchandiser is given the responsibility to research who the right customer is. Like the creation of fashion, the

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merchandising of fashion is also something of an art. It is the merchandise’s job to interpret, translate and display apparel attractively enough to make people want to buy it. Merchandisers must also constantly update and refine ideas in order to keep customer interested. Merchandising of apparel is the final step in the process of creating fashion goods. Merchandisers must constantly involve in identifying, digesting and reacting to new trends and ideas. Information is so important to fashion merchandising. In fact, this is an array of support services dedicated exclusively to promulgating fashion information that has developed over the years.2 Merchandising is the most challenging end of the fashion business, existing as it does in constant state of change. Merchandisers must be among the first to spot and act on the new trends. They must be tuned to their customers’ needs and desires to a degree. An extraordinary amount of planning and effort goes into the merchandising of fashion products. For example, let us say that a heavy embroidery top has become the hot fall garment – the one article of clothing that most women buy. It is the merchandiser’s responsibility first to identify the hot style and to estimate demand and then to make sure that enough of heavy embroidered tops have been ordered to meet the customer demand. Since manufacturers will be making many different kinds of tops, the merchandiser must select tops that will appeal to the customer in terms of style, quality and price. If the customer is high end, expensive silk embroidered tops can be stocked. If the customer is budget minded, less expensive polyester or cotton tops will do. Perhaps most important of all is that the merchandiser must make sure that the tops arrive in the stores at the right time – when the women are eager to buy them. Finally, the merchandiser needs to let the customers know that the tops are available and should promote them. All of the above-mentioned duties go into merchandising a single product. A fashion merchandiser deals with not one but thousands of products. A retailer can have a chain or mom-and-pop operation, a general or specialty merchandiser, who seeks to maximize the firms profitably going after the target customers. In order to better target their customers, retailers establish merchandising policies. Merchandising policies are general and specific guidelines and goals established by store management and adjusted according to current trends and marketplace needs to keep the store on target. The overall and general goals regarding merchandising policies are: •

The stage of the fashion cycle that will be emphasized

•

The level of quantity that will be maintained

Fashion merchandising

•

The price range or ranges that will be offered

•

The depth and breadth of the merchandising assortments

77

Merchandise assortment is a collection of varied types of related merchandise, essentially intended for the same general end uses and usually grouped together in one selling area of a retail store. Broad: A merchandise assortment that includes many styles. Deep: A merchandise assortment that includes a comprehensive range of colours and sizes in each style. Narrow: A merchandise assortment that includes relatively few styles. Shallow: A merchandise assortment that contains only a few sizes and colours in each style. Using all their merchandising skills, the merchandiser helps to form and maintain a positive image in the marketplace for the manufacturer. It is this that influences a specific customer group to buy a particular line at the level. In most of the cases, the design has to be disciple and directed so that the particular image of the manufacturer and the merchandise that is produced will continue to fit the needs and wants of a specific consumer group. Some people in the industry describe the merchandiser as the glue that holds the whole design concept together. In fact, the merchandiser is the liaison between the design staff, the production facilities and the sales department staff. The merchandiser has to view the line from the design point of view and also has to be knowledgeable about production and sales effort.3 Overseas merchandising representatives are the individuals in other countries who assist their retail clients in the selection, development and delivery of merchandise produced in that overseas region. In large stores, buyers of various department handling-related merchandise are supervised by a divisional merchandise manager (examples of department handling-related merchandise are infants’ and children’s wear, women’s ready to wear, men’s wear, boys wear and home furnishing). The merchandise manager coordinates the efforts of thevarious departments, with or without the aid of a fashion director, so that the fashion picture of each departmentis presented to the public at right time. The general merchandise manager is the top of the management position that demands, in addition to fashion and merchandising know-how, an understanding of every phase of store operation, from housekeeping to finances.

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The fashion industry is huge and large and all-encompassing that requires many support or auxiliary services. The most important fashion auxiliary services that help a merchandiser to do his job are: •

Fashion magazine

•

Trade publications

•

The broadcast media

•

Advertising

•

Public relations agencies

•

Buying offices

•

Consulting and market research groups

3.3

Product planning and development

3.3.1 Introduction Product planning has been defined by American Marketing Association as ‘the act of making out and supervising the search, screening, development and commercialization of new products; the modification of existing lines; and the discontinuance of marginal or unprofitable items’. Simply stated, product planning decides the nature and other related aspects of the articles produced and sold. According to W. J. Stanton, ‘a product is a set of complex tangible attributes, including packaging, color, price, manufacture prestige, retailer prestige and manufacturer’s and retailer’s services which the buyer expect as offering the satisfaction of wants and needs. A product is of some utility to its user. A product could be defined as everything the purchaser gets in exchange for his money’.1 However, according to Wroe Alderson ‘a product should be considered as bundle of utilities consisting of various product features and accompanying service’. Product development is a more limited term but includes the technical activities of product research, engineering and design. Product planning and development is the result of the coordinated efforts of a large number or specialists – engineers, scientists, accountants, marketing men and so forth. Product planning is usually described as ‘merchandising’ and it covers both the existing and potential products. This activity, therefore, must deal with the proper balance between the old and new products. New product planning process consists of the creation of new ideas, their evaluation in terms of sales

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potentials and profitability, production, facilities, resources available, designing and production testing and marketing of the product. The main task of the product planners is to identify specific customer needs and expectations and align company’s possibilities with the changing market demands. In each of these stages, the management must decide: a)

Whether to move on to the next stage

b)

To abandon the product

c)

To seek additional information

3.3.2 The new product development process The product planning is the function of the top management personnel and specialists drawn from sales and marketing, research and development, manufacturing and finance. This group considers and plans new and improved products in different phases as given below: a)

Idea formulation

b)

Evaluation of screening of ideas

c)

Concept development and testing

d) Business analysis e)

Product development

f)

Test marketing

g) Commercialization or market introduction 3.3.2.1

Overview of the process

The following flow chart provides an overview of the new product development process. At each stage, except for the fi rst and the last, management has three alternative decisions: (1) move the proposed product on to the next stage for evaluation there, (2) terminate (drop from further consideration) the product and (3) send the proposed product back to an earlier stage for further development or evaluation (Fig. 3.5). a)

Idea formulation The beginning of a successful product is a creative idea. For the generation of the new ideas, knowledge about the unfulfilled needs of the consumer, their attitudes that may be needed in a product to be of use to the customer, some useful information has to be gathered. The step starts with a sound need-oriented analysis and assessment of market opportunities and company resources. For this purpose, a

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Figure 3.5

New and improved products in different phases

careful inventory of a company’s resources along the lines given below has to be made. Every company is unique. As a result of its history, experience and personnel, it has certain strength and certain weakness that distinguish it from other organizations. New ideas for the generation of a product may come from company’s own research and development studies, technicians, scientists, management’s judgment, company’s salesman, employees, consumers

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of industrial users, middlemen, company suppliers or raw materials, governmental agencies, company’s competitors and their products, trade associates, private research organizations, inventors, exhibits and trade fairs, wholesalers and retailers, advertising agencies, commercial laboratories and trade journals and so forth. Ideas may also come from ‘brainstorming’ sessions of management, suggestions from employees, engineers, and their outside sources, both solicited and unsolicited. Consumers’ complaints or dissatisfaction can also be the source of new ideas. The consumers are said to be one of the best sources. As would be clear from the observation made by Cannon and Wichert, ‘A meat packer began producing onion soup at the suggestion of a company executive’s wife. A pottery manufacturer produced a new vase after viewing museum exhibit. A producer of office machinery developed an envelope opening device as a result of thorough examination of a wholesaler’s catalogues and several interviews with office managers. A chemical fi rm began manufacturing a detergent after extensive laboratory research’. Through contact with consumers, the extent and importance of market need are determined and then an appraisal is made of the extent to which present products fulfil the demand; and then efforts are made to go to the next phase of product planning. b)

Evaluation of screening of ideas The next phase is that of screening of the new product ideas against a predetermined set of criteria. This involves evaluation of the company’s capabilities with respect to scientific knowledge and engineering skills in terms of possible new products and product improvements. The basic idea is to find out whether and which ideas warrant further study. The screening should be rigorous enough to eliminate poor stuff, but not so rigorous as to eliminate potentially good possibilities. The list of information required in evaluation new product possibilities should be drawn up in such a way as to throw some light on the profit possibilities, the risk and cost of capital involved. Two types of techniques are used for screening new products. Both involve a comparison of potential product idea against criteria of acceptable new products. The first technique is simple checklist techniques and the second is the rating chart. The checklist enumerates desirable product characteristics on a rating scale (excellent, good, fair, poor, very poor) that guide the screener. These are widely used by marketers in the screening process. The qualities to be screened can be as follows: benefits to target

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consumers, significantly different from rival products, can be produced economically, fits in with company image, company personnel have needed expertise to produce and sell it, company personnel have time needed to produce and sell it, will not consume excess amount of funds and is economically sound. In rating chart, the marketer screens the ideas regarding marketing characteristics (such as distribution, relationship to present product lines, price–quality comparison with competitive products, merchandising potential, effect on present products, etc.), demand (durability, market dimensions, dependence on economic climate, social stability) and potential (originality, market position, future customers, etc.) c)

Concept development and testing All departments – production, technical, sales and finance – devote full attention to screen the ideas by making a thorough investigation of various questions, such as whether new product is to be produced or not; in what quantities it should be produced and what facilities are available within the plant to produce this quantity, what new plants/ machinery would be needed, whether packaging material is available and if so, what size and shape the packages should be, through which marketing channels it should be promoted and decide upon the product’s profitability. The answer to these questions would provide the company with rough ideas of the prospective profitability of various possible alternatives. ‘Screening phase’ involves a thorough investigation of the competitive market situations and company resources with respect to each idea. This stage embodies what is known as concept testing or pre-testing of product idea. Three facts may be noted about screening: 1. Poor or impractical ideas should not be allowed to go any further in the development process. 2. All new ideas cannot be actually put into practice for it will not only be very costly affair but it will also be difficult for a company to handle more than a few projects at a time. 3. The cost of screening increases as the process continues.

d) Business analysis At this stage, the new product ideas are carefully evaluated for their economic worth. Estimates of sales, costs and profits are important

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components of business analysis, and forecasts of market penetration and market potential are essential. More precise estimates of environmental and competitive changes that may influence the product’s life cycle or its replacement or repeat sales are also needed to develop and launch a product. A complete cost appraisal (both manufacturing and marketing costs) is necessary besides judging the profitability of the project. While making business analysis, the following questions may be posed: • Is the company capable of developing and producing the product idea? • How quickly could new facilities for producing a new product be built up? • Does the product fit in with the company’s existing ‘product mix’ and ‘product lines’? • Is the necessary finance available at terms consistent with a favourable return on investment? e)

Product development At this stage, the ‘idea on paper’ should be converted into a ‘working model’, that is, a physical product. The idea should be converted into an exact prototype that should reveal tangible and intangible attributes associated with the product in consumer’s mind. ‘Pilot models’ or small quantities of the product are manufactured as per the specifications and characteristics. Laboratory tests and other technical evaluations necessary to determine the engineering and production feasibility of the article are made. Steps are also taken to review copyrights, preliminary advertising copy, packaging and labelling to determine legal ramifications, and to plan personal selling and distribution to ensure the effective integration of all elements in the ‘marketing mix’. Marketing research is also done to ascertain the potential sales level for the prospective product. The market research makes possible the establishment of production volume, cost and quality, goals and hence the scheduling of men, materials and machines.

f)

Test marketing Often intertwined with the process of product development is the process of ‘product testing’. In a broad sense, this involves not only internal laboratory testing of the proposed product in terms of characteristics and pilot testing of production processes but also

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consumer (or mini-market testing), in which the product is tested under conditions existing, in the field. Both these test marketings allow for greater control and faster results than the actual test market. They save time and money and also enable the company to maintain a high degree of secrecy. Secrecy is important because competitors can cause a considerable amount of marketing disruption. Test marketing is generally done by consumer goods companies rather than by industrial goods fi rms who usually try out new products with selected customers or obtain general reactions by having their salespeople demonstrate products when they make their rounds. Test marketing provides these benefits to the marketers: i. It provides an opportunity to examine a product in a natural marketing environment to obtain a measure of its sales performance. ii. While the product is being marketed in a limited area, it is possible to identify weaknesses in the product or in the overall marketing plan. iii. It helps the management to develop a profile of potential customers and their purchasing habits. iv. It enables marketers to evaluate alternative marketing strategies, if need be. v. It offers an opportunity to measure consumer reactions to the test product and competing products. However, there are two risks involved in test marketing. One, the data collected may be distorted by the actions of competitors in the test market who cut prices, and promote their own products heavily. Second, there is every likelihood that competitors may copy a popular product and snatch away the market.

Guidelines for effective test marketing 1.

Don’t confuse ‘test marketing’ with ‘concept testing’. Test marketing is supposed to test the complete plan, not simply the ‘product concept’.

2.

Don’t test too early in the development programme, wait until the complete entry plan has been prepared.

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3.

Don’t select test markets without careful study.

4.

More quickly, but not in haste. Allow enough time to get good results, but don’t expect the minutest accuracy.

5.

Don’t forget to have a control market, which is important for estimating the impact of competitive efforts, seasonality, and so forth.

g) Commercialization or market introduction This is the last stage, which involves the launching of the product with a full-scale marketing programme. This introduction should be guided by a complete marketing plan which establishes sales, share of market and profit goals for the introductory campaign: map out the strategic and tactical approaches which are to be taken to reach these goals and provide the yardsticks by which the results of the introductory programme can be measured and corrective action is taken, if necessary. Channels of distribution must be filled with the product and all selling agencies should be fully informed about the new product, the planned marketing programmed and their roles in it. While launching a product in the market, the marketer has to make a choice from two alternatives: i. Whether to market at a selected market or to approach the entire market ii. Whether to place the product market-by-market (known as rollout) or to get an immediate entry in the state’s or national market.

3.3.3

Product mix strategy

3.3.3.1 Product mix The product mix refers to all the products offered by a firm. Product mix should be differentiated from product line, which refers to the group of products which are classified together for the reasons of similarities or any one of the several criteria such as customer needs, market served, and channel used or technology used to manufacture. Most companies whether large or small, whether in manufacturing or retailing generally handle a multitude of products and product varieties. In future, the companies may expand new product lines or contract the old lines,

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alter the existing product or develop new uses for the existing products. These activities involve managerial strategies and policymaking with respect to the company’s line of products and services. The proliferation of products within the company means that product policy decisions are made at three different levels of product aggregation, namely, product item, product line and product mix. a)

Product item is a specific version of a product that has a separate designation in the seller’s list. For example, Hindustan Motors’ Ambassador Mark II is a product item.

b)

Product lines is a group of products that are closely related either because they satisfy a class of need or if used together, are sold to the same customer group, which are marketed through the same types of outlets or fall within given price ranges or that are considered a unit because of marketing, technical or end-use considerations. In other words, a broad group of products, which are meant for essentially similar uses and possess reasonably similar physical characteristics, constitute product line. For example, Kodak camera or a wearing apparel is a product line or non-food product line for babies include baby clothes, nursery equipment, vaporizers and toiletries.

c)

Product mix: Products offered for sale by a firm or a business unit. In other words, product mix is the full list of all products offered for a sale by a company. For example, Kodak cameras, photographic supplies, cosmetics, locomotives, textiles, iron and steel goods, Mercedes trucks and so forth are product mix.

3.3.4 Organizational goals and product mix The efficient fulfilment of the marketer’s goal to supply goods and services to the consumer for the satisfaction of their needs can be possible if due attention is given to three issues which govern the product mix-sales growth, sales stability and profits. Sale growth can be achieved either by increasing its share in existing markets or by fi nding new markets. Four ways can be adopted by which product mix can be adjusted to achieve goals. These are i. Market penetration, under which market share is increased by expanding sales of present products in existing uses ii. Market development under which markets are expanded by creating new uses of present products

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iii. Product development where market share is increased by developing new products to satisfy existing needs iv. Diversification where market is expanded by developing new products to satisfy new consumer needs Kotler observed, ‘All three dimensions of product mix have a market rationale. Through increasing the width of the product mix, the company hopes to capitalize on its good reputation and skills in present markets, entice the patronage of buyers of widely differing tastes and needs. Through increasing the consistency of its product mix, the company hopes to acquire an unparalleled reputation in a particular area of endeavor’. The dimensions of the product mix, and the ways in which they relate to each other are important for marketing management. Changing the product item involves the issues whether to modify or add or drop product items. Changing the width of the product mix involves altering policy at the product line level, whether to deepen or shorten an existing product line. Changing the product mix involves the issues what markets the marketer should enter or leave and how to handle communications for the various product lines or items.

3.3.5 Factors influencing change in product mix Making decisions about change in product line depends upon a number of factors, such as the preferences of consumers, the tactics of competitors, the firms cost structures and the spillover of demand from one product to another and so forth. Changes in market demand Changes in market demand may be due to changes in the component of population served. If there is an increase in the number of births, the business would like to increase new lines of baby products, such as baby food, baby shoes, perambulators, toys and so forth with other lines. An increase in the consumer’s earnings which leads to the improvement in the quality of the product manufactured and also the dropping out of the certain low-price, low-quality goods. Change in the consumer behaviour through changes in his motivation, attitudes, preferences and buying habits may also encourage the marketing executive to expand or contract his product mix. To satisfy the more varying needs of consumers, the company may add many new product lines, such as at the departmental stores adding the general merchandise, the light reading material, health and beauty aids, ready-to-wear apparels, household requisites, indoor games, sportsmaterials and so forth. Sometimes, changes in product mix are also made to suit the requirements of the middlemen who would like to have a varied line of products for reasons of competition, cost and promotion.

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Competitive action and reaction The firm may differentiate its product line to meet price competitions, and save it from unduly low profits. Marketing influences New product line may be added for two reasons: first, to increase sales by exploiting new market or expanding the present ones, and second, to use the firm’s capacity more efficiently by a better use of its resources of salesmen, warehouses or branch offices. Sales stability: Stable sales allow for more efficient planning in all phases of production and distribution. It is also desirable to maintain a proper balance between total sales and product mix so that a product losing marketing may be counteracted by another selling high. Profits are determined by the components of the product mix. Some items are usually more profitable than others. Low-profit items may be performing a valuable part in helping to sell company’s more profitable product; and they may also prove as insurance against an unforeseen failure in profitable products.

3.3.6 Structure of product mix The structure of product mix has dimensions of both ‘width’ and ‘depth’. ‘Width of the product mix’ means the number of different product lines found within the company. In other words, breadth is measured by the number of product lines carried. For example, Bajaj Electricals produces bulbs, fluorescent lights, mixies and grinders, toasters, scooters. The ‘depth of the product mix’ refers to the average number of items offered by the company within each product line. In other words, the depth is measured by assortment of sizes, colours, models, prices and quality offered within each product line.2 The ‘consistency of product mix’ refers to how closely relate the various product lines are in terms of consumer behaviour, production requirements, distribution channels or in some other way. For example, the products produced by the general electric company have an overall consistency where most products involve electricity is one way or the other (Fig. 3.6).

3.3.7 Product and range development Product development is creating a particular product for a specified buyer. Range development is a collection of products for a particular buyer. The collection is done through fabric/colour/style. For example, Arvind Clothing

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Figure 3.6

Product mix

has Van Heusen catering high market, Peter England for medium market and Newport for low market (Fig. 3.7).

3.4

Fashion forecasting

Designers, merchandisers and buyers must learn to predict trends, which are new directions in fashion. It would be impossible to ask all consumers what they will want to wear a year or two in advance – they would not even know themselves.2 Because designers, merchandisers, and retailers must work so far ahead of the selling season to produce or stock the fashions their customers will want, they must learn to anticipate customer’s wants and needs to be fashion forecasters of the future. Fashion forecasting involves the following activities: •

Studying market conditions – how the consumer’s buying behaviour is influenced by society, economics, technology and the environment.

•

Noting the lifestyle of the men, women, or children who are the customers.

•

Researching sales statistics to establish sale needs.

•

Evaluating the popular designer collections to find fashions (colours, silhouettes, fabrications, lengths) that suggest new directions, or ‘trends’

•

Surveying fashion publications, catalogues and design services from around the world.

•

Observing ‘street fashions’ (what people are wearing) and keeping up with current events, the arts and the mood of the public.

Figure 3.7

Product and range development

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3.4.1 Market research Manufacturers and retailers must constantly research their target market to learn buying habits and preferences. 3.4.2 Consumer research Manufacturers and retailers may ask consumers directly about their buying preferences. Consumer reactions are compiled and tabulated to find preferences for certain garments or accessories, colours, or sizes and so on or preferences for particular retailers. This information can be used to create new products to fit specific consumer’s tastes. Methods of questioning consumers can be formal or informal. Buyers and sales associates may talk with customers in the store. Market research companies may be asked to make inquiries by telephone or mail and to hold consumer focus group meetings. Surveys, by telephone or mail, are made by publications and market research companies for manufacturers and retailers. These surveys include questions about income, lifestyles, fashion preferences and shopping habits. Consumer focus groups are meetings of target customers usually selected by a market research firm to meet with the manufacturers or retailers. These groups discuss the pros and cons of merchandise or other aspects of shopping satisfaction. In stores, informal interviews can help researchers obtain information by simply asking customers what they would like to buy, what styles they like that are currently available, and what merchandise they want but cannot find. Because of their close contact with their customers, owners of small stores can often do this most effectively.

3.4.3 Shopping To study what consumers want and need, designers and merchandisers also ‘shop’ retail stores to see what merchandise is selling best. Designers and merchandisers compare the styling, price, fit and quality of lines with competing catalogues and the Internet. Retailers observe competing stores to analyse which merchandise selections and presentation methods are the most successful. 3.4.4 Sales records Every manufacturer and retailer researches its own sales records. Rising sale statistics show what fashion trends are developing; declining sales show what styles have passed their peak (see influence of timing and geographic location).

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Overall weak sales show that a style is not meeting consumer needs for fashion, quality or fit; it is time to drop it from the line and move on to new styles.

3.4.5 Evaluating the collections Traditionally, American manufacturers and retailers turn first to Europe for an identification of the newest fashion ideas. Now, foreign manufacturers and retailers are also interested in American designer collections, especially sportswear. Twice each year, top designers show their collections. From all over the world, retail buyers and fashion editors invade Paris, Milan, New York and London. Editors and buyers try to analyse the collections for outstanding new ideas that might influence fashion direction. 3.4.6 Fashion trends Fashion trends are the styling ideas that major collections have in common. They indicate the direction in which fashion is moving. Fashion forecasters look for the styles they think are prophetic, ideas that capture the mood of the times and signal a new fashion trend. Several designers may use a similar fashion idea because they have been inspired by common sources. The trend may appear in a fabrication, a silhouette, or another design element that appears in several collections. Very often, a new trend appears in small doses until it spreads to other collections. As the press notices similarities between collections and highlights them, the media exposure also helps establish the trends. Evaluating the collections becomes one way a designer, working for a mainstream manufacturer, can research fashion direction. As designers are not invited to the shows, they must evaluate by shopping in major fashion capitals or using design services, magazines and newspapers. For retail buyers, it is becoming a huge challenge to figure out which trends will become fashion basics, like capris, and which are only fads, such as pony prints. Buyers have to become very flexible in their buying patterns and cautious about inventory management. If the market becomes flooded with a new trend, consumers may react negatively to the overexposure. Empowered by the Internet and television, global trends are moving at an accelerating pace. The lifespan of a trend is now about 5 months instead of a year. For the junior market, the span is only 3 months.

3.4.7 Trends for target markets Too often, manufacturers and retailers get so focused on a single trend that they forget that there are many market segments. Diverse consumer age segments and lifestyles create many separate market niches, each with its own trends: trendy, junior, professional, family oriented and so on. With today’s segmented market, a trend may be confined to a single market niche. Designers and

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merchandisers must decide what trends best suit their own customers based on age range, income level, lifestyle and fashion preferences.

3.5

Merchandise planning

The Indian fashion industry is unique in the format as it exists due to the single most fact that most of the businesses are run by the designers themselves or by their relatives. Some of them in the recent times have hired professional CEOs and taken initiatives to instil a culture of professionalism but none have so far focused on ‘merchandise planning’ as a tool, let alone use it as an art or science.3 The conventional way of planning has been to term an inspiration, manufacture a collection, send it to a store (for which the collection could have been specifically made) and/or sell what is left (after sales) in another store or keep it in the stock. This has been the modus operandi for many years and at the end of few years or so when the designer looks at what is left in the stock he/she holds a discount sale or a charitable show at some place and hopes to get rid of this stock. The marketing and retail process across this sector too has evolved in a very peculiar but not so suitable manner. Till date, the merchandising activity has emanated from the retailers and not so much from the designers, which is also one of the main reasons that there is a large and heterogeneous inventory in the designer wear business. With the increase in the spirit of enterprise within the design professionals over the last few years, the number of designers with their own brands and businesses have increased exponentially and while the market too has increased; this vertical and horizontal growth within the sector without the requisite expertise of managing a brand has left many of the businesses with enough dead stock and non-productive inventory. Across various profiles and scales of designer wear businesses ‘merchandise planning’ as a tool or function is very critical. This is as important for couture as it is for prêt-à-porter. While the intensity of brainstorming is higher in the case of couture, the follow-up of prêt-à-porter is equally if not more tasking as the volumes being higher would imply more space utilization within the inventory rooms.

3.5.1 Concept The fundamental issues in merchandise planning cover three simple activities: a)

The need to collate timely data/information with accuracy.

b)

The capability to forecast using traditional as well as contemporary methods.

c)

The need to classify your product based on category, price and valueadd along with budgets for the same.

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For the mainstream retail and brand management firms, these systems are quite advanced, automated and more proactive. The concept of merchandise management evolved from the reactive mode to that of being proactive when support systems and information collation became automated and timely data was available to execute decisions faster. With the evolution of information technology, entry of larger number of brands, consumer-driven requirement for change and variety, the concept of merchandise planning became a full-fledged science and currently every retailer or brand relies on this heavily to ensure that not only are their large gains not offset by inventory, but that every other function be it designing or manufacturing or logistics is inf luenced by the capability to forecast and plan one’s merchandise methodically.

3.5.2 Merchandise planning in the fashion industry 3.5.2.1

Planning and analysis

Broadly, merchandise planning can be classified into two distinct approaches: 1.

Top-down In a ‘top-down approach’ scenario, which was the traditional practice, the merchandise planning was driven by sales targets that were in turn influenced by turnover projections. Based on this, the design content, merchandise planning, category management, distribution strategy and so forth were elaborately defined along with the kind of retail formats required to meet these targets. Many of the larger distributor-based apparel brands still follow this approach.

2.

Bottom-down. In time, the approach changed to a bottom-up approach where past performance data was taken into consideration along with identification of new markets, new product categories and new price strategies. Based on this, additional investment decisions are made and at every stage inventory management and replenishment are built into the system to ensure targets are met.

In the designer wear business, one of the most important things, whether it is a new start-up or an existing business, is to map one’s revenue patterns, current distribution, price points, margins and the value of stock levels before embarking on bringing out any new range. This is all the more important when the merchandise is of high value or despite the price points being low, the distribution is elaborate. At any stage, a form of merchandise planning re-engineering is beneficial to the establishment.

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3.5.2.2

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Technology

Technology (whether it is a data mining software, merchandise planning solution or a software-based loyalty programme) in conjunction or separately has increased the accuracy of forecasting and merchandise planning/inventory management. This not only helps map the target customer behaviour and their likes/dislikes/preferences but also helps predict trends, understand economic cycles and decide the need for functions such replenishment, category planning and other expansions or cutbacks. For a small business, even a Spreadsheet application (Microsoft Excel) can be beneficial till a certain point after which (once distribution and scale increases), a small or medium business software can be used. Most designer wear businesses should look at employing a small-time enterprise management software with inbuilt merchandise demand forecast tools. In merchandise planning, ‘analysis’ plays a very important role in identifying areas of past sales performance data, current issues, trends, popular price points, regionwise/storewise sales and so forth. The designer should spend time with their assistants in analysing this data before planning for the next range and the exercise should even be store specific/category specific.

3.5.3 Merchandise classification The analysis and following decision can become more productive once you classify your merchandise in detail and evolve a mechanism to map each of their movements from the retail stores. For example, assuming that you commenced a menswear and womenswear range and went ahead planning merchandise every season without understanding what is popular then you will be inevitably left with excess merchandise. For this, the merchandise has to be classified as follows: a)

Mix (e.g. men’s wear and women’s wear)

b)

Category (e.g. men’s wear)

c)

Class (e.g. men’s wear ‘classics’)

d) Subclass (e.g. men’s wear ‘theme-based’ classics) e)

Groups (e.g. menswear theme-based classic ‘trousers’)

f)

Assortment (e.g. ‘styles, colours and other options’ and so forth in the menswear theme-based classic trousers)

This exercise will be most fruitful if it is commenced at the beginning and the sales can then be analysed based on this classification. This will minimize the risk of non-movement of certain categories/classes and give an opportunity for introspection and help execute some form of design/

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merchandise planning re-engineering. Even if the business is fully fledged and with a large base of inventory and stock at various retail points, this classification exercise and subsequent categorization of all the merchandise (though an extensive exercise) will bear fruit in the long run and bring about a considerable reduction of inventory, help in better merchandise planning and design forecast. 3.5.3.1

Outcome

The above exercise opens up a gamut of opportunities for those in the designer wear business to find their groove/niche and also understand what the preferences of their target market are all about. It also helps you in identifying the following in a distinct manner: a)

Pricing strategy for your merchandise across categories and classes

b)

Assortment planning (colours, styles and sizes)

c)

Style- and quality-related issues

d) Timeliness including delivery, logistics and replenishment Once the above is done, one can adopt various strategies to cater to various categories, for example, in couture, one can have a system of keeping low inventories of value-added items like crystals by collaborating with suppliers and a quick response system from cut to sew to fittings. Similarly, in prêtà-porter, one can look at a set of teams for various categories with practices like ‘queuing’ built in to give flexibility to scheduling dispatches and also executing replenishments. The exercise of merchandise planning has also other implications, which can ensure the smart and astute growth of the business. Some of the keys ones are: a)

Demographics – who buys?

b)

Psychographics – why do they buy?

c)

Lifestyle

d) Life stages e)

Regional characteristics and so forth

Conventionally, Indian designer wear businesses especially the older ones have never worried about stocks and inventories because bank funding/ overdraft facility primarily came from the valuation of stocks but with the changing norms and practices this will stop soon and leave most businesses in

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the lurch with mammoth stocks disproportionate to their scale of businesses. Globally, successful designer wear businesses function on the above best practices of merchandise planning and management – in India, it is important that most designer wear businesses adopt these practices (professional or family managed) as it ensures a leaner and smarter organization with the capability to grow and gain acceptance across international markets.

3.5.4 Market weeks and trade shows Market weeks are the time of the year in which retail buyers come to showrooms or exhibit halls to see the seasonal fashion lines. Retail buyers review many manufacturers’ line and purchase merchandise for their stores. They come with a specific amount they can spend on specific categories of merchandise, in retailing this is referred to as open to buy. During market weeks, retailers become aware of new lines which they want to purchase for their store and for manufacturer he gets publicity, gets to show new lines to a large number of retailers and also gets to exchange information on trends. Trade shows: Some trade associations or trade show producers sponsor their own shows for the purpose of promoting lines of apparel/accessories. Examples are New York, Premier Collection, International Fashion Boutique Show, International Fashion Kids Show and so forth. Market America: The merchandise has to reach the store by June and to be sold through October. Table 3.1 shows the seasonwise planning and distribution of merchandise. Table 3.1 American fashion timetable and American market seasons (womenswear) Seasons Preparation Summer Fall I Fall II Resort Spring

November January February June August

Presentation Early January Early March Early April August October/ November

Reach the store

Sell trough April June May/June October July December November/December February January/February March/ April

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References 1.

Stone E, Samples J A (1985), Fashion merchandising, McGraw-Hill Book Company, New York.

2.

Rath P M, Peterson J, Greensley P and Gill P (1994), Introduction to fashion merchandising, Delmar Publishers Inc., New York.

3.

Frings G S (1999), Fashion – from concept to consumer, Prentice Hall, New Jersey.

4.

Phillips P M (1996), Fashion sales promotion, 2nd ed., Prentice Hall Inc., New Jersey.

4 Apparel merchandising

Abstract: The chapter 4 starts with introduction to apparel merchandising and describes the merchandising activities in garment units. The role of merchandiser in the apparel industry explained in detail. Sampling procedures, Importance of sampling, types of sample are described in depth. Apparel merchandising procedures, Time & Action plan and merchandising plan are elaborately discussed. Tech pack and planning a merchandise with industry oriented examples described in this chapter. Key Words: merchandiser, time& action plan, tech-pack, sampling, trim card.

4.1

Introduction to apparel merchandising

Merchandising is the process of planning right merchandise at right time in the right quantity and at the right price to meet the needs of the company’s target customer.1 Apparel merchandising involves a constant watch of the production of the apparel products. As the job of the merchandiser is to have the right product, at the right time, in correct quantity and in correct quality, the merchandiser should have constant eye on the manufacture and communicate with the manufacturer to get the goods as per the requirement of the buyer (Fig. 4.1). A slight deviation in the production of garments in quality may spoil the name of the retailer or the stores where the goods are sold. If sufficient quantity of goods is not sent to the stores in correct time, the customer may change his place of shopping when he does not get what he needs. Delay in the production may also lead to a great loss for the manufacturer which the manufacturer may not be aware of and the buyer may also loss his ultimate customer as he is not able to meet the demands of his customer in correct time. Hence, the merchandiser has to see that everything is going in pace in the production and at the same time report and take immediate actions to solve the emerging problems. Merchandiser should be well aware of what a customer wants this season and what is produced by the manufacturer is as per the needs of the customer. He should well inform customer about the

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Figure 4.1 Apparel merchandising

styles, quantity and quality of the product required and the time when the goods should reach the customer. Merchandising is the job where the merchandiser should have a constant interface with production and see that the ultimate aim of satisfying customer needs is met.

4.1.1 Merchandising process Merchandising process involves the following steps: •

Studying the fashion forecast along with the designer

•

Getting information about customer profile; whether is he a distributor, retailer or exporter, domestic or international? And product profile– specification of the product, categories

Example: Men’s shirt, 100% cotton, mercerized and so on, along with the measurement chart and size details – S, M, L, XL in ratio such as 1:2:2:1 from the buyer

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•

Sourcing of fabrics, whether mill made, power loom, handloom, woven, knitted and so on and trims such as interlining, buttons, labels and so on

•

Placing indent for fabric, trims and packing materials and regular follow-up

•

Getting the pattern made

•

Calculating the fabric consumption and cost

•

Sample preparation and estimating the cost

•

Getting the approval of the sample from the buyer

•

Pricing of the sample garment

•

Getting the correction done

•

Getting the final approval with the corrected sample

•

Calculating the lead time (the time taken from the sample approval to the dispatch of the merchandise)

•

Scheduling production with the final approved sample

•

Send the production sample to the buyer

Figure 4.2

Merchandising process

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•

Quality inspection of the merchandise

•

Coordination of the packing with the packing instruction – type of fold required, marking cartons and so on

•

Arrange for dispatch (shipping)

•

Intimate the buyer about the shipment of his merchandise and follow up with the payment

At every stage, merchandiser has to coordinate with all the departments and follow up at every process. Buyer has to be intimated about the day-today progress of his order and merchandiser has to ensure quality at all stages of production (Fig. 4.2).

4.1.2 Merchandising activities in garment unit The responsibilities of a merchandiser are indicated here in various stages as follows: Stage I: The work starts as soon as the customer places an enquiry. First of all, one should understand the requirements of the prospective customers fully. Then, he should make an offer the best quote, revise the quote and get the confirmation. He has to develop a sample of right quality and agreed specifications and send the sample on right time so that the customer gets it on right time. Then, he has to follow up the customer for feedback on our price and quality. Stage II: If the customers are happy with the price and quality, they will place an order. Now the merchandisers has to work for the following immediately. 1.

Finance

2.

Production

After reading the purchase order (PO) thoroughly details by details, the new order will be accepted. The revised details of the new order and the pro forma invoice have to be sent immediately. This will enable the buyers to open the letter of credit (LC). Once LC is received, the merchandiser has to read the document word by word to ensure that the terms are acceptable. On confirmation, merchandiser has to clarity of the following: 1.

Fabric quality

2.

Styling details

3.

Colour ways/ratio size

4.

Accessories

5.

Packing details

Apparel merchandising

6.

Approvals, Quality Control Laboratory (QCL) testing

7.

Shipment terms and payment terms

103

How do go about? 1.

Derive a practical action plan

2.

Divide the whole trades into several activity

3.

Find out the links between the activities

4.

Find out the interdependence of activities

5.

Give a time deadline for all activities

6.

Ensure proper communication

7.

Execute the order, shipment, document follow-up and payment

8.

Keep the file safe till the end of the season

International scenario 1.

Try to know more about our competition

2.

Know their products, strengths, act and analyse.

3.

Update market information, especially on quota situation and premium and so on

4.

Know our products’ limitations

5.

Know the vessel movements to plan deliveries

6.

Sourcing: designs, accessories, lead time, import duty

7.

Quota: various quota applying techniques such as fi rst come, fi rst served, Non-Quota Exporters Entitlement (NQE)

4.1.3 Role of apparel merchandiser Merchandiser is basically a coordinator – one who liaises between buyer and apparel manufacturer – to ensure quality merchandise at right delivery time. Actually, the merchandiser will be working from the buyer’s side, fulfilling his needs by coordinating with the manufacturer, interacting with every department of the organization. She/he has to balance quality, price and delivery simultaneously with coordination, supervision and control. Thus, a merchandiser is a fulcrum in the organization which involves coordination and follow-up against tight schedules (meeting seemingly impossible deadlines). Merchandiser thus has to be organized, possess good communication skill and have an eye for details. •

Merchandiser should have a basic knowledge of fabric sourcing, fabric prices, fabric quality and construction and quality control (QC) methods.

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•

For sampling, one should know how to check specification and prototypes, styles and sketches because she/he has to make approval at many stages.

•

A merchandiser has to have a thorough knowledge of production.

•

A merchandiser has to have basic knowledge of fashion such as of colour, design, style, trend and so on.

•

Knowledge of costing and pricing of the garment is required.

•

Lab-test the delivered fabric for shrinkage and various colour fastness standards due to washing, rubbing, perspiration and light.

•

Keep track of the production cycle, indicating fabric delivery, schedules and organizing inspections.

•

To keep the buyer informed about the status of the order on an ongoing basis, and if the deadline cannot be met, request for extension. If not granted, the consignment will have to be airfreighted at supplier’s cost.

•

After the consignment leaves, the buyer has to be intimated on the shipping details along coordinating with shipping department.

•

The job requires travelling domestically or abroad for sourcing of fabrics and also to bring new ranges for development.

•

Price negotiations at the order-placing stage and following up on payments is another aspect of the job (Fig. 4.3).

Receive technical package from buyer (Buyer provides delivery date) Discussion with planning department for checking production space & productivity Analyzing technnical package listing all fabric & accessories Finding out fabric consumption Doing costing & quate price to buyer

Negotiation & confirmation of price Figure 4.3

Role of apparel merchandiser

Apparel merchandising

4.2

105

Sampling

4.2.1 Process of making sample The process of sample department varies from context to context, and the development process covers a wide range of diverse products from new fibres, fibre blends, new yarns, fabric structures, finishes and surface effects and all types of made-up products such as knitwear, hosiery, cut-and-sewn garments, technical and medical products.2 4.2.1.1

Different phases of making sample

First phase: This phase covers the development of the initial concept or design idea through its approval by the customer and full review/risk analysis by the development and production teams. Second phase: It covers the process following acceptance of the first prototype sample and includes the functions of sourcing and ordering component, testing the product and carry out trails, and once the fi nalized sample specifications have been drawn up, the third and final phase commences. Third phase: The phase includes a range of activities that are carried out before large-scale or bulk production capacity outside the home producer/ developers wherever this is applicable.

4.2.2 Importance of sample Fashion is defined well as the prevailing mode or shape of dress designed by those lead is accepted. Fashion reflects the social, economic and cultural forces as well it reflects the time. A fashion remains popular for a few months or years before being replaced by yet another fashion. A product or activity is in fashion or is fashionable during the period of time that a large segment of society accepts it. After a time, however, the same product or activity becomes old-fashioned when the majority of people no longer accept it. •

In the current business scenario, excellence in providing customer care services is what drives businesses towards greater heights of success.

•

Customer satisfaction should be the number one priority of any business.

•

In-depth information about the products that you sell can help satisfy all queries that are bound to be raised before a business deal is closed successfully.

•

This is where ordering samples from your supplier assumes prime importance.

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•

Committing supplies of an assumed quality or grade to your customers can be a highly risky thing to do, especially when there are no samples to judge their standards.

•

If they are delivered to the clients based on assumptions and assurances of the suppliers, it does not constitute sound and ethical business practices. Providing and satisfying your customers’ exact specifications and quality requirements is what will bring in more business and establish your reputation in the competitive market.

•

It is important to order samples from your suppliers before committing to your clients so that you have adequate time to test and analyse them before shipping.

4.2.3 Role of merchandisers in sampling In preparing sample, the merchandiser plays an optimal and proactive role. The merchandiser is a person who has to follow all the activities which fill up sight from the manufacturing unit. Merchandiser should understand the specifications and requirement of the buyer and produce samples by considering: 1.

Communication

2.

Optimizing situation

3.

Punctuality in giving details and samples to the buyers

4.

Efficient follow-up

5.

Excellent negotiation skills

The merchandiser has to consider all the quality parameters related to the samples to be developed in case of nonconformity in the sample developed. Revised samples may be sending for approval purpose. It is the duty of the merchandiser to dispatch the developed samples on the time to the concerned buyers.

4.2.4 Construction of sample Clothing construction involves more than sewing a garment together. Data such as garment dimensions, body measurements and yardage are needed before flat pattern creation. This data, known as garment specifications or garment specs, are critical to creating properly constructed clothing that fits the body. Purpose •

Garment specs provide the numerical data and construction instructions needed to make a garment.

•

Primary use of this data occurs during the flat pattern and garment construction stages of the sample garment.

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Users •

Three main users work directly with garment specs. The technical designer creates and adjusts the garment specs throughout the garment construction phase.

•

Flat pattern-makers use numerical data from the garment specs to create the clothing pattern, while the production team primarily uses the construction steps from the specs to sew the garment.

4.2.5 Process of creating a garment Whether you choose a standard size, or give us your measurements for a custom garment, all our cashmeres are personally tailored for you from scratch. For each object of clothing, individual care and dedication is necessary, and therefore the time required to make each type of garment differs. 4.2.6 Basic standard of professional sewing 4.2.6.1

Designing and making of sample

Sample design and making are the main process in apparel (garment) industry and it is a vital role in attracting buyers. The buyer generally places the order after they are satisfied with the quality of the samples. The sample decides the ability of an exporter. The process is shown in Figure 4.4. The buyer will access the exporter and his organization only by the samples. If the samples are of good quality and with reasonable price, naturally the buyers will be encouraged to place the order. Hence, it is essential that the samples should be innovative and with optimum quality. The purpose of sample is not only to get bulk orders but also give some additional benefits to the exporters. By making sample, exporters can estimate the yarn consumption for developing the fabric, a clear idea on costing, and moreover, the manufacturing difficulties for the upcoming products. Besides, by doing sample, only the exporter can optimize the processing parameters for mass production, which helps to avoid all kind of bottlenecks. All these works are carried out by the sample department of a garments manufacture, which is led by a sample incharge. Steps in designing a garment •

The design

•

Making a card pattern

•

The finished dress

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Figure 4.4

Sample making process

Persons involved in sampling •

Development team

•

Designers/sample developers,

•

Customers/clients

•

Textile technologists

•

Garment technologists

•

Sourcing and purchasing

•

Costing and finance

•

Sales and marketing

•

Production team, planning

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•

Control and testing

•

QC

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4.2.7 Types of samples The various samples are listed in Figure 4.5. Each sample has its own purpose and needs unique attention in making. 4.2.7.1

Development samples or enquiry samples

The processing of development samples and enquiry samples is as follows: •

When we work with some buyers continuously, we will have to keep on sending samples to them very often. Whenever they have enquiries, buyer may need samples. Buyers may like to see the garments in a new fabric.

•

For one enquiry, they may need samples in different fabrics to choose from. If they want to develop new style in new fabric, then also we will have to send these samples.

•

We may have to spend too much on these samples. However, these samples are inevitably important to develop business. Sometimes, even the buyer is not so confident of some enquiries. If our samples are good and attractive at reasonable prices, they will bring orders to us.

Figure 4.5 Types of samples

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•

Also, we will have to send samples to the newly contacted buyers to show our workmanship, product range, quality standards and price level. These samples should be sent so that they would attract the buyers.

•

It is better for a company to have a separate sampling department so that they can create new styles in new fabrics to impress the buyers. i. Photo sample • These samples are to be made after getting the order sheets. They can be made in available similar fabrics but in the actual measurements and specifications. • Some buyers may need these samples if they want to print the photos of garments on photo inlays, packing box, hangtag, and so on. • These samples may be needed for local advertisement or buyer’s promotional occasions. • In any case, the samples will be worn by the highly paid models. The buyers will arrange the photo shoot session by spending huge money on the advertising agencies. • So the buyers will need these samples strictly on time. If they do not get samples on time, the buyers will have to pay more compensation to the advertising agencies and models. • Buyers will ask us to make the photo samples according to the intended model’s body fit. Hence, it is important to strictly adhere to these measurements. Buyer may ask these samples to send either from production or before starting production. • Photo samples are made with actual colour and material to be worn by the models on the event of shooting for catalogue. ii. Fit sample • These samples are needed to check the measurements, style and fit. • In any discrete period of time, whenever it required any revision in the sample, a new sample is made (sometimes mock-up is workable too) as per new specification. It is sent to buyer for his approval of the conformity that the revision is done correctly. iii. Pre-production (PP) sample • When material for bulk production arrives, factory makes a sample with the actual material and sends to buyer.

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iv. Production sample • It is a reference to the buyer that the bulk is being produced as per specifications. Buyer wants to be assured that correct material is sourced and line workmanship conformed to the quality level. v. Shipment sample • A sample is kept from every pre-shipping inspection to be referred, if required, after the order has been delivered. Usually, for any disputes (e.g. claim), shipping samples is important. vi. Salesman sample • Salesman sample is made when price is confirmed and orders are expected, usually in one size in all colour combinations of expected order. • Buyer holds a meeting with its customer and records their response on order quantity per colour, size and so on. And finally, place an order to their vendor. Example: • Some buyer needs these samples for getting the orders from their customers. If the buyer is having seven salesmen in his office, then the buyer will ask us to make seven samples in each style. The salesmen will book the orders from their customers by showing these samples. Buyer will place the order to us accumulating the quantities. • If we have sent samples for five styles, sometimes, we may get orders for all five styles, three styles or one style. Sometimes, we may not get order for even a single style. Expected sales may not be possible due to poor quality, unsuitable colours, improper measurements, unmatched prints or embroidery and so on, of salesmen samples or it may be due to local business recession or competition or unsuitable prices. Anyway, we have to make these salesmen samples perfectly with sincere interest to get orders. • We might have spent more money, time and so on, for making these samples. But as we do not get orders, we cannot blame the buyer. To avoid this embarrassing situation, it is better to discuss about the cost of these samples with the buyer before proceeding for sampling.

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• Normally, the sampling will cost us approximately three to five times of the garment price. We cannot expect to get the full cost from the buyer. Of course, these samples will help us for our business. Hence, we can ask the buyer to accept two to three times of garment price as the sampling cost for the styles which we do not get orders for. Some genuine buyers will agree to this. • Purpose : Sales meeting by retailers, market appraisal • Demand : Order forecast • Status

: Final stage of the order confirmation

• Material : Actual • Price

: Confirmed

• Delivery : Very important to meet the delivery date. vii. Counter-samples or reference/approval samples • These samples are to be made in actual fabrics with actual trims. If the order is for three colours, buyer may need samples in any one colour and swatches (fabric bits) in other colours. These samples should be strictly as per the specifications in the order sheets. We have to get the approval for these samples from the buyer before starting production. • After getting the approval, the approved samples should be followed in production. Sometimes, buyer may comment on fabric, measurements, making and so on. We have to follow his comments carefully in production. • Some buyer will mention that the order sheets subject to the approval of counter-samples. Hence, these samples are very important. The workflow of sampling shown in Figure 4.6.

4.3

Apparel merchandising procedures

The merchandiser should coordinate with various departments as shown in Figure 4.7 to ensure that smooth flow of work by follow-up activities with different departments as discussed below.

4.3.1 4.3.1.1

Pre-merchandising activities Customer profile

Merchandiser has to analyse the buyers in terms of following aspects and should collect the complete details whether the buyers are retailer or wholesaler and local or international buyer.

Figure 4.6 Workflow of sampling

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Figure 4.7

Responsibilities of merchandiser

Order enquiry •

Merchandiser has to collect the following specification from buyer such as garment spec, measurement spec, fabric swatches/spec.

•

On receiving an inquiry(s), the merchandiser must prepare a checklist and immediately forward all information to three factories from the approved factory list for pricing.

•

The merchandiser must make sure that the factory specializes in the item being priced and has worked with the client before. Selection of supplier should be based on their previous performance, efficiency, delivery and so on.

•

If it is a new client, then the merchandiser must discuss the inquiry(s) with the department head before sending out the inquiry(s). In case of a new factory, a factory evaluation should be conducted as per the set standards. Only synergetic sourcing-approved factories can be used for pricing, sampling and so on.

Order confirmation i. Quoting price • Prices must be sent within 1–2 days of receiving the inquiry • All enquires must be entered into the new development sheet

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• Based on the lowest price, the merchandiser must order proto sample. Minimum two pieces must be ordered. One sample for the customer and one office sample. • Before quoting any prices to the customer, the merchandiser should get all prices approved by the head of merchandising or managing director. • If renegotiation is required, then involve the department head, head of merchandising and managing director so that the best prices are finalized with the factories. ii. PO A new PO package for the factory must include the following: • Original PO sheet • Spec Sketch and workman sheet • Colour print artwork, lab dip, original fabric swatch and original trim card • Original sample (if available) Within 1 day of receipt of a new order, the merchandise manager must call for a PP internal meeting. The following people must attend this meeting: • Head of operation • Merchandise manager • Account related merchandiser • Head of quality analysis QA Department • QA personnel • Internal QA personnel At the meeting, the merchandiser will issue all information with regards to the order. This information includes: • PO sheet copy • Spec sheet with all related information • Lab dip card, print artwork, trims card and so on • Original fabric swatch (if available) • Proto sample.

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Figure 4.8

Pre merchandising activities

iii. Opening LC (pro forma invoice) After reading the PO thoroughly details by details, the new order will be accepted. The revised details of the new order and the pro forma invoice have to be sent immediately. This will enable the buyers to open the LC. Once LC is received, the merchandiser has to go word by word to ensure that the terms are acceptable (Fig. 4.8). iv. Order placement • Once an order is placed, the merchandise manager should fill out a PO checklist. • All missing information with regards to the PO will be forwarded to the customer within 1 day of receiving the PO. • A complete PO package must be prepared and sent to the factory within 24 h of receipt of order from customer with a copy of PO to commercial department. • Prepare a projected production plan and forward the same to the head of QC and to the related supplier. The schedule should comprise expected dates for fabric quality check, In Line check (ILC), Initial Production Checks (IPC), Mid Production Checks (MPC) and Final Random Inspection (FRI). • Prepare a projected sample plan and forward the same to the related supplier with a copy to the head of department.

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4.3.2 Sample approvals and follow-ups Proto samples 1.

Upon receipt of buyer’s specification, a thorough check should be conducted for precision. Obtain explanation from customer for anything considered vague.

2.

Forward the specification sheets/pattern to the selected supplier with all the explanation of specifications and technicalities on as-and-when received basis and update records.

3.

Ensure timely availability of fabric.

4.

Follow-up with the supplier to provide the sample latest within 2 days for local accessories and fabrics, in case of imported items maximum 12 days.

5.

Upon receipt of the sample from the supplier, thoroughly check the styling, measurement (if any), stitching, quality of the fabric, fabric construction/Grams per Square Meter (GSM), hand feel, washing standard, finishing of the sample and accessories (if any) and ensure compliance of the samples as per customer’s specifications.

6.

The departmental head will give final approval.

7.

At least three pieces of each sample should be developed. One for merchandisers, one for the customer and one for the suppliers for future references.

8.

Prepare proto sample checking sheet and attach with the checklist.

9.

Put duly filled sample card on the sample, format enclosed.

10.

Forward the samples as-and-when received basis and advice customer accordingly with all the details of dispatch.

11.

Follow with the customers for approvals/comments.

12.

Once approved, advise supplier as well as head of QC.

13.

Update order checklist, format enclosed.

14.

Update the Excel Sheet accordingly, format enclosed.

Lab dip/print strike-off 1.

Follow-up with our customer for lab dips if necessary.

2.

Upon receipt of the lab dips from the customer, immediately send a replica to the supplier.

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3.

Follow-up with the supplier for prompt delivery of lab dips latest within 5 days.

4.

Obtain maximum numbers of lab dips from the supplier’s minimum three per colour.

5.

Upon receipt of lab dips from the supplier, match lab dips against customer specifications by visual test or if required by the customer by lab test.

6.

Receive lab dips format sheet from our lab and attach with the checklist, format attached.

7.

Head of department will give the final approval prior to sending the samples to the buyers.

8.

Forward the lab dips to the customer along with the lab test report on as-and-when received basis. Make sure the buyer receives the lab dibs as per their requirement.

9.

Follow-up with the customers for approvals/comments.

10.

On approval, inform supplier.

11.

Update order checklist, format enclosed.

12.

Update the Excel Sheet accordingly, format enclosed.

Size set samples 1.

Follow-up with the supplier for prompt delivery of size set options with actual fabric, maximum 4 days for local fabric and maximum 12 days for imported fabric.

2.

Obtain two sets of samples of all sizes from the supplier. One for merchandisers and one for the customer.

3.

Upon receipt of samples from the supplier, match these against customer specifications and comments.

4.

Thoroughly check the styling, measurement (if any), stitching, quality of the fabric, fabric construction/GSM, hand feel, washing standard, finishing of the sample and accessories if any.

5.

Prepare size set format sheet and attach with the checklist, format attached.

6.

Head of department will give the final approval prior to sending the samples to the buyers.

7.

Forward the size set options to the customer’s on as-and-when received basis.

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8.

Ensure that buyer receives the samples as per their precise requirement.

9.

Forward one or two pieces to the head of QC.

10.

Follow-up with the customers for approvals/comments.

11.

Upon receipt of approval, advise supplier and QC head.

12.

Update order checklist, format enclosed.

13.

Update the Excel Sheet accordingly, format enclosed.

14.

Obtain actual production schedule from the supplier. Make sure the schedule is in accordance with the shipment date.

Sample accessories 1.

Follow-up with the customer for sample accessories, if required.

2.

Upon receipt of buyer’s accessories, a thorough check should be conducted for precision. Obtain explanation from customer for anything considered vague.

3.

Upon receipt of the accessories from the customer, forward the same to the supplier on as-and-when received basis.

4.

Factories will be responsible for the selection of accessories supplier. We should forward no such recommendations to the factories.

5.

Follow-up with the supplier and QC for the prompt delivery of accessories for local maximum 4 days for imported maximum 12 days.

6.

Obtain four sets of samples of all accessories with at least three different options from the supplier. One for merchandisers, one for the customer, one for the QC and one for the suppliers for future references.

7.

Upon receipt of samples from the supplier, match these against customer specifications.

8.

Thoroughly check with the original/instructions received from the buyer, artwork, colour, quality, sewing allowance, barcode, price tags and so on.

9.

Prepare accessories format sheet, format attached.

10.

Head of department will give the final approval prior to sending the samples to the buyers.

11.

Prepare at least two synergetic trim/accessories cards. One for buyer and one for merchandiser.

12.

Forward the accessories to the customers on as-and-when received basis.

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13.

Ensure that buyer receives the samples as per their precise requirement.

14.

Follow-up with the customers for approvals/comments.

15.

After approval, advise the supplier accordingly.

16.

Update order checklist, format enclosed.

17.

Update the Excel Sheet accordingly, format enclosed.

PP samples 1.

Follow-up with the supplier for prompt delivery of PP sample maximum 2 days.

2.

Obtain four sets of PP samples from the supplier. One for merchandisers, one for the customer, one for the QC and one for the suppliers for future references.

3.

PP sample in all size sets should be available to the merchandisers at least 5 days before the start of actual production.

4.

Upon receipt of samples from the supplier, match these against customer specifications.

5.

Thoroughly check the styling, measurement, stitching, quality of the fabric, fabric construction/GSM, hand feel, washing standard, finishing of the sample and accessories.

6.

Prepare PP sample format sheet, format attached.

7.

Head of department will give the final approval prior to sending the samples to the buyers.

8.

Forward the PP sample to the customer’s on as-and-when received basis.

9.

Ensure that buyer receives the samples as per their precise requirement.

10.

Follow with the customers for approvals/comments.

11.

Once approved, advise the supplier.

12.

Update order checklist, format enclosed.

13.

Update the Excel Sheet accordingly, format enclosed.

Dye lots 1.

Follow-up with the supplier and QC for the delivery of dye lot.

2.

Dye lot should be available (6 × 6, for every roll) to the merchandisers at least 5 days before the start of actual production.

3.

Upon receipt of samples from the supplier, forward the same to lab for lab test and match these against customer specifications.

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4.

Thoroughly see the colour standard, colour fastness, shrinkage, GSM/ construction, hang feel, fabric quality, knitting tension, Lycra and so on.

5.

Receive dye lot sample format sheet from lab, format attached.

6.

Head of department will give the fi nal approval prior sending the samples to the buyers.

7.

Update order checklist, format enclosed.

8.

Update the Excel Sheet accordingly, format enclosed.

Bulk accessories 1.

Follow-up with the supplier for the delivery of bulk accessories.

2.

These accessories should be available to the merchandisers at least 5 days before the start of actual production.

3.

Upon receipt, match these against customer specifications.

4.

Thoroughly check the accessories colour and quality of trim against buyer’s comments.

5.

Prepare bulk accessories format sheet, format attached.

6.

Head of department will give the fi nal approval prior sending the samples to the buyers.

7.

Update order checklist, format enclosed.

8.

Update the Excel Sheet accordingly, format enclosed.

4.3.3 Production Once sampling is completed, head of concerned merchandiser forwards the order file to the head of QC along with the approved sample and a copy of projected production schedule. Make sure the file is forwarded at least 5 days before start of actual production (Fig. 4.9). 1.

A meeting should be conducted between the head of merchandising department, concerned merchandiser, head of QC and QC officer (production) discussing all the details of order.

2.

Obtain an instruction sheet covering all the required information from the QC officer and approve.

3.

Make sure any new comments are added into the instruction sheet.

4.

Regular follow-up should be made with the suppliers and QC regarding the status of production.

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Figure 4.9

Production follow-ups

5.

Make sure the QC department conducts all the required inspections, that is, fabric quality testing, ILC, IPC, MPC and FRI for every order. For large volumes make certain that there are more than 1 MPC being conducted by the QC.

6.

Obtain daily production status from QC and forward the same to the information technology for updating the website latest by 11:00 every morning.

7.

Obtain reports of all the inspection conducted, that is, fabric quality testing, ILC, IPC, MPC and FRI for every order from QC and keep a copy for record.

8.

Visit the supplier at least during one inspection.

9.

Make sure that FRI is conducted at least 2 days before the shipment date.

10.

Once FRI is OK, inform buyer.

11.

Update order checklist, format enclosed.

12.

Update the Excel Sheet accordingly, format enclosed.

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4.3.4 Shipment/salesman samples 1. Inform head of QC for shipment sample. 2.

Obtain two sets of shipment samples from the QC department of all sizes covering all colours or as specified by the customer. One or two pieces to be provided to concerned merchandiser and all remaining to manager administration. In the case where buyer requires shipment samples, receive one complete set from QC.

3.

Shipment samples should be available to the merchandisers the next day of FRI.

4.

Upon receipt of samples, conduct a thorough check and match these against customer specifications.

5.

Thoroughly check the get-up, styling, stitching, fabric quality, fabric construction/GSM, hand feel, washing standard, finishing and accessories.

6.

Prepare shipment sample format sheet.

7.

Head of department will give the final approval.

8.

Merchandisers are required to give in writing to QC head with a copy to head of operations and their departmental head the name of our customers to whom we normally sent shipment sample.

9.

If required, forward the shipment sample to the customer’s on as-andwhen received basis.

10.

Ensure that buyer receives the samples as per their precise requirement.

11.

Forward one set of shipment samples to administration department.

12.

Keep remaining samples in the department for future use and maintain a register.

13.

Update order checklist, format enclosed.

14.

Update the Excel Sheet accordingly, format enclosed.

4.3.5 Delivery and commercial department 1. Regular follow-up is essential to: • Ensure goods are handed over to the forwarder. • Ensure the forwarder books space/flight for timely delivery of goods. • Ensure staffing of goods is conducted. • Ensure the date of departure is as per the booking.

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2.

Obtain vessel/flight details from commercial department and advise buyer.

3.

Receive acknowledgement of goods from buyer.

4.

Update order checklist, format enclosed.

5.

Update the Excel Sheet accordingly, format enclosed.

4.3.6 Documentation 1. Conduct regular follow-up with commercial department and supplier for the timely delivery of all the below-mentioned documents to the buyer: • Packing list • Commercial invoice • GSP • Country of origin certificate • Annexure III for Mexico Shipment (must be obtained 1 month prior shipment) • Country of Origin Certificate attested from Argentinian Embassy in India for Argentina shipment (must be obtained 1 month prior shipment) • Bill of Lading/Master Airway Bill is sent from supplier’s bank to buyer’s bank only. • Inspection certificate 2.

All these documents are required to be sent to the buyer first via email or fax and then original via courier.

3.

Receive acknowledgement of documents from buyer.

4.4

Time and action (T&A) plan

Time and action (T&A) plan is one of the most important tools for managing a project. In garment manufacturing, each order is not less than a project to a merchant because from order receiving to completion of an order, it involves a number of tasks of various timelines and utilization of various resources. Like number of processes, a lot of people are also involved to accomplish an order. Similarly, each order is unique in terms of process and time demand. Hence, a detailed plan with well-defined responsibility is must in order to complete each order on time. A T&A calendar defines the ideal date/time

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period within which the major activities of an order should occur against a scheduled delivery window.3

4.4.1 Organization of T&A T&A plan or T&A calendar, a popular tool used in apparel manufacturing industry is a technique for tracking and following up of important milestones in PP processes to ensure timely delivery within stipulated delivery date. Garment PP and merchandising functions are characterized by people in an organization doing multiple activities (Fig. 4.10). While some of the activities are dependent and follow each other, a few others are independent. Every garment company takes enormous care during the planning of an order. Every little detail is interwoven into the planning system. Making a T&A calendar is not just entering activity names and duration in tabular forms; it is also about scientifically working out the activity duration, logically determining the preceding and succeeding activities. T&A calendar consists of short-term and long-term plans which are carefully laid out. A T&A calendar is a most effective communication tool that proves it to be useful to this task. The chart consists of time frames listed for every action planned (major ones) and these actions need to be earned out on time. The purpose of T&A is to cross-check at frequent intervals, say, once a week, whether the planning is being executed satisfactorily. The more frequent the checks, the easier it is to correct deviations. T&A is especially useful when a buyer wants to know the status of execution of an order. Normally, merchandisers prepare a plan of the order in a spreadsheet by listing down the key processes in first column and planned date of action for each process in the next column. This planning sheet is popularly known as T&A calendar. Once T&A calendar is made, it can be easy for merchandiser to list down the daily ‘to-do list’ and taking it one by one. As per T&A schedule, processes can be executed on a timely basis to track whether an order is on track or it will get delayed. In order to make T&A, below-mentioned information must be available – Process flow of an order with the list of tasks which need to be performed – Production capacity of cutting, sewing, washing and finishing – For sewing – batchwise and productwise capacity (production per day per batch) – Lead time of activities, for example, raw material lead time, sampling lead time and so on – Shipment date or planned ex-factory date

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Figure 4.10 Workflow of merchandising department Normally, T&A does not depend on fabric used in merchandise such as woven or knits. T&A largely depends on the particular process flow of an order, machine requirement and available production capacity. In T&A planned cutting date (PCD) and ex-factory date, these are the two most critical dates.

4.4.2 T&A for formal dress manufacturing order The T&A is derived by assuming the order of 2000 pieces of dress, made out of 100% cotton, plain woven solid dyed fabric, with embroidery logo

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and beading sequence on it. The style no 4041, delivery date 8 January 2017, shipment at New York, USA (Table 4.1). The importance of T&A can be summarized: 1.

It helps to streamline the PP activities

2.

Easy understanding of order processing

3.

Clear understanding of timelines given by buyer

4.

It gives the clear idea about the minor or subactivities that needs to be performed during order processing at different level.

5.

T&A gives the idea about the status of running order and talks about delay or deviation, if any

6.

T&A gives the dates at which raw material needs to be sourced; in a way, it helps to optimize the inventory.

T&A also reduces the risk of delivery delay. Factors need to be considered while preparing T&A: 1.

Production capacity of plant

2.

Style type of merchandise

3.

Festivals of manufacturing country

4.

Holidays

5.

Shipment details

6.

Festivals of country from where the raw material is imported

7.

Logistics facilities

8.

Lead time estimated by buyer

9.

Style complications

10.

Fabric and trims manufacturing complications

11.

Buffer required from each department

12.

Political stability of the country

13.

Flexibility of freight forwarder

14.

Response time from buyer at different stages

15.

Lead times of various activities such as LC payment, custom clearance and so on

16.

Cut-off dates for shipments

5 6 7

4

3

2

1

Order receipt (buyer PO) Consumption calculation Bill of material generation PO issue for fabric, trims Size set submission Size set comments PP meeting

25 November 28 November 1 December

24 November

23 November

21 November

Planned start 20 November

Dress

Style description

Key processes

4041

Style #

Buyer

T&A Calendar Zendra

Received date Planned end

Order Quantity. Merchant Lead time (days)

8 January 49

Template developed by OCS

Season: Ex-factory date (on purchase order [PO]) Ex-factory date (as per plan)

Store manager (fabric/trim) Merchant Merchant Merchant

Merchant

Pattern master

Duration Actual Actual Duration Responsibility Remarks (days) start End (days) Merchant

20 November

Aman

2000

ABC Clothing Company

Table 4.1 Time and action (T&A) sheet

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2 December 3 December 2 December 11 December 12 December 16 December 19 December

2 January

7 January 8 January

19 Packing

20 Inspection 21 Dispatch

6 January

5

4

31 December

3 January

4 5

23 December 26 December 26 December 30 December

16 Recutting/shaping 17 Fabrication/ stitching 18 Finishing

4

20 December 23 December

3 4

2

10

15

15 Embroidery

Pattern grading Khaka making Cutting Beading/sequence

11 12 13 14

24 November 8 December

11 December

24 November 3 December

Production planning updates and circulation Fabric in-house

10 Trims in-house

9

8

Cutting incharge Production manager Production manager Cutting incharge Production manager Finishing incharge Finishing incharge Quality control Finishing incharge

Store manager (fabric/trim) Store manager (fabric/trim) Pattern master

Production manager

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4.4.3 Key activities in T&A 4.4.3.1 Sampling It is the most crucial task and hence very careful planning in T&A is needed. Some sampling stages are very important so any deviation or delay in that will affect the whole T&A. Size set sample: This stage of sampling is most important; without size set approval, bulk fabric for production should not be cut in order to accommodate any changes by the buyer in the bulk production. Hence, any delay in size set sample will directly affect PCD and subsequently affect the shipment date. Size set sample needs to be submitted with actual bulk fabric; hence, for timely submission of size set sample, merchandiser should make sure that all bulk fabric should be in-house well in advance of size set submission date. To avoid the delay, as soon as bulk trims and fabrics are in-house within 3 days, size-set sample can be produced and submitted to buyer for approval. As per T&A, in Table 4.1., planned submission date of the size set sample is on 25 November 2017 and expected approval is on 28 November 2017, that is, 3 working days are kept for completion of size set sample approval process. 4.4.3.2 Pre-production (PP) meeting PP meeting is very necessary part of any export order processing; hence, merchandiser keeps 1 day (1 December 2017) only for conducting PP meeting in order to discuss the expected difficulties during production. Any delay in this meeting or if more obstacles are there to solve, the production will directly affect the PCD and ultimately results in shipment delay (Table 4.1). 4.4.3.3 Fabric and trim sourcing Fabric and trim sourcing is very time-consuming process which includes desk loom and lab dip approvals, trim and artwork approval and Fabric Package Test (FPT) approval. The fabric sourcing itself will take lead time of 10–60 days depending upon type of fabric. For yarn dyed fabric, it takes approximately 45 days, for piece dyed fabric, it take approximately 15–20 days and for fibre dyed fabric, it takes approximately 55–60 days. In sample T&A, it is assumed that fabric used is piece dyed; hence, 15 days (24 November to 8 December) lead time is considered while preparing the T&A, trims also takes approximately 10 days (24 November to 3 December) depending upon from where trims are getting sourced (Table 4.1).

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4.4.3.4 Production The most crucial part of any T&A is actual production. While preparing the T&A for production, following activities need to be considered. Planned cut date: The most important date for both sourcing and merchandising department. Most of the time, T&A is prepared by keeping PCD in mind. To achieve the PCD on time, sourcing department plays an important role as lead time of trims and fabric production and availability for garment production is controlled by this department. While preparing the T&A, expected lead time and sufficient buffer should be kept for sourcing. As there is embroidery included on cut panels, after cutting, the cut panels are needed to be sent for embroidery. Considering that embroidery is in-house, 6 working days after PCD to complete the embroidery is needed, which is to be considered in T&A. If embroidery is outsourced, then accordingly more number of days can be included in T&A. In some merchandise, washing, printing is required; hence, merchandiser needs to take care of the lead time requirement for the same including necessary buffer. Production start and end date: These two dates purely depend on shipment date and production capacity. As soon as PCD is achieved, the production should start immediately after pilot run and approval of PP sample. Any deviation in this date will subsequently affect the Top of Production (TOP) sample submission date and shipment date. Number of days required for production is decided by capacity allocated to that particular merchandise or number of days of available for actual shipment. For mentioned sample T&A, following assumptions were made while calculating the number of days required for completing the production. Assumptions Number of pieces = 2000 Standard allowed time (SAM) of garment = 28.5 min Number of Machines (M/c) = 50 Efficiency = 55% The calculation for production days can be shown as: No. of days required for production at 100% efficiency = No. of pieces × SAM/actual minutes = 10 000 × 28.5/480 × 50 = 11.875 days

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If line works at 55% efficiency, then number of days for production is = 11.875 × 100/45 = 21 days. Hence, if 21 working days are needed for production, then the production will start on 11 December 2017 and will end on 31 December 2017 if only one sewing line of 50 machines is allocated for 2000 pieces. Finishing and packing: As finishing and packing is equally important, as soon as first lot comes out of production, finishing and packing get started. This can be started parallel with production. In sample T&A, 31 December 2017 is a starting date of finishing and packing, while 02 January 2018 is end date. A buffer of 3 days is kept deliberately between production date and finishing packing completion date to avoid any consequences (Table 4.1). Apart from these main activities, following constraints merchandiser should keep in mind while preparing the T&A for production. 1.

Actual shipment date

2.

Efficiency of production line

3.

Style complications

4.

Operators skills

5.

Start-up loss

6.

Learning curve of line

7.

Finishing and packing capacity

8.

Availability of alternate operators for absenteeism

Any delay in production will directly lead to shipment delay; hence, for actual production, proper buffer should be allocated in T&A.

4.5

Merchandising plan

4.5.1 Merchandiser file The most important task for a merchandiser is to maintain a complete and clear file for each order. A standard merchandising file should contain following items: 1.

Tech pack

2.

Cost sheet

3.

PO sheet with colour and size breakdown

4.

LC

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5.

Trim card (approved sample of trims such as main label, care label, hang tag, zipper, button, lace, sewing thread, and so on.)

6.

Bill of material (BOM)

7.

Packing list

Apart from the above documents, merchandiser should maintain the sample comments sheets (sample approval and comments received from buyer), fabric colour/shade approval (lab dip/fabric swatches/mail), approved embroidery/ print strike-off (if any), printed copy of important mails received from and sent to buyer, copy of fabric, yarn and accessories’ work order, inventory reports, minutes of the PP meeting and printed copy of T&A plan prepared by production planning department

4.5.2 Tech pack A tech pack is informative sheet which encompasses all the specifications of the requirements before embarking on the garment manufacturing process. It contains all the details of any specific style of the garment. This document is usually prepared by the designer and finalized in consultation with the merchandisers, and then forwarded to bulk sampling department or to the production department for the reference and guide for bulk manufacturing.4 4.5.2.1

Measurement details and size chart

This is the most crucial part of any tech pack design. Any tech pack that is made without the measurement details or measurement spec sheet is vague or trivial. Moreover, the measurement spec sheet has to be 100% accurate. However, to achieve 100% accuracy, there needs to be a lot of trial-and-error process because measurement always differs from person to person. The solution is that the brand should at least collect the standard of the measurement which is then used to prepare the detailed measurement spec sheet. The client has to provide the modal measurement or the standard measurement and this has to be provided with almost care (Fig. 4.11). Fabric specification sheet Fabric details: It includes the composition of fabric and its yarn counts, construction, weight and GSM, and also, fabric consumption for the style. This gives the overall idea, which is required at the time of ordering the fabric and costing (Fig. 4.12). Garment specification sheet 1.

Fashion flat and sketch: Front and backside view of the garment style (if required or the style demand). Technical designers must give

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Figure 4.11

Measurement details and size chart

importance to create fashion flats as this is the base and is main interface of apparel spec packages and further makes base for tech pack and sample development, PP and garments production (Fig. 4.13). 2.

Colour combo: Colour variation for a particular style. The garment or style can be produced in different colours and accordingly to the graphics. Embroidery of the style has matching colours as per base colour of the style. As per style requirement colour combos are prepared. Usually, the colour combo for any particular style range from two to four different colour ways (Fig. 4.14).

3.

Stitching and garments construction detailing: Shows how the garment or style should be stitched and its construction procedure. Garments wrongly stitched can affect their look considerably. Technical designer with factory experience who understands sewing technique and construction details can transform in this in tech pack (Fig. 4.15).

4.

Graphic or print details: If the garment has any prints, the detailing of the prints has to be given in separate sheet. This contains print techniques, chemical to use and avoid, print size and placement and so on. Cost for the prints is usually calculated according to its size, colour and complexity. More the colours, more complex would be the print and its detailing. Usually, for prints, every colour is distinguished and while preparing the print screen every colour makes out a separate screen. Hence, graphic design in t-shirts should be quite clear and the vectors are separable to make the print screen (Fig. 4.16).

Figure 4.12 Fabric specification sheet

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Figure 4.13

Fashion flat and sketch

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Figure 4.14

Colour combo

5.

Graphic or print placement details: This is also a very important part of the tech pack designing. Designing a print is not sufficient. The placement of the print, its feasibility and complexity of placing the print is an art as well as tedious. A good print placed in wrong place makes the total style a disaster (Fig. 4.16).

6.

Embroidery details: Mostly, embroidery details are given similar to the print details except the type of embroidery differs. Just like puff embroidery, print embroidery and so on, this is a complete clients’ preference and creative directors thought that leads to the outcome. The embroidery is always counted in the number of stitch that is being done for a particular embroidery design (Fig. 4.16).

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Figure 4.15

Stitching and garments construction

Figure 4.16 Value addition

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Figure 4.17 Trims detail

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7.

Trim detailing: Although trims are always part of apparel branding, detailing of the trims are always crucial for any style. Which trim to be used in which style is very crucial and most brands used the detailing very effectively to make the garment attractive and also look expensive. Usually, for established brands, the trim is always prepared. However, the established brands also change their trims time to time to give fresh looks and feel of their collection. For new brand trims design is a must and they should begin with the trims design and then move on to the style designs (Fig. 4.17).

4.5.3 Cost sheet Merchandise makes a cost sheet to see if the product is feasible or not in terms of cost and revenue. Merchandiser has to calculate the cost of products

Figure 4.18

Cost sheet

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including all wastes and accessories to tell the final cost of the product to his customers (Fig. 4.18).

4.5.4

Purchase/production order (PO) sheet with color and size breakdown The PO can be defined as a written sales contract between buyer and seller, detailing the exact merchandise to be rend from a single vendor/buyer. It will specify payment terms, delivery dates, item identification, quantities, shipping terms and all other obligations and conditions. A contract to purchase merchandise may include a number of PO sheets defining them colourwise and sizewise quantity or as per buyers’ wish (Fig. 4.19). 4.5.5 Letter of credit An LC is a document that a financial institution or similar party issues to a seller of goods or services which provides that the issuer will pay the seller for goods or services the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer’s bank. The document serves essentially as a guarantee to the seller that it will be paid by the issuer of the LC regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the LC issuer (Fig. 4.20). 4.5.6 Trim card Documents, trim cards should be punched with punching machine to file those in a ring binder. Small poly pouch can be used to put trims that cannot be stapled. Need to insert separator marking-related docs so that one can easily find those. Finally, file should be labelled with buyer name, style/order Number, LC number, order quantity, ex-factory date and so on (Fig. 4.21). 4.5.7 Bill of material BOM is a list of raw materials needed to be sourced to make garment and make it ready for shipment as per buyer’s requirement. In garment manufacturing, BOM is generally prepared by production merchants. Then, it has to been approved by a responsible person and handed over to purchase department to start sourcing of raw materials. A BOM normally includes items description, consumption (per piece consumption) with defined unit of measure, projected cost per unit and total cost of each item. See the following format (Fig. 4.22).

Purchase order

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Figure 4.19

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Figure 4.20

Letter of credit

4.5.8 Packing list Packing list is important for packing section to pack the goods as per ratio/ assortment and the inspectors inspect the goods as per packing list. It is also used by the commercial department to make final packing list for forwarding agent and customs department (both local and foreign) to determine the total shipment weight and volume and whether the correct cargo is being shipped. Therefore, a merchandiser should prepare a clear packing list so that all the purpose could be served (Fig. 4.23).

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Figure 4.21 Trim card

Figure 4.22

Bill of material

145

Figure 4.23

Packing list

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4.5.9 Planning a merchandise A merchandise plan is a tool you need to help your business meet ‘the five rights of retailing’: selecting the right products, ordering the right quantity, having them in stock at the right time, displaying them in the right place in the store and selling them at the right price. The sales forecast is the foundation for building the merchandise plan. This encompasses specific trending, turnover and seasonal factors for each category of your merchandise mix. With a sales plan in place, you can then set required inventory levels, merchandise orders and deliveries in dollars or units. A key output of the merchandise plan is the open-to-buy reporting. Unlike conventional inventory control reports, which look back in time, open-to-buy looks ahead – you see what the planned sales are for each merchandise category, how much you should order and when to place the order.5 Order details: Product: Men’s full sleeve shirt, 100% cotton Size break-up

: 1:2:2:1 S, M, L, XL

Order quantity

: 10 000 pcs

Number of colours : 6 White – 2000 pcs, navy blue – 4000 pcs, lemon yellow – 1000 pcs, sky blue – 1500 pcs, aquamarine – 500 pcs, sea green – 100 pcs. Labels – washcare = 3 cm × 6 cm Main label = 2 cm × 3 cm Size label =1 cm × 1 cm Packing instruction: Flat pack in single bag Fold dimension: 34 × 24 cm Inner carton: 5 ply – 10 shirts = 35 × 43 × 12 cm Outer carton: 7 ply – 40 shirts = 150 × 45 × 15 cm Calculation: Consumption/shirt Fabric/shirt – 2.25 m (for 90 cm width fabric) Thread – 200 m (includes wastages) Buttons: 16 lines – 3 nos. and 18 lines – 13 nos. (bought in gross, where 1 gross = 12 dozen)

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Table 4.2 Sl. no 1. 2. 3. 4. 5. 6.

Colour White Navy blue Lemon yellow Sky blue Aquamarine Sea green

Table 4.3 Sl. No 1 2 3 4 5 6

Colourwise production break-up S 367 734 167 275 84 167

L 734 1466 334 550 168 334

XL 367 734 167 275 84 167

Total pcs 2202 4398 1002 1650 504 1002

Estimation of fabric, thread and interlining

Colour White Navy blue Lemon yellow Sky blue Aquamarine Sea green

Fabric (m) 4995 9896 22 550 1134 3713 2255

Table 4.4 Sl. No 1 2 3 4 5 6

M 734 1466 334 550 168 334

Thread (m) 440 400 879 600 200 400 330 000 100 800 200 400

Interlining (m) 220.2 439.8 100.2 165 50.4 100.2

Buttons requirement

Colour White Navy blue Lemon yellow Sky blue Aquamarine Sea green

16 linge 46 92 21 34 11 21

18 linge 199 397 90 149 46 90

Interlining – 10 cm (for 54" width) First step is to make a colourwise production break-up as shown in Table 4.2.

Second step is to calculate fabric, thread and interlining requirements based on colour break-up. Total quantity to be produced is 10 758 pcs (10% extra production in each colour included (Table 4.3).

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Third step is the calculating the requirements of buttons, labels, polybags and carton box as per the colour wise break-up (Table 4.4). Label’s requirement: a)

Washcare – 10 758 nos.

b)

Main label – 10 758 nos.

c)

Size label – 10 758 nos.

Number of polybag required – 10 758 nos., size required – 34.5 cm × 42.5 cm Inner carton – 1076 nos. Outer carton – 269 nos.

References 1.

Kotler P, Keller K L, Koshy A and Jha M (2006), Marketing management a south Asian perspective, Pearson Education, India.

2.

Moore E C (2002), Math for merchandising, Wiley Eastern Inc., New Jersey.

3.

Donnellan J (2002), Merchandise buying and management, Fairchild Publications, Inc., New York.

4.

Glock R E and Kunz G I (2005), Apparel manufacturing, 4th ed., Prentice Hall, New Jersey.

5.

The Textile Industry (1999), Winning strategies for the new millennium, Volume II, Textile Institute, Manchester.

5 Retail and visual merchandising

Abstract: The chapter 5 discuss about retail and visual merchandising. Process of retail merchandising, retail organization, role of merchandiser in retail operations, retail merchandise and assortment planning, model stock plan, inventory management and various types of retail formats are discussed in detail. Further the chapter talks about the concepts, elements, types and importance of Visual merchandising. Key Words: retail, assortment, visual merchandising, stock plan, inventory.

5.1

Introduction to retailing

Retailing is the link between the manufacturer and the consumer. Retailers buy fashion merchandise from vendors, their suppliers, all over the world and bring it to their stores for convenient selling to consumers. In the present scenario, it is the consumer who decides what he/she wants. The consumer has the wide choices available from innumerable suppliers/vendors. Thus, in the present scenario the consumer is the king, as he/she is in the buyer’s market. The merchandiser has to constantly be on the watch of his/her consumers’ needs and their complete satisfaction, so as to maximize the sales and profitability of the retail store.1 Retailing is the combination of activities involved in selling or renting consumer goods and services directly to ultimate consumers for their personal or household use. In addition to selling, retailing includes diverse activities such as, buying, advertising, data processing and maintaining inventory. Grace Kunz has tried to capture the essence of merchandising when he defines merchandising as the planning, developing, and presenting of product lines for identified target markets with regard to pricing, assorting, styling, and timing. Nora Aufreiter et al. have tried summarizing the concept of retail merchandising very succinctly as follows: ‘Merchandising is not a synonym for the buying function, it is an integrated, end-to-end business process that runs from planning the assortment, to sourcing, to distribution, to allocation of the

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Figure 5.1

Retailing functions

goods to the stores, to promoting and selling the assortment to the customers and finally to replenishing inventory as necessary.’1

5.1.1 Retail organization Retail organizations offer many opportunities for a variety of experiences and responsibilities. Retailing functions are generally divided into six areas of responsibility: merchandising, store operations, marketing, finance and control, real estate and human resources (Fig. 5.1). Merchandising, operations and marketing are all responsible for sales. However, each store or corporation has its own unique structure.2 Merchandising has the responsibility of planning, buying and selling merchandise; the goal is to provide the store’s target customer with the right merchandise at the right time. Store operations have the responsibility for planning, managing and maintaining the retail building, protecting the store and merchandise, providing customers services and coordinating the movement of goods and people within the building. Marketing directs the focus and image of the store and is responsible for informing customers about goods and services through advertisements, displays, publicity, special events and public relations. Finance controls expenditure and keeps records of money spent and received: accounts payable (goods received but not yet paid for), payroll, taxes, credit (customers charge accounts) and inventory.

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Real estate or store planning oversees store location, property investment, building and construction and fixtures. Human resources staff the store with people who are qualified and trained to handle the work that needs to be done and assures compliance with state and federal labour laws.

5.1.2 Retail merchandise management Retail merchandise management termed as the analysis, planning, acquisition, handling and control of merchandise investment of retail operation. 5.1.2.1 •

Analysis is required because a retailer needs to understand the needs and wants of his target audience.

5.1.2.2 •

Handling

It is necessary to determine where merchandise is needed and ensure that the merchandise reaches the required stores at the right time and the right condition.

5.1.2.5 •

Acquisition

Merchandise to be sold in retail store, needs to be procured from others – either from distributors or manufacturers.

5.1.2.4 •

Planning

It is necessary to plan since the merchandise to be sold in the future must be bought in advance.

5.1.2.3 •

Analysis

Control

As the function of retailing involves spending money for acquiring the products, it necessary to control the amount of money spent on buying.

5.1.2.6

Process of merchandise management includes

•

Developing strategies to ensure the right product

•

Bought at the right price

•

Available at the right place, right time and right amount

•

In order to satisfy the needs of the target customer

No one in retail can avoid any contact with merchandising activities. Merchandising is the day-to-day business of all retailers. As inventory is sold, new stocks need to be purchased, displayed and sold. Hence, merchandising is often said to be at the core of retail management.

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5.1.3 Key elements of retail merchandising Merchandise strategy: A merchandise strategy is based on the concept of targeting the right people with the right merchandise at the right time at the right place. Here, the right people mean the right customers the retailer wishes to target. The right place implies that the store should have sufficient floor space and an appropriate ambience. Depending on the location of the store and the inhabitants, the retailer will offer the appropriate quality and the pricing of the merchandise.3 Communication strategy: Effective communication is very important for a successful merchandising. It requires an effective strategy – a coherent plan of action. It should take into account the goals and objectives of retail firm, the features of the products and services and the environmental condition. The marketer makes an effort to persuade wholesale and retail channel members to stock and promote certain products. He/she tries to enforce that the consumer demands certain products or brands from retail channel members. Customer strategy: Customer satisfaction is the utmost important for a successful retail enterprise. A high-quality customer service must be provided on the reception desk itself. It requires excellent communication skills of the retail staff. The employees must be patient while dealing with the customers. They should have excellent listening and telephone communication skills. They should be able to solve and prevent problems of the customer’s soft skills. There should be mechanism of feedback from the customers. Format and environment strategy: Retailers are making use of customer creativity, technology and processes to develop new strategies for store format. They are focusing to delight customers by ensuring that the right products are delivered to store shelves. They are making effort in such a way that, the space is being managed well. At the same time, they should possess adequate right staff deployed to provide an appropriate level of customer service. From the above key elements, it is observed that retail merchandise strategy is going to be the most crucial one. This strategy will substantially influence the other three elements mentioned above. Whether it is to decide communication or customer service or the store format and its ambience, all these three key elements will have to be taken into account. The above strategies will also facilitate to retain the loyalty of the customers.

5.2

Process of retail merchandising

The process of retail merchandising involves understanding consumer needs, identifying and sourcing of right merchandise, deciding the right assortment, planning distribution of merchandise to different locations in the right

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Figure 5.2

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Process of retail merchandising

quantities, deciding on the pricing, communicating merchandise offerings to the target customers, and taking feedback of consumers. Look at Figure 5.2 to analyse the process of retail merchandising. Let us learn the steps involved in the process of merchandising. These steps are as follows: Understanding consumer needs: The merchandiser should understand the different ways in which the consumer presently satisfies the need. Let us assume that the consumer need winter clothes. Based on the study, the merchandiser may find that there are various ways in which the need is being satisfied. These may be jacket, parka, sweater, gloves and hat. With the help of consumer survey the method/product which is most in demand for satisfying the need is ‘sweater’. Identifying and sourcing of right merchandise: Further, the merchandiser may need to identify the right merchandise for sweater. For example, in sweater the merchandiser may find that there are three variants – 100% woollen sweater, blended woollen sweater and acrylic sweater. The merchandiser based on the study of consumer feedback would like to know, which one is most in demand,

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or will help the retailer to serve the consumer needs. Suppose the merchandiser decides for 100% woollen sweater. For 100% woollen sweater, the merchandiser needs to identify the right suppliers/sources of this type of sweater. Planning the right assortment: Next the merchandiser has to decide on the different subcategorization. The subcategorization can be made, based on the consumer size. The sweater may be used in different style and fit. Thus, the merchandiser must know based on past trend, experience or survey, the right quantities to be maintained under each subcategorization. In other words, the assortment should cover needs of different size. Planning distribution to different locations: Once the assortment is cleared, the merchandiser needs to work out on the quantities to be dispatched to different distribution centres. The quantity dispatched should be based on the number of outlets in each location, the minimum stocks to be maintained, turnover ratio, the replenishment time and so forth. The logistics for delivery of goods should also be taken into account. Providing right quantities: Once the goods reach the different distribution points, the goods further needs to be sent to each of the outlets in the region. For this, the retailer will take into account the consumer requirement in each of the stores based on previous sales trends or its own study of consumer needs. Thus, for each store, its requirement in terms of different assortment is worked out and the goods are dispatched. Deciding the price: Once the goods reach the store, the merchandiser needs to decide on the pricing of each of the products/items. Normally, the pricing is decided at the time of assortment stage itself. In case of certain retail chains, the pricing may be left to the respective store managers also; the manager will work upon prices as per the guidelines from the chief merchandiser for the product category. The prices are decided based on the gross margin policy for each of the products. Communicating offerings to target consumers: Once the goods are on the floor of the shop, the merchandiser will work out the visual merchandising. He/ she will communicate such strategy for the given store or group of stores. The merchandiser may provide certain props and signage to each of the store to communication right messages and offerings to consumers. There could be advertisements in print media or TV or radio or hoardings and so forth, for giving mass publicity to the offerings. Taking/understanding feedback of consumers: The merchandising team may decide to take feedback on different brands/items to know consumers reaction to pricing, quality, availability, display, after use effect and so forth. The feedback acts as a guideline for improving sourcing and assortment, so as to provide maximum satisfaction to consumers.

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5.2.1 Role of merchandiser in a retail business As part of the retailing business where the retailer is involved in selling to end consumers, the merchandiser’s role is quite different from that of the export merchandiser. First of all, the merchandiser does not get involved with the buying and selecting suppliers or coordinating with suppliers/manufacturers and vendor development. These roles, as we saw in the unit on buying process, are specifically assigned to the buying function or to the buyer in retail organization. In a single unit – departmental store – the role of buyer and the merchandiser could be merged as one. As the business grows, these two roles are handled by two different persons, specialized in the given tasks. The personnel involved in these roles are located in the store itself. In bigger retail chains, the buyer and the merchandisers will be located at the central office, that is, far from the actual store locations. The monitoring and control are done through the formal reporting systems or through exchange of information on the electronic data processing system of the retail organization. Some important roles played by a retail merchandiser can be summarized as below: Researcher: The merchandiser needs to study buying behaviour of the targeted consumers. The buying behaviour helps to understand their peculiarities in buying, the frequency of purchase for a given product, the place from where they prefer to buy, the occasions for which they buy, the preferred price ranges, the special or salient features of the product they look for, quantities bought in a single purchase and so on. The in-depth understanding of the target consumers and their peculiarities does help the merchandiser in determining the range of merchandise for the concerned target segment. Planner: Once the type of merchandise or range of products is determined, the next task of the merchandiser is to plan the correct assortment. He/ she may forecast the quantities necessary for the given selling season or period and finalize the budgets. This involves estimating demand of the consumer by each product type, while taking into account the economics, trend and changes expected in the competitive and retailing environment. These requirements are transmitted to buyers of each product type for working out their individual buying strategies. Co-ordinator: The merchandiser is responsible for a particular product category/line and hence, he/she will be supervising the buying activities of many of the buyers working on different products under the category. Merchandiser needs to co-ordinate for ensuring timely supplies in right quantities as budgeted and at the right price and to the right place.

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Controller: The merchandiser needs to control the performance of each of the selling locations, in order to maximize the sales and profitability of the retail channel. For this purpose, he/she will have to monitor the performance of each of the product type under the category controlled by him/her. He/ she will also monitor sales to stock turnover ratios, markdowns and gross profitability. The merchandiser will also need to assess the performance of the buyers responsible for the purchasing of these products. The assessment may be done on the aspects of quality of supplies, timeliness, and supplies in the right quantity, price competitiveness and service from suppliers to various stores. Visual displays: The merchandiser will have to ensure that the product display is most effective in terms of their pick-ups by consumers. For this, he may use the services of a professional visual merchandiser (VM). In many organizations, merchandisers work out the week-wise/fortnightly/monthly display plans along with their VM personnel. Sales promotion: This is another crucial function of the merchandiser. For this, he will have to work very closely with the marketing and buying departments for working out the annual promotional calendar. He/she may carry out the implementation of different promotion schemes such as special festive promotions during major festivals of the particular region or back to school in case of kid’s products or end of season sales and so on. Sales promotions are the essential activities in the merchandiser roles as he/she has to be constantly aware of the sales trends and to ward off any expected and unexpected dips in sales. This may facilitate maximization of profitability and return on investment for the store as well as for the organization. Trainer: Another very important role the merchandiser needs to perform is that of a trainer. He/she needs to train their assisting staff and buyers on many aspects such as imparting product knowledge, knowledge about consumer tastes and buying patterns, working of price, working of markdowns, maintained mark-ups, actual mark-ups and so on. At the store level, the merchandiser needs to interact with counter sales representatives, department managers and store managers whenever any new product is to be launched or any special promotion schemes are to be run on the floor. Motivator: The merchandiser needs to manage a team of people who work under his supervision. Generally, the personnel that reports to him/her are buyers, assistant merchandisers and VMs. Merchandiser needs to constantly be in touch with his team and guide them in various functional matters besides facilitating their operational efficiency in various merchandising

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related matters. Besides his teammates, he/she needs to liaise with store managers, departmental managers and vendors. He/she makes an effort on integrating all the related activities of all the personnel for achieving optimum profitability for the store and the organization.

5.2.2 Factors affecting the merchandising function Merchandising does not function in isolation. It is affected by various factors. The size of the retail organization •

Function of retailing varies depending on the size of retail business.

•

Needs of an independent retailer varies considerably from those of large chain operation.

•

In case of a single store, the owner or manager assisted by the salesperson may perform the buying function.

•

As the single store g rows in ter ms of business f unctional departmentalization may occur and number of persons involved in buying process may increase.

•

In case of a chain store, the buying process may be centralized or decentralized geographically depending on the organization.

•

The buyer for a chain store may have a fair amount of say in buying price, as quantities are much larger than the single store.

•

As chain store exists across regions and at times, across nations, the buyer has to keep regional preferences in mind.

The type of store •

The buying for a mail order catalogue or for direct marketing or for an e-tail venture would be completely different.

•

Mail order buyer needs to plan well in advance, as the production of catalogues takes a long time.

•

In addition, the large variety of merchandise needs a fair amount of market works.

•

Buyers for an e-tail venture need to have a clear understanding of the type of product that consumers would buy on the net.

•

Very often in direct marketing or in e-tail ventures, it is the uniqueness of the product or the competitive price, which makes the difference.

•

Thus, the nature of the organization is an important factor affecting the function of merchandising.

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Figure 5.3

Factors affecting the merchandising function

The merchandise to be carried out •

It largely determines the responsibilities of the retailer.

•

The buying of basic merchandise is different from that of fashion merchandise.

•

This is primarily because these products are always in demand.

•

Examples of basics: white shirts in clothing or items such as pulses, oil and so forth.

•

Fashion products are those that may sell very well in one season or year and may not be in demand in the next season.

•

Fads are products which have a smaller life cycle, and when sales are very high initially, the demand also dies down soon.

•

Merchandiser handling fashion products will need to spend more time in the market.

•

He will also need to be aware of the fashion forecasts and trends in international markets.

The organization structure •

The organization structure that the retail organization adopts also affects the merchandising function.

•

Some organizations may demarcate the role of the buyer and the role of the merchandiser as separate functions.

•

While in smaller organization, one person may carry out all the duties (Fig. 5.3).

5.3

Retail merchandise planning

Retail merchandise planning is analysis of consumers’ needs and wants, consumer buying process, sale of high selling products, interaction with sales

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Figure 5.4

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staff, analysis of external sources of information. Done in advance, time to buy merchandise, have it delivered and send it to stores (Fig. 5.4). Stage I: Developing sales forecast •

Forecast may be made by the merchandiser, based on targets given by the top management.

•

Sales forecast is the first step in determining the inventory needs of the product or category.

•

Forecasts are typically developed to answer the following questions: 1. How much of each product needs to be purchased? 2. Should new products be added to the merchandise assortment? 3. What price should be charged for the product?

•

A sales forecast is usually made for a specific period of time, this may be weeks or a season or a year.

•

The person who is to make forecasts for the product group or category needs to be aware of 1. The changes in tastes and attitudes of consumers 2. The size of the target market 3. And the changes in their spending pattern

a)

Reviewing past sales • Review of past sales is necessary. • It helps establish a pattern or trend in sales figures.

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• Sales of the past year for a period will give an indication of the sales in the current year for the same. b)

Analyzing the changes in economic conditions • Necessary to consider the changes happening in the economic front. • It has a direct link to consumer spending patterns. • Economic slowdowns, increase in unemployment levels and so forth all effect business.

c)

Analyzing the changes in the sales potential • It is now necessary to relate the demographic changes in the market to that of the store and the products to be sold.

d) Analyzing the changes in the marketing strategies of the retail organization and the competition. • For forecasting sales the marketing strategy to be adopted by the organization and that of the competition is to be considered. • Is there any line of merchandise to be introduced? • Any new store to be opened? • An existing store to be renovated? • All the above factors need to be taken into consideration. e)

Creating the sales forecast • After considering the above-mentioned points, an estimate of the projected increase in the sales is arrived at. • This is then applied to the various products/categories to arrive at the projected sales figures.

Stage II: Determining the merchandise requirement Planning in merchandising is at two levels i. The creation of the merchandise budget, and ii. The assortment plan There are two methods of developing the merchandise plan i. Top-down planning, and ii. Bottom-up planning • In top-down planning, top management works on the sales plan andpasses it down to the merchandising team.

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• In bottom-up planning, the individual department managers work on the estimated sales projections. • They are then added to arrive at the total sales figures. After the sales forecasting has been completed, the inventory levels need to be planned •

The merchandise budget is the first stage in the planning of merchandise.

•

It is a financial plan.

•

It indicates how much to invest in product inventories, as stated in monetary terms.

The merchandise budget usually comprises five parts: •

The sales plan: how much of each product needs to be sold department wise, division wise or store wise.

•

The stock support plan, which tells us how much inventory or stock, is needed to achieve those sales.

•

The planned reductions, which may need to be made in case the product does not sell.

•

The planned purchase levels, that is, the quantity of each product that needs to be procured from the market.

•

The gross margins that the department, division or store contributes to the overall profitability of the company.

5.3.1 Methods of inventory planning Anyone of the four methods given below can be used for planning the inventory levels needed a)

The basis stock method

b)

The percentage variation method

c)

The weeks’s supply method

d) The stock/sales ratio method e)

The basic stock method • This method is used when the retailer believes that it is necessary to have a given level of inventory on hand all times. • Basic stock is the minimum amount of inventory that needs to be maintained for a product, category or store, even during times of low sales.

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Basic Stock = Average stock for the season – average monthly sales for the season where Average monthly sales for the season =

Total planned sales for the season Number of months in the season

Average stock for the season = Total planed sales for the season Estimated inventory turnover rate for the season Beginning of month (BOM) stock = Planned monthly sales + basic stock Illustration: Using the basic stock method, calculate BOM inventory for the month of January, given the following information Planned sales for January: 30 000 Average monthly sales: 25 000 Average monthly inventory: 40 000 Basic stock = 40 000–25 000 = 15 000 BOM stock = 30 000 + 15 000 = 45 000 f)

The percentage variation method • Used when the stock turnover rate is more than six times/year. • Basic premise is that inventory levels should reflect the actual sales. • BOM stock = Average stock for the season × ½ [1 + planned sales for the month/Average monthly sales] Illustration: Using the percentage variation method, calculate the BOM inventory for the month of January, given the following information Planned sales for the month of January: 30 000 Average monthly sales: 25 000 Average monthly inventory: 40 000 BOM Stock = Average stock for the season × ½ [1 + (planned sales for the month/Average monthly sales)] BOM stock = 40 000 × ½ [1 + 30 000/25 000] = 40 000 × ½ (1 + 1.2) = 40 000 × ½ × 2.2 = 40 000 × 1.1 = 44 000

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g) The weeks’s supply method • This method is very easy; however, requires the retailer to have a BOM stock/sales ratio. This ratio tells the retailer how much inventory is needed for the month. • Stock to sales ratio = Value of inventory/actual sales • Planned BOM inventory = Stock – sales ratio × planned sales Illustration: Using the ales ratio method, calculate the BOM inventory for the month of January, given the following information Stock to sales ratio = 1.4 Planned sales for the month of January: 20 000 Planned BOM inventory = 1.4 × 20 000 = 28 000 h)

The stock/sales ratio method • An effective measure of the speed with which products or merchandise moves in and out of a retail store for a given period. • It is a measure of efficiency and is usually calculated for a period, of 6 months or a year. • It is calculated using the following formula Planned sales (for a period) = Stock turnover Planned average inventory (for the period) • The stock turnover rate is a measure of efficiency. • Every department usually has its own stock turnover rate as different merchandise need different speeds of selling. • From the management’s perspective, the stock turnover indicates the level of capital usage, that is, turning money into inventory, inventory into money and then repeating the process again.

5.3.2 Six month merchandise plan • Done after an inventory plan, merchandise plan. •

This plan is prepared for 6 months.

•

Merchandise budget should be prepared in advance of selling season.

•

Easy to understand.

•

Economy is changing, plan for 6 months.

•

Flexible budgets (Table. 5.1)

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Table 5.1

Retail merchandising plan

M1 BOM

Sales

Reductions

Six month merchandise budget M2 M3 M4 M5 M6

Total

Last year Plan Revised Actual Last year Plan Revised Actual Last year Plan Revised Actual

5.3.3 Retail assortment planning Assortment is the selection of merchandise a retailer carries. Includes breadth of the product categories and the variety within each category. Need to choose quality of the merchandise – expensive/moderately priced/inexpensive items (Fig. 5.5). •

Width of assortment: number of distinct goods and services (product lines) a retailer carries.

•

Depth of assortment: refers to variety in any one goods/service category (product line) a retailer carries.

Wide and deep: (many product lines and large variety in each) Advantages •

Broad market

•

Full selection of items

•

High level of customer traffic

•

Customer loyalty

•

One stop shopping

•

No disappointed customer

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Figure 5.5

Depth and breadth of merchandising

Disadvantages •

High inventory investment

•

General image

•

Many items with low turnover

•

Some obsolete merchandise

Wide and shallow: (many product lines and limited variety in each) Advantages •

Broad market

•

High level of customer traffic

•

Emphasis on convenience customer

•

One stop shopping

•

Less costly than wide and deep

Disadvantages •

Low variety within product lines

•

Some disappointed customers

•

Weak image

•

Many items with low turnover

•

Reduced customer loyalty

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Narrow and deep: (few product lines and large variety in each) Advantages •

Specialist image

•

Good customer choice in categories

•

Specialized personnel

•

Customer loyalty

•

No disappointed customers

•

Less costly than wide and deep

Disadvantages •

Too much emphasis on one category

•

No one stop shopping

•

More susceptible to trends and cycles

•

Greater effort required to increase the store size

•

Little/no scrambled merchandizing

Narrow and shallow: (few product lines and few variety in each) Advantages •

Aimed at convenience customers

•

Least costly

•

High turnover of items

Disadvantages •

Little width and depth

•

No one stop shopping

•

Some disappointed customers

•

Weak image

•

Limited customer loyalty

•

Small trading area

•

Little/no scrambled merchandising

Depth and breadth of merchandise

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5.3.4 Model stock plan The model stock plan gives the precise items and quantities that should be on hand for each merchandise line.4 A model stock plan needs to be compiled for each line of merchandise (Fig. 5.6). Steps •

Identify the attributes that the customer would consider in buying the product.

•

Decide on the levels under each attribute.

•

Allocate the total money or the units to the respective item categories.

5.3.4.1

Creating a model stock plan

A retailer has allocated Rs. 1 lakh to buy shirts. Assuming that the purchase price for the shirts is Rs. 100, he will be able to stock 1000 shirts (Table 5.2). •

Identify the number of levels under each attribute.

•

Type of shirt – dress, casual, formal, sport

•

Size – small, medium, large, extra large

•

Sleeve length – full sleeves, short sleeves

•

Collar type – savile, button down

•

Colour – white, blue, cream, grey

•

Fabric – cotton, cotton blend

5.4

Retailing formats

Regardless of the particular type of retailer (such as a supermarket or a department store), retailers can be categorized by (a) ownership, (b) store strategy mix, and (c) non store operations. Figure illustrates this concept (Fig. 5.7).

5.4.1 Form of ownership A retail business like any other type of business can be owned by a sole proprietor, partners or a corporation. A majority of retail business in India are sole proprietorships and partnerships.

Model stock plan

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Figure 5.6

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Table 5.2 Type % of sales Sizes % of sales Sleeve length % of sales Colour % of sales Material % of sales

Dress 20 Small 25 Full sleeves 40 White 40 Cotton 25

Model Stock Plan

Casual 30 Medium 30 Half sleeves 60 Blue 30 Cotton blend 75

Formal 20 Large 25

Sport 30 Extra large 20

Cream 20

Grey 10

Note: Allocate the total units to the respective item categories.

Figure 5.7 Types of retailers

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Independent retailer

Generally operates one outlet and offers personalized service, a convenient location and close customer contact. Roughly 98% of all the retail businesses in India are managed and run by independents, including barber shops, drycleaners, furniture stores, bookshops, LPG gas agencies and neighbourhood stores. This is due to the fact that entry into retailing is easy and it requires low investment and little technical knowledge. This obviously results in a high degree of competition.2 Most independent retailers fail because of the ease of entry, poor management skills and inadequate resources. 5.4.1.2

Retail chain

It involves common ownership of multiple units. In such units, the purchasing and decision making are centralized. Chains often rely on, specialization, standardization and elaborate control systems. Consequently, chains are able to serve a large dispersed target market and maintain a well-known company name. Chain stores have been successful, mainly because they have the opportunity to take advantage of ‘economies of scale’ in buying and selling goods. They can maintain their prices, thus increasing their margins, or they can cut prices and attract greater sales volume. Unlike smaller, independent retailers with lesser financial means, they can also take advantage of such tools as computers and information technology. Examples of retail chains in India are Shoppers stop; Westside and IOC, convenience stores at select petrol filling stations. 5.4.1.3

Retail franchising

Is a contractual arrangement between a ‘franchiser’ (which may be a manufacturer, wholesaler, or a service sponsor) and a ‘franchisee’ or franchisees, which allows the latter to conduct a certain form of business under an established name and according to a specific set of rules. The franchise agreement gives the franchiser much discretion in controlling the operations of small retailers. In exchange for fees, royalties and a share of the profits, the franchiser offers assistance and very often supplies as well. Classic examples of franchising are McDonalds, PizzaHut and Nirulas. 5.4.1.4

Cooperatives

A retail cooperative is a group of independent retailers that have combined their financial resources and their expertise in order to effectively control their wholesaling needs. They share purchases, storage, shopping facilities, advertising planning and other functions. The individual retailers retain their

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independence but agree on broad common policies. Amul is a typical example of a cooperative in India.

5.4.2 Store strategy mix Retailers can be classified by retail store strategy mix, which is an integrated combination of hours, location, assortment, service, advertising, and prices and so forth. The various categories are: Convenience store: Is generally a well situated, food-oriented store with long operating house and a limited number of items. Consumers use a convenience store for fill in items such as bread, milk, eggs, chocolates and candy and so forth. Supermarkets: Is a diversified store which sells a broad range of food and nonfood items. A supermarket typically carries small house hold appliances, some apparel items, bakery, film developing, jams, pickles, books, audio/ video CD’s and so forth. The Government run Super bazaar and Kendriya Bhandar in Delhi are good examples of a supermarket. Similarly in Mumbai, we have Apna Bazar and Sahakari Bhandar. Departmental stores: A department store usually sells a general line of apparel for the family, household linens, home furnishings and appliances. Large format apparel department stores include Pantaloon, Ebony and Pyramid. Others in this category are Shoppers Stop and Westside. Speciality store: Concentrates on the sale of a single line of products or services such as audio equipment, jewellery, beauty and health care and so forth. Consumers are not confronted with racks of unrelated merchandise. Successful speciality stores in India include, Music World for audio needs, Tanishq for jewellery and McDonalds, Pizza Hut and Nirula’s for food services. Hypermarkets: Is a special kind of combination store which integrates an economy supermarket with a discount department store. A hypermarket generally has an ambience which attracts the family as whole. Pantaloon Retail India Ltd. through its hypermarket ‘Big Bazar’, offers products at prices which are 25–30% lower than the market price.

5.4.3 Non-store retailing In non-store retailing, customers do not go to a store to buy. This type of retailing is growing very fast. Among the reasons are the ability to buy merchandise not available in local stores, the increasing number of women workers, and the presence of unskilled retail sales persons who cannot provide information to help shoppers make buying decisions (Fig. 5.8).

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Figure 5.8

Non-store retailing

In home retailing: Where, a sales transaction takes place in a home setting – including door-door selling. It gives the sales person an opportunity to demonstrate products in a very personal manner. He/she has the prospect’s attention and there are fewer distractions as compared to a store setting. Examples of in home retailing include Eureka Forbes vaccum cleaners and water filters. Telesales/telephone retailing: This involves contact between the prospect and the retailer over the phone, for the purpose of making a sale or purchase. A large number of mobile phone service providers use this method. Other examples are private insurance companies and credit companies and so forth. Catalogue retailing: This is a type of non-store retailing in which the retailers offers the merchandise in a catalogue, which includes ordering instructions and customer orders by mail. The basic attraction for shoppers is convenience. The advantages to the retailers include lover operating costs, lower rents, smaller sales staff and absence of shop lifting. This trend is catching up fast in India. Burlington’s catalogue shopping was quite popular in recent times. Some multilevel marketing companies like Oriflame also resort to catalogue retailing.

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Direct response retailing: Here, the marketers advertise these products/ services in magazines, newspapers, radio and/or television offering an address or telephone number so that consumers can write or call to place an order. It is also sometimes referred to as ‘direct response advertising.’ The availability of credit cards and toll-free numbers stimulate direct response by telephone. The goal is to induce the customer to make an immediate and direct response to the advertisement to ‘order now.’ Telebrands is a classic example of direct response retailing. Times shopping India is another example. Automatic vending: Although in a very nascent stage in India, is the ultimate in non-personal, non-store retailing. Products are sold directly to customers/ buyers from machines. These machines dispense products which enable customers to buy after closing hours. ATM’s dispensing cash at odd hours represent this form of non-store retailing. Apart from all the multinational banks, a large number of Indian banks also provide ATM services, countrywide. Electronic retailing/E-tailing: Is a retail format in which retailers communicate with customers and offer products and services for sale, over the internet. The rapid diffusion of internet access and usage, and the perceived low cost of entry have stimulated the creation of thousands of entrepreneurial electronic retailing ventures during the last 10 years or so on. Amazon. com, E-bay and Bazee.com HDFCSec.com are some of the many e-tailers operating today.

5.5

Visual merchandising

Visual merchandising refers to the coordination of all physical elements in a place of business and is used to project the right image to its customers. The ‘right’ image invites interest in the merchandise or services, encourages purchasing and makes customers feel good about where they are doing business.3 Merchandising involves acquiring the required goods, placing them with due prominence on the designated shelf, setting price for the goods that help the retailer in reaching the goal that has been set. Today visual merchandising plays an important role in retail industry. It is the art of presentation whereby VM conceptualizes designs and implements window and in-store displays for retail stores. VMs are the professionals who are responsible for granting any brand a face. This exercise educates the customers, creates desire and finally adds to the selling process.

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5.5.1 Importance of visual merchandising In the present scenario, competition is increasing and becoming more complex. Therefore, keeping in view the nature of competition, it is necessary to display the products in such a manner that they look attractive and appealing to the minds of customers. It is the art of displaying merchandise in a store, in a manner that is appealing to the eyes of the customer. The importance of visual merchandising has been discussed as below: Understand the importance of visual merchandising: The first step to good visual merchandising is to understand how it is important. It will definitely be an asset to your store and business. With good visual merchandising, you will be able to accomplish your store’s objectives easily. Tell your store’s story through visual merchandising: Visual merchandising gives you the chance to convey to your customers what your store is about and how you can satisfy their needs without being too intrusive. If you are running a high end fashion store your VM strategy will be different than other economical fashion stores. For example, if the store has a new fall collection, the visual merchandising should portray that to the customers. Attract customers by being different: Just using visual merchandising is not enough. You have to invest time and effort on it. The same old tricks do not work anymore, so attract your customers by being different. For example, instead of hanging garments on hangers or keeping them in racks, hang some of them on hooks from the ceilings. Tailor your displays to correspond with the kind of customers you attract: A good visual merchandising is the one that has been done keeping in mind the objective of the store along with the needs of the customers. You should keep in mind that your VM strategy should give your customers ample opportunity to browse through your products and convert them into sales. For example, a toy store which gives a chance to the kids to touch and feel the products/play with them will always do better than a store which keeps it products in closed boxes, out of the kid’s reach. Keep your visual merchandising dynamic: The human mind gets bored easily, hence, if the display of the store is constant without any novelty, it will not attract enough customers. Keep changing your displays daily or at least once in 3 days – the more dynamic your visual merchandising, the more it attracts the customer. It also increases the awareness of your products by giving you the chance to display more products. Use it to fulfil the stores objectives: It is important to understand the power of visual merchandising. You can use it to your advantage in achieving the

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store’s objectives. For example, if your objective is just to get more footfalls other than coveting sales, make use of displays. Put up eye-catching displays which say ‘Walk in to get free vouchers’ and so forth. These are just a few of the various elements that you can use to increase your store’s awareness and sales through visual merchandising. Passion for creativity and design along with coming up with new ideas, are essential to ensure a good VM strategy.

5.5.2 Concepts of visual merchandising Any retail organization conducts its business with an objective of earning profit by selling its merchandise and services. To do so, it has to make sure that its prospective customers are aware about the merchandise and services that are available. The main concepts of visual merchandising are to support selling and to coordinate marketing activities. Let us learn them in detail (Fig. 5.9). i. Support selling visual merchandising facilitates sales by: a) Communicating and reinforcing the store brand image. Visual merchandising displays and designs should be designed keeping in mind the target customers (their lifestyle, values, educational background, income group, etc.).

Figure 5.9

Coordination of visual merchandising

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b) Informing the prospective customers about the various merchandise available instore. c) Generating excitement through window displays and in-store ambience to encourage more customers to enter the store especially during special events (like SALE, festive season, new product launch, etc.). d) Cleverly place merchandise category adjacencies and strategic merchandise presentations and displays, not only help make sale in one category but also help cross merchandise. e) Well planned fixture Planograms help save staff time while stacking and rearranging merchandise, which they can use to attend to a prospective customer. ii. Co-ordination Just like all the departments in a retail organization work towards the advancement of sale so does the visual merchandising department. VM department does not work in isolation and has to be in synchronization with the company policies, retail merchandise to be sold (e.g. merchandise introduce/discontinued), special offers (e.g. discount sales), marketing policies and so forth. A VM should hence coordinate his activities and time line with the other departments in the organizations. Merchandising department: The VM must be aware and understand the merchandising department’s selling strategy, including which merchandise is availed at which store, the date on which they will be made available and so forth. This will help the VM to design VM plans/designs that will reinforce the sale strategy. Advertising/marketing department: It is fruitless if the marketing department advertises some merchandise, and customer cannot locate them in the store. Hence the VM should work in coordination with the marketing team. Furthermore to create greater sales impact and greater recall value the VM should try and repeat any special characters or symbols used by the marketing department. Operations department: Coordination with the operations team is key when it comes to the execution of the VM plans. Centrally manufactured props may need to be transported to the individual store as well as maintains of the shop floor and the display props need to be looked after. Floor staff: Store floor staff is one of the best sources to know about the customer behaviour at the store. They can give VM valuable

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information about which products are the hot sellers and which ones are the slow movers.

5.5.3 Types of visual merchandising displays There are various types of visual merchandising displays which are as follow: a)

Window display – Window display essentially has to reflect corporate identity and should be visually powerful. These are broadly of two types depending on the back end of the display put up: (i) closed back window displays (ii) open back window displays (Fig. 5.10).

b)

Interior display – It should relate to the theme seen in the windows. It effects the movement and traffic of customers and should lead to a total, effective and ergonomic visual concept of the store aiding a pleasant experience.

c)

The trend away from window – Isolated displays are less frequently in use as too much of time and expense and far from the merchandise to which they relate. However, as means of non-store visual merchandising, especially at airports, leading premium end stores often puts up isolated visual merchandise displays.

d) Point of purchase display – It refers to a display or merchandise presentation at the point where an act of purchase happens and the sale is made. The display is designed to promote a particular product or brand name. e)

Industrial and exhibition visual merchandising – Industrial and exhibition visual merchandising refers to many formats of visual merchandising. These are given below along with specifics in brackets, further detailing the visual merchandise displays.

Figure 5.10 Types of window display

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i. Permanent exhibits (at museums) ii. Temporary exhibits (displayed on exhibition grounds) iii. Travelling displays (mobile promotions) iv. Outdoor exhibits (sponsored parks and store maintained public places) v. Industrial products visual merchandising (at factory gates or outlets) f)

Digital signage – an emerging visual technology trend – Digital signage has emerged as one of the most novel and versatile of visual merchandising formats and the same is employed either on the net or over a screen in the store. Varied interfaces are designed for an optimum interface of the consumer with the visual merchandise (virtual tours etc.). What cannot be achieved in real tangible domain can be created in the realm of virtual reality with the help of technological devices equipment’s and software. Hence, the high values add through a surreal addition to the tangible merchandise (Fig. 5.11).

5.5.4 Elements of visual merchandising A VM has to work with various elements of VM to bring about the desired action (purchase) and reaction (satisfaction, to return for another purchase at a future date) from the customers. These elements are as follow: (a) store front (b) store layout (c) store interior (d) interior display (Fig. 5.12). Let we learn them in detail. a)

Store front: The exterior of a business comprises the following: Signs: Promotional signs, local signs, institutional signs, informational signs and marquee are shown in Figure 5.13

Figure 5.11

Digital signage

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Figure 5.12

Elements of visual merchandising

Figure 5.13 Types of signs at store front

Figure 5.14

Entrances

Entrances: These are designed with customer convenience and store security in mind. There are several types of entrances each portraying a certain image (Fig. 5.14).

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Figure 5.15 Window display Window display: Window displays acts as an introduction of what will be found inside the store. Given the fact that a pedestrian takes only a few seconds to consider a store window, a window display should be well planned to make the most impact. Main intension should be to capture the attention of the passersby. It begins with the selling process even before the customer enters the store and suggests the type of merchandise carried in the store (Fig. 5.15). b)

Store layout: Store layout describes the overall look and feel of the interior of a retail store, including the placement of fixtures and products within the store. It is an important part of implementing retail store strategy. Effective layouts are designed to expose customers to the most products possible given the amount of floor space available. It refers to the way the floor space is allocated (Fig. 5.16). It is of four types. • Selling space: It includes interior displays, sales demonstration areas, sales transaction areas (wrap desk). • Merchandise space: It is allocated to items that are kept in inventory, selling floor and stock room area. • Personnel space: It refers to space for employees, break rooms, lockers and restrooms. • Customer space: It refers the space meant for comfort and convenience of customers. It includes restaurants, dressing rooms, lounges, restrooms and recreation area for children.

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Figure 5.16 c)

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Store layout of a retail store

Store interior: In-store displays should be in line with the window display in terms of theme and props. In-store displays can be further categorized into: • High points: When a display is placed above the eye level to be viewed from a distance is called a high point. They are usually on the top shelf of the walls fixtures featuring the merchandise stacked/ hung on that wall. They are used to demonstrate the use of this merchandise and inspire the fashion trends. They can also be used to cross merchandise. • Focal points: Focal points are dedicated areas within the store for displays. They display the merchandise stacked around that area which may be from different departments. They are good source to encourage cross merchandising. It affects the store’s image and includes the items such as floor and wall coverings, lighting, colours and fixtures. It is important to create a relaxing, comfortable place for customers to shop (Fig. 5.17).

d) Interior display: These are the part of general store interior. It helps the customer to make a selection without personal assistance. Interior displays use fixtures and props to showcase merchandise. Props are

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Figure 5.17

Store interior

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Figure 5.18

Interior display

generally classified as decorative or functional. Functional props refers to practical items for holding merchandise such as mannequins and shirt forms whereas the purpose of decorative props is to enhance merchandise items such as trees, tables and cars. Closed display: Examples are Look but don’t touch, require sales person assistance, expensive or fragile merchandise and jewellery cases (Fig. 5.18). • Open display: Examples are to handle merchandise without a salesperson, self-service and so forth. • Architectural display: Examples are actual room setting and furniture. • Store decorations: It refers to decorations for holidays such as Christmas, Halloween and Valentine’s day.

5.5.5 Types of visual merchandiser and their roles A VM is a key person in the fashion industry who determines how a product is displayed to the public. Today in the fashion industry, three main types of visual merchandising roles are included. Every role is slightly different from other. Here, the types are: 1.

In-store VM

2.

Field VM and

3.

Head office display team.

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i. In-store VM In-store visual merchandisers are needed to have a real fair for layout and composition, consciousness about the retailers brand image, products and display techniques are combined with knowledge. In-store VM play some essential roles, these are following below: •

They maintain all the in-store visual displays

•

By analyzing the reports they maximizing commerciality

•

They will always do change monthly floor makeovers

•

Always maintaining product standards

•

Using space planning information

ii. Field VM Field VMs are to help and give guidance to the retail stores of the fashion brands on all perspectives of visual merchandising like set guidelines, ensuring consistency and visual excellence across the brand. To move forward, the fashion brand, the field VM always inform to the district visual merchandising manager and area manager to discuss any identified chance, issues/needs, put forward advice and agree actions. Some roles of a field VM are: •

In the retail store design area, they will drive and develop visual merchandising standards.

•

For the retail store, they highlight commercial visual merchandising opportunities.

•

Always maintain the fashion retailer’s brand strategy.

•

Some visual merchandising experience must be needed.

iii. Head office display team Head office creative/VM starts their career as a creative assistant, moving to creative manager, and then moving to head of creative or VM. Some store retailers do not have a head office display team, that’s why, marketing team maintain this responsibilities. But they are not enough creative as a display team. Therefore, brand marketing manager try to recruit more creative candidate for this post.

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Some roles of head office display team are: •

Actually they are supported and communicate between the buying and merchandising teams.

•

Update knowledge about fashion trends, the latest key trends, styles.

•

They should be able to put visual display packs together.

•

They will reserve the latest visual display packs and old packs are left from the store.

•

Get more knowledge about creativity.

References 1.

Glock R E and Kunz G I (2005), Apparel manufacturing (4th Edition), Prentice Hall, New Jersey.

2.

Diamond E (2006), Fashion retailing – A multi-channel approach (2nd Edition), Prentice Hall Inc., New Jersey.

3.

Pegler M M (2001), Visual merchandising and display (4th Edition), Fairchild Publications, New York.

4.

Curtis E (2004), Fashion retail, John Wiley and Sons Ltd., England.

6 Sourcing

Abstract: The chapter 6 explains the sourcing concepts and strategies in apparel industry. Procedures in International sourcing and domestic sourcing are discussed with examples. Make or Buy sourcing decision and its merits and demerits described in this chapter. Fabric sourcing, trims and accessories sourcingwith practical examples discussed in this chapter. In last topic the various factors affecting the sourcing in apparel industry are discussed. Key Words: sourcing, make or buy, lead time, economic order quantity, vendor.

6.1

Introduction to sourcing

Sourcing can be defined as determining the most cost-efficient vendor of materials or production at a specified quality and service level. It is also a more of strategic decision other simple definition that the process of selecting suppliers for manufacturing and delivering products and their components. Sourcing is defined as ‘the process of determining how and from where manufactured goods or components will be procured’.1 Sourcing is the term used to describe the process of determining how and where merchandise will be procured.

6.1.1 6.1.1.1

Types of sourcing Domestic sourcing

In spite of the great increase in international sourcing over the past 20 years, domestic sourcing still has many advantages. Domestic sourcing is sometimes called ‘speed sourcing’ or ‘quick response’ (Fig. 6.1). Priorities for domestic contractors •

Location

•

Ability to work closely with the contractor

•

Specialization in certain types of products

•

Availability of equipment and skill of the workforce

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Figure 6.1

Figure 6.2

Domestic sourcing

International sourcing

6.1.1.2 International sourcing Developed textile producing countries generally offer more reliable service, production skills and quality control than developing countries. They have also higher wages; when the price is the most critical criteria, one of the developing countries may be the best choice (Fig. 6.2).

6.1.2 Requirements for international sourcing When sourcing internationally, textile fi rms may use agents. Agents are familiar with: •

Trade laws

•

Language

•

Culture

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•

Production capabilities of apparel/textile manufacturers and contractors in their country.

•

The comparative abilities and performance records of the contractors in their country.

Companies that source large quantities of goods in certain areas of the world often establish regional sourcing offices to work with sourcing agents. The sourcing manager or representative of the firm should make an onsite evaluation of the factory which is producing their products although an agent may be extremely beneficial in developing and working with contractors in a particular country. All factories should be visited before a contract is established for doing business. Trade advisors are one of the best sources of current information on world trade. They advise on: •

Trade agreements

•

Developing trade actions

•

Quota usage

•

Potential transshipment violations

•

Upcoming trade negotiations

Legal counsel is essential for the complicated sourcing process. Attorneys that specialize in international trade law can assist with contracts and agreements, letter of credit, purchase order terms. Custom brokers are licensed third parties used to interface with customs on behalf of the customer. Customs brokers can help determine product classifications for quotas and tariffs provide documentation for customs, make payment for duties and execute other transactions that customs required. Quality auditors can be hired to provide independent evaluations of fabric and finished goods. When starting up a sourcing program and working with an agent for the first time, it is often recommended to use an outside auditor to monitor the quality of the goods. Quality auditors may also test for fiber content, flammability, care and so forth.

6.1.3 International sourcing using the internet Selecting fabric and trimmings can be one of the most exciting and frustrating elements within the garment production process. The internet is now a useful tool in finding suppliers, providing information on minimum orders, price points, fiber content and even virtual samples. The easiest way to search for fabric and accessories is to log on one of the search engines (e.g. www.google. com, www.yahoo.com) and use the keyword ‘fabric sourcing’.2

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The followings are some of names and websites for Internet fabric sourcing: www.fastextile.com www.textiles-clothing.europages.net www.paginialbastre.ro/firme.php www.buytextiles.com www.buyfabric.com www.distinctivefabric.com/?google=fabric3 www.fiber2fashion.com/tradedirectory/fabric-buying-house-directory.asp www.business.com/directory/retail_and_consumer_services/home_and_ garden/fabrics/ www.fabricshub.com www.tradeagency.net www.europages.com www.its-guide.com www.apparelsearch.com/apparel_search_2.htm www.aaaoe.com/product/offer/31.php www.textiledatabase.com/ http://www.ncsli.org/dsl/

6.1.4 International sourcing checklist On making the decision for international sourcing, there are many issues that need to be evaluated by a knowledgeable person from the sourcing firm. It is essential to evaluate business practices, ethics and services relative to the firm’s priorities and needs. At the plant level, the sourcing firm needs to evaluate a facility’s capability to produce the product desired at the determined quality level. There are also many human rights and health and safety issues that a socially responsible firm will want to monitor. A buyer needs to verify firsthand that the code of conduct is being honoured. Violations are easy to overlook especially with just one visit. The checklist in the following Table 6.1 provides some key elements that should be considered in evaluating sites and facilities prior to making a sourcing commitment. It is much easier to make a wise decision based on firsthand information and analysis of capabilities than to enter into agreement and find major violations of human rights and safety issues and a contractor’s inability to produce the volume and quality product needed. Surprises need to be avoided.

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Table 6.1 1) 2) 3) 4) 5) 1) 2) 3) 4) 1) 2) 3) 4) 5) 6) 7) 1) 2) 3) 4) 5) 6) 7) 8) 9)

Checklist

Country level Does the country have minimum legal age for manufacturing employment? Does the country have minimum wage? Does the country have standard number of hours for a work week and standard practices for overtime? Is there a political unrest in the country? Is the economy stable in the country? Agent level What is the relationship between contractor management and agent? Is communication good between the contractor and agent? How much time does the agent or agent’s representative append in the plant? Who manages the operation on a day to day basis? Vendor level Is the company financially stable? Is the company vertical? Does the contractor subcontract work? Does the company provide housing and meals for employees? Does the company operate in a free trade zone? Does the company keep good employee records for citizenship and number of hours worked? What the contractor’s product strength? Plant level What types of garments are currently being produced? Who are the plant primary customers? How many workers are employed? What type of equipment is being used? Are the machine properly maintained? What is the degree of automation in cutting? In assembly? What are the bottleneck operations? How were the operators trained? Is skill level of operators adequate? (Continued)

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Table 6.1

Checklist (Continued) Quality

1) 2) 3) 4) 5) 6) 7) 8) 9) 1) 2) 3) 4) 5) 6) 1) 2) 3) 4) 5) 6) 7) 8) 1) 2) 3) 4) 5)

How is the quality monitored? Are specifications are available to operators? Are specifications in the appropriate language? How many inspectors do they have? Are In-line inspectors performed? Are final statistical audits performed? What per cent of products is audited? How have they been rated on previous audits? What is the plant’s audit pass rate? Human rights How many workers in the room? Are the workers of legal age? Are there children present? How many hours do they work per day? Per week? Are the workers allowed break time? Is there forced overtime? Plant safety and health How many exits are there? Are safety regulations posted? Is the level of lighting adequate? Are there enough restrooms? Is the ventilation system adequate? Is the drinking water safe? Are electrical outlets grounded? Are there fire safety exits? Sprinkler systems? Inspected fire extinguishers? Shipping How products will be shipped? Will additional processing be required in the distribution centre? Does the plant have electronic data interchange capacity? How they insured against theft? How safe transportation from the plant to the port?

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6.2 Sourcing decision 6.2.1 Make or buy Making involves manufacturing their own raw materials and/or fi nished products in the firm’s own production facilities and buying involves sourcing from vendors. So the decision to make a product involves the capacity available in-house of the manufacturer and desire to reduce costs, availability of technology and unsatisfactory supplier or vendor performance. The decision to buy a product from the vendors arise when there is the availability of a product at a cheaper cost, non-availability of the latest technology and inability to manufacture such volumes in in-house facility (Fig. 6.3). Whether to make or buy a product is based on the four important parameters like •

Cost

•

Production capacity

•

Quality and

•

Timing

6.2.2 Make or buy decisions Framework for make/buy decisions •

How can the firm decide on to manufacture or to outsource?

•

Focus on core competencies

Figure 6.3

Sourcing

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•

How can the firm identify what is in the core?

•

What is outside the core?

Two main reasons for outsourcing •

Dependency on capacity • Firm has the knowledge and the skills required to produce the component • For various reasons decides to outsource

•

Dependency on knowledge • Firm does not have the people, skills and knowledge required to produce the component • Outsources in order to have access to these capabilities

A basic decision in sourcing either materials or production is whether to ‘make’ or ‘buy’ the desired product.2 Making involves producing the fabric, components, and/or fi nished products in the fi rm’s own production facilities. Buying involves contracting with another fi rm to produce the product. ‘Make-or-buy’ decisions arise as the result of the development of new products, the need for specialized equipment, unsatisfactory supplier or contractor performance and increase or decrease in demand for established products. The conditions favourable for ‘make’ decisions: 1.

Less expensive to make

2.

Available excess plant capacity

3.

Need to exercise direct/close quality control

4.

Unreliable suppliers/service

5.

Design secrecy

6.

Maintain stable workforce in periods of decline sales

7.

Integration of production

8.

Limited lead time

9.

Closed product specification (branded goods)

The conditions favouring ‘buy’ decisions: 1.

Less expensive to buy

2.

Small volume requirements

Sourcing

3.

Short product life

4.

No close supervision needed

5.

Deficient production system

6.

No know-how, as they are specialized products

7.

Desire to have multiple sourcing

8.

Open product specification (unbranded goods)

195

6.2.3 Sourcing based on methods of manufacturing Apparel companies need to produce new products that require production skills not available in their own facilities. The process of procuring apparel products to meet a company’s marketing objectives is called ‘sourcing’. Sourcing determines where, when and how a company’s products will be manufactured.3 Apparel companies have three options for sourcing: They can source internally, externally or a combination of both. The decision as to which option is best suited for a specific company is based upon the company’s financial resources, level of manufacturing expertise and strategic objectives. 6.2.3.1 Internal manufacturing Here, apparel companies produce products in their own plants. Internal manufacturing requires substantial capital investment for plant and equipment. However, internal manufacturing does provide the most control over production. It is also most suitable for stable product lines, and for companies that are quick response systems, and are able to respond rapidly to changing consumer demands. The main advantages of internal manufacturing are 1.

Control over the flow of raw materials and trim items as well as production schedules and deliveries

2.

Quality standards are more easily established and monitored

3.

Response time through electronic data interchange with retailers and textile suppliers can be optimized since priorities are established and controlled by the owner of the facility.

6.2.3.2 External manufacturing Here, a company chooses an outside contractor, as it does not have its own manufacturing facility. There are two general approaches to external manufacturing:

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a)

Cut, make and trim (CMT) sourcing, where the company provides designs, fabrics and trims, and the contractor provides labour and supplies.

b)

Full package sourcing also called as original equipment manufacturing, where everything is taken care of by the contractor himself.

CMT has the advantage of having flexibility which allows for product and style changes, volume commitments, reduced investments and control over design and minimized threats of knock-offs. Full package benefits include – concentration on only product development and marketing without getting involved in the production, limited investment and ability to make drastic style changes from season to season. The advantage of external manufacturing is the elimination of the financial risk of owning plant and equipment and overhead charges, concentration on only product development and marketing, frequent style changes and so forth. •

Single sourcing – The buying firm depends on a single company for all or nearly all of an item or service

•

Multiple sourcing – The buying firm shares its business across multiple suppliers

•

Cross sourcing – Using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part

•

Dual sourcing – Using two suppliers for the same purchased product or service

Sourcing decisions and purchasing activities serve to link a company with its supply chain partners Focus •

Insourcing – The use of resources within the firm to provide products or services

•

Outsourcing – The use of supply chain partners to provide products or services

Sourcing decisions are high level, often strategic decisions that address: •

What will use resources within the firm

•

What will be provided by supply chain partners

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The sourcing decision

Insourcing Advantages

• • •

Disadvantages

•

High degree of control Ability to oversee the entire program Economies of scale and/ or scope Require strategic flexibility Require high investment Loss of access to superior products and services offered by potential suppliers

Outsourcing • • • •

High strategic flexibility Low investment risk Improved cash flow Access to state-of-the-art products and services

•

Possibility of choosing a bad supplier • • Loss of control over • the process and core technologies • Communication and coordination challenges • ‘Hollowing out’ of the corporation Factors affecting the decision to insource or outsource Environmental uncertainty Low High Competition in the supplier market Low High Ability to monitor supplier performance Low High Relationship of product/service to buying firm’s core High Low competencies

6.3 Sourcing in apparel industry 6.3.1 Introduction For garment, export house fabric and trims are the raw materials which need to be outsourced. Sourcing is basically determining the most cost-efficient vendor of materials, production, or finished goods at the specified quality and service level. It is closely associated and an important part of apparel merchandiser’s responsibility. Materials basically include piece goods that will be cut and converted into the garments. Not only does the fabric have to be appropriate and suited to the garment design and end use but it must also be made available at the precise time when it is needed. Thus, lead times play an important role in the sourcing and placing orders for the materials required for the production. Lead times required from a supplier can vary

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from as little as 2 weeks to as much as 9 months. Trims are all the materials other than the piece goods that are required to make up a garment. Findings require the same careful planning as the piece goods. As soon as the fabric is in the stores, then only the sourcing of the threads start because the colour of the thread must match the buyer’s requirements. The ordering of the threads must be complete by the time fabric is cut ready to be feed to the sewing lines.

6.3.2 Raw material sourcing • Fabric sourcing •

Trims sourcing

•

Packaging material sourcing

Sourcing department along with apparel merchandiser plays the vital role to execute and shipment of export order successfully. Merchandiser must make sure that all approvals related to fabric and trims should be coordinated with the sourcing department in given timeframe. Fabric sourcing department is basically engaged in determining how and where its merchandise, that is, the fabric will be obtained within the scheduled time and cost. A sourcing manager must have knowledge about all varieties of fabrics and trims in order to execute their functions effectively. The different parameters in sourcing, that is, lead time, the process of fabric and trim approvals, cost of logistics and incoterms need to keep in mind while deciding the sourcing tactics for particular export order. These strategies are used for procurement of fabric by the export houses; the most popularly used method is either local manufactured fabric which is used to meet the demand. If the cost of manufacturing is higher or adequate infrastructure is not available then off-shoring or global manufacturing is the popular practices for fabric procurement. For garment export house, it is very important to decide the tactics of sourcing very carefully. Merchandiser along with fabric sourcing department plays key role in deciding these tactics. As the export order processing is the responsibility of production merchandiser, merchandiser is well aware of buyer’s requirements regarding fabric and lead time of the whole process.

6.3.3

Types of fabric sourcing

Types of fabric sourcing Description Local manufacturer Fabric is manufactured locally, with local infrastructure Traditional export Local fabric is exported to garment manufacturing countries

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199

Types of fabric sourcing Description International sourcing Fabric is made locally, but raw, that is, yarn or fibre is sourced from other country Global sourcing Fabrics are made with parts sourced from abroad as part of global sourcing strategy Off-shoring Raw material is exported first, that is, yarn or fibre, then fabric is reimported to meet the demand Global manufacturing Fabric is manufactured in other country

6.3.4 Role of production merchandiser in sourcing The sourcing and merchandising have the same goal to meet, that is, to get right fabric/trims at the right place on right time and with the right price. As merchandiser is key person in whole order processing hence sourcing is the integral part of merchandising activities. The role of merchandiser in sourcing can be described as •

In small export, house merchandiser bares the responsibility of sourcing.

•

In large export houses, sourcing team coordinates merchandiser to source the fabric and trims.

•

Merchandiser is responsible for calculating fabric and trim consumption per garment and coordinate it with sourcing department.

•

The approvals related to fabric, that is, lab-dips, desk-loom, printstrike-off, dye-lot, thread run, need to get from buyer within the time frame.

•

The artwork, trim card need to get approved from the buyer which is the responsibility of merchandiser.

•

To maintain the proper buffer in time and action calendar is the responsibility of merchandiser.

6.3.4.1 The process of fabric/trims sourcing The process of fabric sourcing is very dynamic, it changes with the fabric type, cost quoted by fabric supplier, lead time and buyers requirement. The typical process of fabric sourcing in an export house can be described as: 6.3.4.2 The material and information flow The material and information flow in sourcing is from buyer either to buying house or garment manufacturer. And buying house or garment manufacturer

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passes this information to the fabric and trim supplier. According to information fabric and trim supplier supplies the material to garment manufacturer. Sometimes the buyer has nominated supplier for fabrics and trims; hence, buyer shares all the information to fabric and trims supplier directly and ask merchandiser to source the fabric and trims as per requirement of order. In this case, the all-risk related to fabric and trims, that is, delay, variation, quality checks is transfer to fabric and trim supplier and solely bare by the buyer.

6.4

Factors affecting sourcing of fabric and trims

6.4.1 Lead time ‘Lead time or throughput time’ – which is the time taken to place order for goods, and finally receive it – is very important to meet production deadlines. Retailers always want ‘fast replenishment’ of ‘hot items’. This, in other words, means – retailers want ‘quick response’. The apparel firms, which can provide fast and dependable delivery of products, have the opportunity to establish lasting relationships with its retail customers (Fig. 6.4). Fabric and trim sourcing is very time-consuming process which includes desk loom and lab-dip approvals, trim and artwork approval, Fabric Package Test (FPT) approval. The fabric sourcing itself will take lead time of 30–60 days depending upon the type of fabric for yarn dyed fabric it takes approximately 45 day, for piece-dyed fabric it takes approximately 30 days and for fibre-dyed fabric it takes approximately 55–60 working days. Merchandiser needs to decide the supplier of the fabric supplier on the basis of the type of fabric and time remains in hand

Figure 6.4

Factors affecting sourcing of fabric and trims

201

Sourcing

to complete the export order. If fabric sourced from other country, then the time required for transportation needs to keep in mind. Trim sourcing is another important factor that needs to take care. For trims generally, it takes 30 days to get in-house. That also depends upon the type of trims and from where trims are getting procured. Approximate lead time requirement for domestic and overseas sourcing Article Fabric (solid dyed) Fabric (y/d dyed) Fabric (fibre dyed) Buttons Zipper Thread Label Polybag Cartons

Domestic sourcing 30 days 45–60 days 75–90 days 10–15 days 7–10 days 7–15 days 7–15 days 7–10 days 7–10 days

Overseas sourcing 45 days 55–70 days 90–120 days 20–25 days 10–15 days – 20–25 days – –

These lead time depends upon the quantity and considering the ideal condition. In an emergency case, the supplier can also supply the fabric is less duration.

6.4.2 Production capacity and other infrastructure Make decisions can be taken, only if the industry has excess capacity to produce. When sourcing production, manufacturers tend to keep long runs in their own plants and contract out short runs or styles that disrupt continuity of production. Products that require special or additional equipment and machinery, are sourced from outside. Availability and reliability of electric power, material suppliers, are also to be taken into consideration. 6.4.3 Quality parameters The demand for high-quality low-cost fabric/trims coupled with the need to reduce costs to increase operating profits is driving more companies to outsource manufacturing overseas. Though sourcing is an effective way to do business sometimes fabric and trims supplier cannot meet the quality parameters, which will lead to trouble for apparel merchandiser to execute the export order.

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6.4.3.1 Ordering specifications Garment exporter must give specifications to the supplier to get the accurate raw material. The ordering specifications are as Raw material Fabric

Buttons

Zippers

Thread

Ordering specification • Fabric design (desk-loom) • Fabric swatch (if provided by buyer) • Lab-dip/colour standard • GSM (gauge in case of knitted) • Yarn count • Cuttable fabric width • EPI/PPI • Fabric finish • Requirements of dyes and finishing chemicals • Unit of measurement, that is, meter/yard for woven and KG for knitted • Order quantity • Shrinkage tolerance • Fastness properties • Raw material, that is, wood, nylon and so forth. • Colour (sample provided by buyer) • Unit of measurement, that is, linge • Order quantity • Quality parameters • Button strength • Colour fastness • Order quantity • Raw material, that is, metal, nylon • Colour • Length • Type of puller • Zipper finish • Fastness properties • Zipper strength requirements • Colour, that is, thread run • Thread specifications, that is, 2-ply, 3-ply • Fibre type, that is, filament yarn, or staple yarn • Thread ticket no. (thread count) • No. of cones

Sourcing

Raw material

Label

Polybag

Cartons

Interlining

203

Ordering specification • Meter of thread content on cone, that is, 1000, 5000 m • Finish • Thread construction • Fastness properties • Strength • Heat sensitivity • Type of label, that is, printed, jacquard • Design specification of label • Size specification of label • Colour combination • Font type • Font size • Line spacing • Care Instructions type • Fastness properties • Dimensions of the label • Polybag Thickness • Raw material specification, that is, polyethylene. Polypropylene and so forth • Colour • Dimensions • Specification of print on polybag • Type of closure • Type of dents • No of plies, that is, 3, 7 • Raw material • Dimensions • GSM of the paper • Print specification of cartons • Type of carton • Dimension tolerance • Bursting strength • Fibre content • Construction specification, that is, woven/non-woven • GSM • Colour • Fastness properties • Fusible/non-fusible • Shrinkage

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The ability of sourcing partners to produce quality fabric and trims consistently depends on a number of factors. One of the main factors is the skill of the workforce and their worker’s flexibility to work to produce wide range of fabrics and trims. The technology up – gradation of the sourcing partners. Another important factor is the accuracy of written communications and instructions received from the garment manufacturer/apparel merchandiser.

6.4.4 Quality level, skill of operator Quality standards are often factors in sourcing decisions. Selection of sources that provide goods that match the quality standards desired is an important part of sourcing. Types of equipment, skills of operators and quality control tend to be geared to a particular quality level. Selecting a source that normally produces goods at the quality and cost level desired is more expedient than attempting to change the plant’s mode of operation. The skill of the operator in our plant is also one of the deciding factors for make or buys decision. If the product requires more skilled labourers which we do not possess, then a buy decision can be made. 6.4.5 Sourcing costs Costs – Here, the cost estimate for making the product (based on the cost of manufacture, cost of additional equipment needed) is worked out. This is compared with the price from prospective supplier or contractor. Based on which one will be economical, make or buy decision is made. The sourcing decisions are taken mainly on the basis of cost manufacturing. But nowadays garment exporters makes strategic bonding with fabric and trims vendors. The buyers also make bonding with fabric and trim vendors, these are called the nominated vendor. The sourcing cost depends upon the following factors •

Labour wages

•

Manufacturing cost

•

Cost of logistics/transportation

•

Incoterm negotiated (for international sourcing)

When comparing the costs of manufacturing a fabric and trims offshore or domestically, manufacturers must include all the hidden costs of added processes and steps that go hand in hand with offshore production. The cost of sourcing is optimized when fabric and garment manufacturing units are under one roof or closer to each other. The freight charges are increased when there is delay in manufacturing and material need to send with air freight.

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205

6.4.6 Minimum order quantity This is the important factor that affects the sourcing. For sourcing of fabric and trims, there is always a minimum order quantity (MOQ) for which directly affects the cost. Every supplier requires a certain MOQ to produce the fabric and trim economically; otherwise, the cost of running the production is higher if production is below MOQ. If garment exporter places the order of raw material below MOQ then generally cost will be more for that. Hence, throughout the supply chain MOQ is maintained in order to achieve the appropriate cost of production. 6.4.7 Types of supplier In the garment industry, suppliers are appointed by the export house or by the buyer, for the production of fabric and trims. As there are limitations of manufacturing of fabric and trims for garment export houses, though some export houses have in-house fabric production, it has become increasingly common in the garment industry to source the fabric and trims from others rather than employing a large production capacity themselves. The main advantage of sourcing the fabric and trim is the transfer of risk and enables the garment exporter to concentrate on only garment production. However, another concern has been expressed about the prevalence of supplier because of a perception that the exporter has less control over the skills and training of supplier’s employees and so there may be a negative impact on quality and health and safety on site. There are two types of suppliers namely •

Nominated supplier

•

Non-nominated supplier

For both type of supplier lead time generally remains same irrespective of MOQ, order quantity and quality parameters of the raw material. Transit lead time will change with the location of the supplier, that is, domestic and overseas supplier. 6.4.7.1 Nominated supplier Nominating the supplier is a common practice in the garment industry, a procedure that was initiated by buyers to achieve better control over their supply chain, is now a very common practice followed in the garment export industry and has many aspects to it. These days a buyer nominates suppliers mainly for products such as accessories, fabrics, packaging material and logistics to gain better control over their supply chain, get consistent quality and on-time deliveries. The most important factor is the standardization of the product as, by nominating suppliers, buyers intended to get raw materials

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which are having consistent quality and with no defects or flaws. The second important reason for nomination is on time deliveries as buyers were getting delayed orders and most of the times agents/manufacturers blamed suppliers of trims, accessories or fabrics for the delays. Advantages of nominated supplier: •

Time-saving for garment manufacturer because they only have to deal with one company to provide basic raw material.

•

Quality assurance of the raw materials is consistent and taken care by buyer

•

Nominated supplier can be involved in product development since they are already having good experience in this field.

•

Along with these advantages, there are certain disadvantages for the nomination of suppliers.

•

Nominated suppliers may become overconfident about their product quality.

•

There may be a monopoly of supplier in the market.

•

Nomination may lead to unethical practices such as corruption by agents and traders.

•

Loss of price competitiveness as suppliers sometimes overcharge.

6.4.7.2 Non-nominated supplier Non-nominated suppliers are the garment manufactures source of raw material. Sometimes buyers provide the specification of the raw materials and ask garment manufacturer to source the same their own suppliers. The non-nominated supplier has their own advantages and disadvantages. •

As they have the challenge to sustain in business, hence non-nominated supplier try their best to follow the instructions given by buyer or garment manufacturer.

•

The cost is competitive to market, which makes them advantageous.

•

Garment exporter may get chance to explore with the innovative products offer by non-nominated supplier.

The disadvantages of these suppliers are •

There may be f laws in the quality of the raw material due to communication gap between buyer and supplier.

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207

•

To get involved these suppliers in product development process is difficult task.

•

It will be difficult for buyer to control the social compliance and ethical business practice norms on these suppliers effectively.

6.4.8 Logistics Logistics is one of the main factors which affect the fabric sourcing drastically. There are several aspects those are (1) time required for transportation (2) infrastructure for logistics (3) cost of logistics. Merchandiser needs to keep in mind these factors while placing the order for fabric or trims. The time required for transportation is very important to achieve the accurate lead time of fabric/trims procurement. The absence of adequate infrastructure will lead to delay in fabric procurement. Cost of logistics will directly affect the cost of the garment; hence, merchandiser should be well aware about these aspects of logistics and then place the order for fabric and trims. 6.4.9 Delivery and payment terms Suppliers, who are flexible in payment terms, and who are willing to supply goods on credit will be much sought after. Moreover, the suppliers, who keep up their promise of delivery schedules, are the ones who would be preferred. Other factors such as guarantee and warranty, compensation for defectives and late delivery are also to be considered.

References 1.

Stone, E and Jean A (1985) Samples – Fashion merchandising. McGraw Hill Book Company. ISBN: 0-07-061742-2.

2.

Shivaramu, S (1996) Export marketing – A practical guide to exporters. Wheeler Publishing. ISBN: 81–7544–166–6.

3.

Jarnow, J A, Guerreiro, M and Judelle, B (1987) Inside the fashion business. Macmillan Publishing Company, New York.

7 Garment costing

Abstract: The chapter 7 discuss the concepts of garment costing with industry examples. The step by step process of garment costing components such as fabric cost, CMT cost, Trims and accessories cost and shipment cost with industry relevant examples are described in this chapter. Preparation of pre cost sheet for men’s, woman’s and children’s wear for woven and knitted fabrics are explained in this chapter. Key Words: garment costing, cutting, making, trim, packing cost, shipment cost.

7.1

Introduction to garment costing

The garment costing is also known as the bill of materials, the garment costing details the costs of every item attributable to the production of a particular garment. The sum of these costs plus the profit margin is the selling price, which the company will quote to customers.1 Whilst each company has its own method of preparing to cost, generally the components of a costing are grouped under four headings: direct materials, direct labour, factory overhead and general overhead.

7.1.1 Elements of costing Elements of costing are direct material, direct labour and direct expenses (Fig. 7.1) 7.1.1.1 Direct materials Direct materials are all the materials and trimmings which go into the construction and fi nish of the garment. Typically, these materials would include cloth, lining, fusible, buttons, zips, pads, tapes, labels, hangers and packaging materials and so forth. 7.1.1.2 Direct labour This covers the cost of all the labour directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations,

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Figure 7.1

Cost elements

pressing, finishing, inspection and packing. Labour of all types and grades has a direct overhead, which includes holiday pay, sick pay, fringe benefits and so forth, and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labour costs.2 7.1.1.3

Factory overhead

There are different methods of calculating the factory overhead, but most of them use a combination of the following three elements: 1.

Indirect labour: This covers every person in the factory who does not directly perform a production operation, such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff security and cleaners and so forth.

2.

Expenses: Included in this element is every fixed and variable expense incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory.

3.

Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the make-up of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk and pins.

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The total of these three elements is the factory overhead and because it cannot be conveniently applied to specific cost units, it is generally expressed as a percentage of the direct labour costs. For example, if the costs for a given period are: Direct labour

Rs. 28 000 (including direct overhead)

Factory overhead

Rs. 33 600

The factory overhead is 120% of the cost of direct labour. From this, it is simple to calculate the cost of 1-min work for every production operator: Labour rate/h

Rs. 6.00

Factory overhead at 120%

Rs. 7.20

Total cost

Rs. 13.20

Cost/min

Rs. 0.22

Therefore, the price of an operation is the rate/min multiplied by the time allowed for the operation. 7.1.1.4

General overhead

The general overhead comprises of all the labour costs and expenses which are incurred in running the company, such as management, marketing, finance, insurance, warehousing, rent and utilities. The design department costs are usually allocated to this component. Again, because of the practical difficulties of apportioning this component to specific cost units, it is expressed as a percentage of the total for direct labour factory overhead and direct materials, as in this example, where all the costs are for the same period: Direct materials

Rs. 84 000

Direct labour

Rs. 28 000

Factory overheads at 120% Rs. 33 600 Total

Rs. 145 600

General overhead

Rs. 65 520

Therefore, conveniently, the general overhead is 45% of all the other costs. Therefore, the framework of garment costing would be the sum total of these four components. An example of a garment costing is shown in Table 7.1 for demonstration purposes only. Whilst the method of computation, detail, terminology and format can vary from company to company, the primary objectives of the costing are always the same: how much does the garment cost to produce.1

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Table 7.1 Style number 6114 Season Winter Item Cloth Lining Fusible Buttons Pads Threads Brand label Size label Care label Ticket Hanger Packing Production Cutting Fusing Sewing Specials Under pressing Top pressing Finishing Inspection Packing Total

Garment costing sheet

Garment costing Comp. number Market HC 2ϕ 664 Home/export Phase Size range 2 36–42

Description Straight cost Factory Wiggan

Description 100% wool – 4608 Satin – 856 W311 – A 1/42 – Size 40 Regular – 16 Regular Gerlin – 4

Supplier North Mills Lintex Fusmat Fladour Asleh Stock Stock

Quantity 2.60

Price 9.40

Unit cost 24.44

2.40 0.90 6 Pair 1

3.80 1.90 0.20 0.65 0.80 0.16

9.12 2.61 1.20 0.65 0.80 0.16

Gerlin – A T6 Coat bag – 8

Stock Stock Hangetti Plast pac

1 1 1 1

0.12 0.15 0.35 0.20

0.12 0.15 0.35 0.20

Min 6 2 55 6 6 11 4 4 2 96

Price 0.20 0.15 0.17 0.17 0.15 0.18 0.15 0.17 0.15 Total

Cost 1.20 0.30 9.35 1.02 0.50 1.98 0.60 0.68 0.30 16.33

Materials Production Gen overhead Total cost Commission Total Selling price Prepared by Date Approved by Date

39.80 16.33 22.45 78.58 11.78 4.75 95.11 XXXX 18/5 YYYY 20/5

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7.2

Steps involved in costing of garments

7.2.1 Composition of cost of the garment In continuation of the other functions, a production merchandiser is also required to do the costing of the product. The costing is done by keeping in mind the cost of the various raw materials, the operating cost of the company, the competition and expected profit of the organization. At the same time, it is necessary to keep in mind the buyers costing expectations. The cost of a garment depends on these components: fabric, trims, cut make and trim charges, value-added services: printing, embroidery, washing, appliqué, testing of the garment, quality, transportation and logistics cost, profit of the manufacturing organization. All these components of garment cost depend upon certain parameters which drastically affects the above cost parameters. These parameters play a vital role when the production merchandiser does the costing of the garment; as these parameters are very dynamic and keep fluctuating frequently. Cost of the garment is the total of material cost/garment, cut, make, trim charges, trim accessories charges, shipment charges gives the total cost of the garment. If we add profit margin and commission percentage on the total cost we get selling price. Total cost/garment

= Fabric cost/garment + Cutting, Making and Trimming (CMT)/garment + Trims or accessories/garment + Shipment charge

Selling price/garment = Total cost/garment + profit %

7.2.2 Fabric cost The fabric is generally the most significant factor in cost of the garment. Fabric accounts for 60–70% of the total cost of basic-styled garments. In many cases, evaluating the quality and the quantity of fabric consumed in the garment indicates better than any other factor, the cost of producing it. The cost of fabric depends upon the type of fabric that is going to be utilized

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in the garment. The types of fabrics are woven/knitted fabric, power loom/ automatic loom fabric, fibre/yarn/fabric dyed fabric, fibre content of fabric, such as cotton, wool, polyester, silk, blended fabric and so forth, type of dyeing and finish used, gram/square meter (GSM)/weight of fabric, type of yarn used, such as ring spun, open-ended, or carded/combed and so forth.

7.2.3 Calculating the cost of fabric The cost of fabric can be calculated in the following way: Yarn cost + fabric manufacturing cost (knitting or woven) + dyeing cost + finishing cost = total fabric manufacturing cost. Dyeing cost indicates that if the fabric is yarn-dyed or fibre dyed or piece dyed, the respective cost will be added depending upon the fabric type. The finishing cost includes heat setting cost, normal finishing, compacting (knitted fabric) and so forth. 7.2.4 Fabric consumption Cost calculation of fabric in a garment considering the knitted fabric and t-shirt as an end product, then fabric consumption can be calculated as:

Fabric consumption in kg =

(Body length + Sleeve length + allowance) × (Chest + allowance) × 2 × GSM 10 000

Fabric consumption for woven fabric and for woven fabric and shirt as an end product, then the fabric consumption can be calculated as:

Fabric consumption in meters =

(Full length + Sleeve length + allowance) × (Chest + allowance) × 2 × Fabric width 39.37

These methods are used to calculate the fabric consumption roughly at the sampling stage by merchandiser. These formulas will give approximate calculation for precosting stage of the garment. Sometimes fabric consumption is also done by forming the miniature marker by the Computer Aided Design (CAD) department. These are the constraints of fabric consumption: Fabric cuttable width, repeat size, pattern type to be informed to the CAD along with buyer tech-pack in order to calculate exact width and consumption. The marker efficiency considered 80–85% depending upon the fabric type, that is, solid dyed, stripe, checks fabric. Efficiency can be changed depending upon the fabric parameters, matching parameters of the buyer and type of style. The buffer in the consumption should be added to the fabric by merchandiser, generally it is 0.03–0.08% of total fabric consumption. In case of trim fabric, that is, interlining the 10–20% more buffers is kept while ordering the interlining, in

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Table 7.2 Sr. no. 1 2 3 4 5 6

Different fabric cost

Item

Quality

Sheeting Poplin Y/O checks stripes Sees sucker Y/O Checks/design

20 × 20s – Solid dyed – 56 × 52 40 × 40s – Solid dyed – 92 × 48 2/40 × 20s – 56 × 52 2/603 × 303 – 66 × 60 2/803 × 2/803 – 72 × 72 Printed – 403 × 403 56 × 60 3/1 Twill – 203 × 203 Grey 14 Wales 6.5 Oyes Poly/viscose Viscose

7

Drill

8 9 10 11

Corduroy Denim Georgette poly Mass crape

Approximate price in Rs. 40 80 40 50 80 60 50 100 80 70 70

order to maintain the inventory and to avoid the shortage during the production and fabric wastage percentages, to be added also, while calculating the fabric consumption. Considerable wastage depends on factory practices, type of fabric and type of garment. The fabric cost for various fabrics are shown in Table 7.2.

7.3 CMT (cost of making) cost CMT calculation is the cost of cutting making and trimming charges. This is the calculation of charges or the calculation of cost incurred during the production of the garment from the fabric. The fabric after all the process is brought in the factory for the production of the garments. The amount of money spent on the machineries labour and expenses for converting the fabric into the garment is CMT charge. Sometimes, the fabric required for producing the garment, the trimmings required for the garment and the other requirements for producing the garment are given by the person who places the orders to the person who makes garment. The person who makes the garment charge for cutting the fabric, for assembling the garment, for fixing the trim and for checking the garment.

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The CMT charges include the cost of cutting, that is, the cost of cutting the fabric into cut components as required for the garment, the cost of joining the components into the garment machinery, labour and extra materials thread, and the charges for checking and trimming. Cutting, making and trimming charges which include labour charge, factory overhead and general overhead expenses. CMT = Labour charge + Overhead expenses

7.3.1 Cutting charges The objective of cutting is to separate fabric as components, as the replica of the pattern pieces. Numerous attempts have been made over through the year to develop methods of cutting cloth other than by means of some kind of metal blades. But in the majority of cutting rooms today, the cutting process makes use of hand shears, a mechanized knife blade in one of the several possible types or as a die press. Different cutting systems currently used are: •

Hand shears

•

Straight knifes

•

Round knife

•

Bank knife

•

Computer control cutting tables

•

Laser cutting machines

Cost of cutting varies according to the selection of the cutting system. The total cost of cutting is from the spreading of the fabric, cutting the fabric as the garment components using any one of the machines given above, depreciation of the machines, labour charges and so forth. Normally, labour charges are more for garments that are cut using hand shears than compared to the machine cutting. The charge for cutting the fabric varies in relation to the thickness of the fabric, number of components to cut for one garment and so forth. For example, an order of 1000 pcs of T-shirt Cutting of 300 pcs is possible per day by hand shears. With two labour who charge about 100 Rs./day. Labour cost/day will be Rs. 200. For 1000 pcs labour charges are Rs. 600. and then for 1 pc, it will be 60 paise. To

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which other charges are added that will be normally very less for cutting of garments by hand. Calculation of cutting cost The cost of cutting done ‘in-house’ is based on the total cost/h multiplied by the number of hours it takes to cut the style and divided by the number of units cut. If the cutting is done by a contractor, the contractor adds his profit on to this amount. Cost of cutting =

Total cost/h × no. of hit takes to cut the style × no. of labours Total no. of units cut

Total cost/h means (Direct labour cost + Factory overhead) Direct labour cost means labour rate/h. Factory overhead means 120% of direct labour cost. For example, Labour rate/h – Rs. 6.00 Factory overhead @120% – Rs. 7.20 Total cost/h – Rs. 13.20 Total cost/min – Rs. 0.22 An order quantity of 900 pcs has to be cut and the production capacity of cutting is 300 pcs/day of 8 h shift. Calculate the cutting charges. Number of labours is two. Apply above formula Total cost/h – 13.20 Rs. No. of h it takes to cut the style =

900 300

= 3 days

8h shift/day i.e. 3 × 8 – 48 h Total no. of units to be cut – 900 pcs –13.20 × 48 × 2 cost of cutting = Rs. 1.40 900 OR Cost of cutting-SAM × Total cost/min or SAH × Total cost/h SAM – Standard allowed minutes – time taken in minutes to cut one garment.

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SAH – Standard allowed hours –time taken in hours to cut one garment. Ex. SAM –7 min, that is, SAH – 0.1167 h Cost of cutting – 7 × 0.22 – Rs. 1.54 Or 0.1167 × 13.20 – Rs. 1.54

7.3.2 Making charges The dominant process in the garment assembly is sewing still the best way of achieving strength and flexibility in the seam itself as well as the flexibility of manufacturing method. Much of the applications of technology to clothing manufacture are concerned with the achievements of satisfactory sewn seams. The objectives of sewing are the construction of seams, which combine the required standards of appearance and performance with an appropriate level of economy in production. The question of economy of seaming in production arises because many seams can be constructed in a variety of ways. Many of the newer machines stitch types enables shortcut to be taken in the joining of the seams but the appearance and the performance vary with the different methods. A balance must be achieved when planning garment production between the demands of the end use garment, its price and the machinery availability for the construction. Assuming that the fabric is sewable and suitable for garments, the achievement of various requirements of appearance and performance of sewn seams, both initially and during use; selection of correct seam types, correct sewing machines, needles and threads determines the cost of stitching. Consumption of the fabric for the seams, consumption of the thread for construction of the seams, the complexness of the seams, and the machine used for the construction determines the cost of stitching, that is, making. For example, the consumption of sewing thread in sewing one cm of fabric by using lock stitch is 2.5 cm, whereas the consumption of sewing thread in sewing one cm of fabric by using four thread overlock is 20 cm. The example of garment cost is given by assuming the following dimensions for polo neck T-shirt, number of pieces = 4000, salary of the operator = Rs. 10 000/month, number of working days = 26, sewing SAM = 25 min. CMT charges are calculated as: Total available capacity/month (in minute) = 26 working days × 8 h/day × 60 = 12 480 min.

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Labour cost/min Labour cost/min = (Monthly salary of an operators/Total minutes available in the month) at 100% efficiency = 10 000/12 480 = Rs. 0.801 Sewing cost Sewing cost = (SAM of the garment × Minute cost of the labour) = 25 * 0.801 = Rs. 20/-

7.3.2 Trimming charges The charges for trimming the threads and the cost for checking the garment for good quality come under the charges of trimming. The charges depend upon the number of labours used for checking the garment and the quantity of the garment produced. The total number of items available for the use of the garment in addition to the main fabric is extremely large. The other items used are called trims or components. Depending on the functional properties, material from which trims are the method by which they are fixed as the part of the garment, that is, the trim is attached to or applied to the garment, the performance properties which they have decides the cost of the trims. Mainly the buttons, zippers and hooks are used in all the garments and cost of the trims as mentioned above varies according to the number and the type used. Apart from these fasteners, the other trims are labels, laces and so forth. Under the calculation of CMT charges, the rates of the trims are normally not included as the person who places the order, buys the necessary trimming and give it the CMT worker who’s job is just to fix trimming as required by the person who places the order. Thus trimming charges varies according to the quantity to be produced and the labour charges. Cost of Trimming This also done as above for cutting and making. Problem 1: A factory spent Rs. 1 00 000 for labour and other expenses to produce men’s full sleeve shirt for a month of 25 days excluding the Sundays.

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Calculate the CMT charges if the production of the shirt with an average of 200 pcs/day. Total amount spent (Labour + Expenses)/day CMT Charges = No. of units produced/day Production per day = 200 pieces Amount Spent = 1 Lakh/25 days (Labour + Expenses) 100000 = Rs. 4000/day Amount Spent per day = 25 4000 CMT = 200 = Rs. 20/Problem 2: What is the CMT cost of the garment priced Rs. 100? Profit margin is 10% and other cost accounting is 80%. Selling price of the garment = Rs. 100 Profit margin = 10% Other cost = 80% Selling price = Total cost + Profit Total cost = Selling price – Profit 10   = 100  100 × 100  

= 100 – 10 Total cost = Rs. 90 CMT charges = Total cost – Other cost Other cost accounting 80% of Price of the garment 80 Other cost = 100 × = Rs. 80 100 CMT cost = Rs. 90 – 80 = Rs. 10. Table 7.3 shows the fabric consumption and CMT charges for various styles and for two different width of fabrics namely 44 and 58 in, respectively.

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Table 7.3 Sr. no. 1 2 3 4 5 6

7 8 9 10

7.4

Fabric consumption and CMT charges

Style Full sleeve shirt Half sleeve shirt Shorts Trousers Ladies PJ (top and bottom) Kids wear trouser Sleeveless top Blouse Mens T-shirt knitted Kids T-shirt (children, boys, girls) Woven men’s jackets Cargo pants

Width 44" 2.30 m 2.00 m 1.00 m 1.50 m 3.25 m 0.70 m 0.80 m 0.60 m 450 g 150 g 3.00 m 2.00 m

Width 58" (m) 1.90 1.65 0.75 1.20 – 0.50 0.60 0.40

– –

CMT (in Rs.) 40 30 25 50 70 25 20 25 10–20 5–10 80 60

Trims and accessories cost

Trims include all materials other than fabric used in the garment. For example, most garments have accessories such as threads, buttons, zippers, labels, elastics and miscellaneous items (Fig. 7.2). Quality and quantity of trim and labour required to apply it on the garment are directly related to the cost of garment.3

7.4.1 Labels There are different types of labels. 1.

Main label or brand label

2.

Size label

3.

Wash care label

4.

Small label or logo label

These labels are sewn into the garments and the type of label and its cost are closely related to the type of garment and the level of the market in which it is selling. All the style in these retail stores has been developed and sourced by their own product development teams.

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Figure 7.2 Trims 7.4.1.1

Main label: (brand label)

Generally denotes the name of the buyer or a brand label approved by them (Fig. 7.3). Gap

(Ordinary, banana republic)

Limited

(Structure, Express)

Intimate

(Victoria Secret)

7.4.1.2

Care label

Denotes the washing instructions a customer has to follow while washing the garment. Generally wash care label also provides information as to at what temperature garment fibre content may be mentioned in different languages. For example,

100% cotton 100% coton 100% cotone

The garment consists of

80% cotton 15% polyester 5% lycra

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Figure 7.3

Brand labels

It should be mentioned in descending order as mentioned above. These instructions are not only to protect the consumer but also to protect the manufacturer against return made by consumers who do not care for their garment as instructed (Fig. 7.4). 7.4.1.3

Size label

The size label indicates the size of the garment which is made up of woven label or taffeta label. The size of the label will be 8–12 mm approximately.

Figure 7.4 Wash care label

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The size number or letter is woven on the woven label with colours or printed on the white taffeta paper in black colours (Fig. 7.5). The main purpose of putting the size label on the garment at the neck line is to identify easily by the customer and other people such as stores, production unit and so forth for accountability. Figure 7.6 shows different types of attaching size labels to the garment. It should be visible and should not be hidden. Figure 7.7 shows different types of sewing of the size labels (i.e.) stitched on both sides and folded and stitched on the top while closing the seams. The cost of the size label will be 50 to Rs. 1 approximately and depends upon the size and material used. 7.4.1.4

Labels particulars

Dealers in polyester woven and satin woven have monopoly in the Bangalore market supplying satin and taffeta labels. In India, we have more than 10–15 best suppliers taffeta and satin woven labels. Time taken is 30 days. For satin, width is 3’’ only.

Figure 7.5

Figure 7.6

Figure 7.7

Size label

Size label positioning

Size label stitching methods

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Polyester/taffeta woven: Basically, 1 + 4 colours can be woven. Wash care labels are nearly done on polyester for 25 days, width is 5" only. Cost of per sq. inch is 2–0.25 paise. ½" label is around 0.18 paise. The name taffeta woven has good finish. These are computerized and there won’t be wrinkles at the end. For example, 1" × 2 ½" = 1 × 2.5 × 0.16 = 400 = 0.40 paise Cotton woven labels: It is developed in 7 days. Sample labels can be done in 8 days. This is very cheap and the best. About 1200 people work in this line in and around Karnataka. 1 + 4 colours can be done. Cost/square inch works out around 0.05–0.07 paise. Suppliers are Sri Gayatri Labels, KGM Enterprises, Bangalore Labels and many more. Printed labels: 1 + 3 colours can be developed, any screen printer can do these labels. PVC inks are to be used. The quality of inks should be good, otherwise when the garment goes for washing the colours of the label spoil the garment. Therefore, care has to be taken for PVC inks while giving for printing labels. First best is 65 mm, 2nd best 85 mm. The width of the tape is 5". The cost of artwork is around Rs. 75–200/- and it takes 4 days. It can be done in 3 h, with imported machinery. Rate/sq. inch is 0.05–0.07 paise and for ½" labels cost is 0.03 paise. 7.4.1.5

Label placement

Figure 7.8 shows the label placements in garments for tops and bottoms. The positioning of the brand label, size label, care label and logo label are sewn as shown below.

7.4.2 Buttons Buttons were invented in the late 13th century. Buttons became a fashion in the 14th century. Buttons are either shanked or holed. Buttons are made of bone, horn, hard fabric, wood, pearl, metal or plastic. Buttons are available in different sizes ranging from 14 ligne to 42 ligne. Ligne means the diameter of the button. The buttons are available in gross. One gross is equal to 144 buttons. 7.4.2.1

Types of buttons

Mother of pearl (MOP), nylon pearl, polyester pearl, perma pearl chalk button, L-9, 1–12, shell button, wooden buttons, oxidised button, brass button, horn buttons, aluminum buttons. These buttons are available in various sizes (Fig. 7.9).

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Figure 7.8

Label placements

The types of buttons available are MOP: Has a hollow and shines. Shell buttons are also called MOP. Some form of nylon and polyester are being imported from Thailand. Heat proofed buttons: There are 150 shades in this type and is done in Bangalore. Shade cards are available with the suppliers or given to the buyers with reference number for each shade/colour which helps the buyer to place order quoting the reference number.4 Wooden buttons: Are available in Chennapatna, except for heatproof buttons, all other type of buttons can be dyed to suit the fabric in any number of colours. Chalk buttons: White in colour, chalk buttons, nylon, pearl, polyester pearl the inner round can be found, that is, with ring or without the rind. For example, ring buttons are available in two or four holes. Buttons are available in Gross, that is, 1 packet = 1 Gross, 1 – Packet contains 144 buttons. The dealers are Bangalore Sales Corporation, Double Road, Padam Agencies & Multi sales Corporation, Avenue Road, Bangalore Button Centre, Kumbarpet; Sha Chha Ganraj Talajic & Son, Sakaljee Market, Kumbarpet rate vary frequently.

Figure 7.9 Types of buttons

Garment costing

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18L Nylon Pearl Rs. 15–18/gross 22L Nylon Rs. 26–31/gross 32L Nylon Rs. 140–160/gross Snap buttons: They are generally called as 7 × 7 snap buttons or 3 × 3 snap buttons depending on the diameter of the buttons. 7 × 7 falls in the category of 22L 3 × 3 falls in the category of 18L Snap buttons have four parts to form, one set or three parts to form one set types are oxidised snap buttons, brass snap buttons. Antique brass snap buttons; steel snap buttons, metal, aluminium snap buttons. Snaps are attached or fixed to the garment specially used in jacket or jeans with the help of the dye set machine. Snaps are available in Bombay and Delhi. Delhi market rates are cheaper than Bombay rates.

7.4.3 Elastic Elastic ranges from ¾" and 5 ½" in width. Found in white, grey or black colours. We have three types of elastics made of woven, nylon cotton 100% and polyester 100%. We have woven elastic and knitted elastic. Elastic woven shrinkage rate is 12–15% on cotton; 10% shrinkage on cotton and polyester mix and 6–7% on nylon. The quality of elastic is identified by the elastic, durability and shrinkage percentage. Generally, polyester or cotton elastic is preferred by garment importers (Fig. 7.10). Nylon is generally not used as width ranges from 4 to 60 mm (6 cm) in rolls each rolls and has 25 m. 7.4.3.1 Brands Spica stands best in Bombay. In Bangalore, we have Bonus Elastics at Thalagattapura with its own manufacturing unit. Next best in state trader’s elastics having durability with less shrinkage and good elasticity. Every dealer in Bangalore other than the manufacturer gives his own name to the elastics. The brand name is ST. SPICA – 35 mm Rs. 280 –220 m. Shrinkage 10–12% Figure 7.10

Elastic

BONUS – 35 mm Rs. 200–220/roll 25 m. Shrinkage 12%

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LICA – 35 mm Rs. 180–200/roll 25 m. Shrinkage 18–20% ST – 35 mm Rs. 200–220 roll 25 m. Shrinkage 12–14%

7.4.4 Zip The types of zips available are nylon, polyester or cotton. The types of zippers available are nylon zippers, Ladder type coil (LFC), Coil Filler Cord (CFC), aluminium zippers, brass zippers, metal zippers, antique zippers and so forth (LFC teeth can be seen, CFC – teeth closed). The length of the zip varies from 4" to any length but regular sizes available is 4–42". The length of the teeth are termed to be No. 3 or No. 5 denoting the mm, length of the teeth (Fig. 7.11). There are over 30–40 brands of zippers. Yoshida Kogyo Kabushikikaisha (YKK) slides zip stands 1st in quality and KKK stands next best. Coats India is also manufacturing zippers with imported Nylon tapes giving the slides mark as Madura Coats Limited (MCL). Zips can be also be dyed to match the colour of the fabric. If the zip is of good quality the dye should be uniformly distributed on the tape and running of slides should be smooth. If the quality is bad we find the slides getting rusted. Roughness in slider when it is made to run up and down or open and close, after dyeing the tape shrunk or twist itself. These are the symptoms of a poor quality zip.

7.4.5 Sewing threads Textile fibres are natural and manmade. Natural fibres are in staple form except silk which has to be spin to convert them into continuous length. Fibres used in thread manufacturing company are cotton. Polyester, silk, rayon, polyamides and polypropylenes. Threads are formed by twisting together two or more yarns and form a continuous length. Threads can be produced from natural fibres, manmade filaments/fibers or combination of these two. Table 7.4 shows particulars of major sewing thread brands spun polyester thread polyester softened (3 ply).

Figure 7.11

Zips

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Table 7.4

Sewing thread brands and price

Art. no. 8784

Tkt. no 80

Length (m) 5000

Vardhaman

B 044

80

5000

Modi

Tora and Challenge Threads T814 80 5000 White Black

Name Madura

Colours White Black White Black

Rate (Rs.) 100.90 114.20 102.95 116.50 102.65 116.50

Madura Coats International company (Coats India) manufacture 100% polyester thread in the brand name of Astra or Epic.

7.4.6 Lining/fusible Lining/interlining/fusible is used in garments for functional and consumer appeal. Approximately, 10–20% of lining materials are used in garments. The lining materials are made up of cotton, polyester, polyamide and so forth are widely available in the commercial markets (Fig. 7.12). Apart from considering price, the designer should always work with reputable suppliers who can supply practical proof of the specific properties of their linings. Table 7.5 shows the price and quality particulars of trims used in garments.

7.4.7 Packing accessories Packing is nothing but presentation part of the final finished garment and this is very essential to complete the merchandising process effectively. Good presentations of the finished garment attract the customers in the showrooms and add packing accessories used are value on that product. The various packing accessories are shown in Figure 7.13. 7.4.7.1

Polybags

Polybags are made up of low-density polyethene and polypropylene, that is, LDPE/LDPP as per the required thickness (100–300 GSM) with specified dimensions. The care instructions are printed on the back side of the polybag and the recycle logo and symbol called as green dot printed on the back side any corner.5 The cost of the polybag depends on the thickness, size, and the print content and is the type of polybag.

231

Figure 7.12

Lining

Garment costing

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Table 7.5

Cost of bought out components

Sr. no. Description 1 Main label Brand name 2 3

4 5

6 7 8

Quality 3 + 1 Colours Polyester Woven Size label 2 Colours White taffeta printed Wash care label 2 Colours satin woven 2 Colours printed white taffeta 3-Ply thread White Polyester thread Yellow Buttons 18L Nylon pearl 22L Nylon pearl 32L MOP Zippers 7" Nylon zippers 22" Nylon zippers Elastic 1" Knitted 2" Knitted Interlining Woven Non-woven fusible

Figure 7.13

Quantity Price One Rs. 0.80–1.25

One

10–50 paise

One One

40–80 paise 30–60 paise

5000 m 5000 m 1 Gross 1 Gross 1 Gross One One 1m 1m 1m 1m

Rs. 70 Rs. 80 Rs. 15–18 Rs. 26–31 Rs. 140–160 Rs. 4–8 Rs. 15–20 Rs. 1.50–2 Rs. 1.35–2.50 Rs. 6 Rs. 13

Packing accessories

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Garment costing

Figure 7.14

Polybags

Different types of polybags are (Fig. 7.14). 1.

Sealed polybag

2.

Unsealed polybag

3.

Hanger cut polybag and so forth.

7.4.7.2

Hangtags/size tags/price tickets

The hangtags made up of paper cardboard sheet of specified thickness and size with attractive colours printed with Brand name or Logs or Company name to attract and identify the customers easily (Fig. 7.15). The size tags also made up of paper cardboard with specific thickness and size which indicates the size of the garment such as S, M, L, XL or 38, 42, 44 and so forth with beautiful colours. 7.4.7.3

Price ticket

The price ticket made up of thick cardboard of specified size/thickness which consists of retail selling price of garment in dollars, euro, France and so forth (Fig. 7.14) as per the buyer requirement and consist of style number, barcodes, machine-readable, that can be scanned into computer systems which gives complete details of garment regarding style, manufacturer, price and so forth. 7.4.7.4

Hanger/size rings

Hangers are made up of plastic both in colours and whites. Different types of hangers are available in the market for different end users (Fig. 7.16).

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Figure 7.15

Hangtags/size tags/price tickets

Figure 7.16 1.

Ordinary hanger

2.

Clip hanger

3.

Serrated hanger

Hangers

Different size hangers are available from kids, women’s and men’s wear, that is, 3A–8A, S–XL and so forth. The hanger cost will be Rs. 2–5. 7.4.7.5

Size rings

Size rings are made up of plastic with different colours and the size is identified on the rings. The cost of the size rings ranges from 80 paise to Rs. 2 (Fig. 7.17).

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Garment costing

Figure 7.17

Size rings

7.4.7.6 Back support/tissue paper/inner collar card Back support is made up of thick cardboard sheet of white or brown colour of specified thickness (100–400GSM) and size. The main purpose of back support is to give support to the folded garment, which should withstand the handling, and to avoid the crushing and to maintain the shape of the garment while placed in the showroom in the racks (Fig. 7.18). Tissue paper is also used as support material for high weight garment. Ladies wear and kids wear are used instead of cardboard to avoid the stain on the folded part of the garment.

Figure 7.18

Back support/tissue paper/inner collar card

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The cost of the above depends upon the thickness, size and quality of the products. Cardboard – Rs. 2–3 and tissue paper 10–25 paise. 7.4.7.7

Clips, pins and butterfly

Clips and pins are used to hold the garment as per the shape of the folding. They are used at the shoulder, sleeves, cuffs, collar and so forth. Butterflies are used at the collar first button to increase the appearance of the collar. Clips are made up of glue or plastic and the butterfly is made up of plastic. The metallic pins are not used in packing. Only plastic pins are used (Fig. 7.19). The cost of butterflies is Rs. 1–3 and clips/pins Rs. 10/g. 7.4.7.8

Carton box

Since the consignment that is leaving from the port of departure to the place of destination of the carton should be up to the satisfaction of the customer (buyer) since the boxes would naturally be handled in a rough manner. The quality of paper to be used should be 120 GSM and of 32 bursting factor of the box. Cartons exported are generally of 7 ply or 9 ply. The inner if requested could be of 3 ply or 5 ply. On the carton address, place or country from where it is being exported, part of destination/place of the destination address. Net weight Grass weight Cartons Nos. are the basic markings to be incorporated on the box.

Figure 7.19

Clips, pins and butterfly

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Garment costing

The rate of 120 GSM is Length – 30"; width – 27"; Height – 9" (L + W + 3)

(W + H + 1)

(30 + 27 + 3)

(27 + 9 + 1)

60 × 37 = 2220 × 0.00120 = 2.66400 GSM = 2.66 × 19 = Rs. 50.51/box. Table 7.6 shows the price and quality particulars of various packing accessories used in garment packing. Table 7.6

Packing accessories cost

Description

Quality

Quantity

Inside collar card Back support

1" × 18" 1" × 20" 12" × 18" (200 GSM) 2" × 3" 1" × 2" 3" × 3" One ream

One

Approximate range price 20 paise each

One

Rs. 1.25–3.00

1000 Pcs

Rs. 30.00

One 480 sheets One

20 paise each Rs. 30 50 paise to Rs. 2.00

One 5000

Rs. 1–3 Rs. 85–95

Plastic butterfly Tissue paper Polybags Hangtags Plastics bullets Collar film Pins Clips Hanger Size rings Gum tapes Carton Box

PP (40 × 30 cm) 150 GSM – –

Plastic One Brass 450 g Plastic 1 Gross Plastic One Plastic One – One roll 72 yards Cardboard 120 GSM One 60 × 30 × 40

Rs. 1–3 Rs. 2–3 Rs. 14 Rs. 1–4 80 paise Rs. 40 Rs. 50

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Shipment cost

Shipment cost is the cost incurred in transporting the goods from the place of production to the place of sales. Goods produced are normally transported by road through containers when the destination, that is, the place of sales is not far. When the goods produced has to be sent to a far of distance for sales or to the buyer who needs the goods to his place which may be far away from the place of production, then goods are sent through sea or by air. The cost of sending the goods by sea is very less when compared to the cost of sending it by air. But the transit time makes the difference.6 Example: An air shipment can reach the destination in 2 or 3 days, but the sea shipment needs 30 days of transit time for the same place. The shipment cost varies according to the modes of transport, the distance to be covered and also depends on the liners of forwarders used by the garment producer. Forwarders are the people who do work of transporting of the goods from the place of production to the place of sales and charge for their work. The charge differs from one forwarded to the other and it also depends on the number of goods they handle and the line they use.

7.5.1 Shipping charges The following are the charges to be paid for a sea shipment: 1.

ICD charges

2.

Container charges

3.

Terminal handling charges

4.

Agency charges

5.

Shipping bill

6.

Bill of lading

7.5.2 Inland Container Depot chargers Inland Container Depots (ICD) is the place where the goods are stuffed in the containers near the place of production. The manufacturer, when the goods are ready for shipment hand over the goods to the forwarder in the ICD. The cost of stuffing the goods in their containers and the storage charges comes under this ICD charges. 7.5.3 Ocean freight (container charges) Normally, the cost of sea shipment depends on the pace occupied by the goods in the containers.

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Table 7.7 Ocean freight Linear hanin Evergreen APL Terminal handling charges ICD charges Agency charges

Container charges 20' container $960 $1000 $1000 Rs. 2000 Rs. 11 645 Rs. 1250

40' container $1860 $2030 $1955 Rs. 2800 Rs. 16 650 Rs. 2500

40 high cube container $1970 $2140 $2065 Rs. 2800 Rs. 16 650 Rs. 2500

Containers are available in three different size – 20', 40' and 40 high cube: 20' containers can hold about 28 cbm 40' containers can hold about 58 cbm 40 hc containers can hold about 68 cbm If one supplier loads the full containers, the rate of the container is fixed. If the goods occupy only a part of the container then the amount of space, that is, the cbm occupied by the goods are calculated and paid to the forwarder (Table 7.7).

7.5.4 Shipping bill Shipping bill is the bill filled and processed for government authorization for export and for duty drawback. Shipment cost includes the charges spent on the shipping bill. 7.5.5 Bill of lading Bill of lading is the paper with details of which ship has been used for the shipment, in which date the vessel has sailed, and the total quantity of goods in the particular vessel for a particular supplier, goods exported by whom and goods sent to whom. Without this, the buyer neither clears the goods at the destination nor can the exporter negotiate his bill. The forwarder either issues the bill of lading or the forwarder gets it from the liner and the charges paid for it also comes under the shipment cost. Shipment cost also includes the terminal handling charges. Given below are the costs of sea shipment from Tirupur to Hamburg To the above service charge of 5% of the total charge will be added and drawback charges of 1.5% should be given to the forwarder. Shipping bill charges/bill will be about Rs. 350/-. Bill of lading charges will be about Rs. 100/-.

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7.5.6 Air shipment The cost of air shipment increases with the increase in the weight of the shipment, whereas the rate of the sea shipment depends on the space occupied by the shipment. Given below, for example, the rates offered by various airlines for shipment to Frankfurt. Airline

Rate/kg.

Swiss Air

Rs. 81.00

Lufthansa

Rs. 87.00

In addition to the above rates surcharge and customs handling charges are applicable, respectively. The terms of payment of the freight for the ship/air can either be done by the producer who sends the goods or by the buyer who gets the goods. The shipments cost payment is normally referred to by the following terms. FOB

Free on board

CIF

Cost, insurance and freight

CF

Cost and freight

Simple problem If the 20' container charge is Rs. 40 000, which area of space is 28 cbm, find the shipping cost for a shirt, which is packed as 50 pcs/carton box of dimension 60 × 30 × 40 cm. First calculate the cbm for a carton box = 0.6 × 0.3 × 0.4 = .072 cbm/carton box 40.000 × .072 So cost for one carton box = = 102 Rs. 28 102 = 2.04 Rs. cost per garment = 50

7.6

Cost sheets for ladies, men and children’s wear

7.6.1 Cost calculation for men’s full sleeve shirt Details: •

Men’s full sleeve button down – stand up collar shirt

•

Fabric – solid poplin – red, navy green – 58" Width

•

Packing – stand up pack

•

Labels – main, wash care, size labels

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Garment costing

•

Polybag – individual self-sealed polybag

•

Hangtags – size tags, price tickets are used (Table 7.8) 50 Pcs/box

•

Rest as per sample (assume relevant details) Table 7.8

Sr. no. A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Carton box: 60 × 30 × 40 cm, 9 ply 100 GSM

Cost sheet for men’s full sleeve shirt

Items

Quantity

403 × 403 Poplin 58" width CMT Buttons 18L Buttons 14L 3 Ply thread Interlining – fusibles Main label Size label Care label Hangtag Price tag Size tag Collar film Inside collar card Back support Polybag 14" × 12" Clips Butter fly Carton box Total trim cost Shipment cost Miscellaneous/waste Total cost Profit 12% Commission 5% Selling price

1.60 m 1 12 5 180 m 20 cm 1 1 1 1 1 1 1 1 1 1 4 1 1 – – – – – – –

Unit price Total cost in Rs. in Rs. 80 128.00 (60%) 40 40.00 (20%) Rs. 15/Gross 1.25 Rs. 10/Gross 0.30 Rs. 80/5000 m 2.88 Rs. 10/m 2.00 2.00 2.00 0.20 0.20 0.40 0.40 1.50 1.50 2.00 2.00 1.00 1.00 1.50 1.50 0.20 0.20 1.25 1.25 1.50 1.50 0.07 0.30 1.00 1.00 50 1.00 – 20.28 (10%) – 2.00 – 2.00 – 192.289 (100%) – 23.00 – 10.76 – 225.76

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Total Cost

= Fabric cost + CMT + Trim cost + Shipment/Miscellaneous =A+B+T+U+V = 128 + 40 + 20.28 + 2 + 2 = Rs. 192.28

Profit 12%

= 192.28 × 12/100 = Rs. 23.00

Commission 5% = [192.28 + 23] × 5/100 = Rs. 10.764 Selling price

= Total cost + Profit + Commission =T+X+Y = 192.28 + 23.00 + 10.76 = Rs. 225.76

7.6.2 Cost calculation for ladies pyjama tops and bottom Details: •

Ladies pyjama tops and bottom

•

Fabric – Y/P checks – 44" Width

•

Packing – Flatpack

•

Labels – Main, wash care, size labels

•

Polybag – packed as set in one polybag

•

Hangtags – brand and price ticket

•

Carton box – 60 × 30 × 40 cm – 15 pcs/box

•

Rest as per sample (assume relevant details) (Table 7.9)

7.6.3 Cost sheet for T-shirt Details: •

T-Shirt (Table 7.10).

•

Yarn-30s combed

•

Fabric – single jersey •

•

Rib for neck

Packing – flat pack

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Garment costing

Table 7.9

Cost sheet for ladies pyjama

Sr. Items Quantity Unit price no. in Rs. A 201 × 103 Y/P checks Tops – 2.25 m 40.00 44" Width Bottom – 1.50 m 40.00 B CMT Tops – 40 1 Bottom – 30 1 C Buttons 18L 8 buttons Rs. 15/Gross D 3 Ply thread Tops – 220 m Rs. 70/5000 m Bottom – 180 m Rs. 70/5000 m E Fusibles Tops – 15 cm Rs.10/m Bottom – 10 cm Rs.10/m F Main label Tops – 1 1.50 Bottom – 1 1.50 G Size label Tops – 1 0.10 Bottom – 1 0.10 H Care label Tops – 0.40 Bottom – 1 0.40 I Hangtag 1 1.00 J Price ticket 1 1.00 K Polybag 1 2.50 L Carton box 1 Rs. 50/15 pcs M Elastic 90 cm Rs. 2/m N Total trim cost – – O Shipment cost – – P Miscellaneous/waste – – Q Total cost – – R S T

Profit 12% Commission 5% Selling price

– – –

– – –

Total cost in Rs. 90.00 52.00 (60%) 40.00 30.00 (30%) 0.80 3.08 2.52 1.50 1.00 1.50 1.50 0.10 0.10 0.40 0.40 1.00 1.00 2.50 3.30 1.80 22.50 (10%) 2.00 2.00 234.50 (100%) 28.14 13.13 275.77

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Table 7.10 Sr. no. A B C D E F G I J K L M N O P Q R S T U V W

Items Yarn combed 30s count Knitting Bleaching/dyeing Compacting Wastages 5% Total Fabric cost Elastic Zip Main label Size label Care label Tissue paper Hangtag Price tag Polybag Carton box Shipment Total cost Profit 12% Commission 5% Selling price

Cost sheet for T-shirt Quantity 1 kg 1 kg 1 kg 1 kg 5 – 0.450 kg/pc 1m 1 1 1 1 1 1 1 1 1 – – – – –

Unit price in Rs. 125 15 20 8 – – 176.4/kg 2.00 10.00 2.00 0.10 1.00 0.20 2.00 2.00 2.00 Rs. 60/50 pcs 1 – – – –

•

Labels – main, wash care, size labels

•

Zipper-full length

•

Elastic-white 1"

•

Polybag – individual pack

•

Hangtags – brand and price ticket

•

Carton box – 60 × 30 × 40 cm – 15 pcs/box

•

Rest as per sample (assume relevant details)

Total cost in Rs. 125 15 20 8 8.4 176.4/kg 79.38 2.00 10.00 2.00 0.10 1.00 0.20 2.00 2.00 2.00 1.20 2.00 138.88 14.00 7.90 140.00

245

Garment costing

7.6.4

CMT calculations – simple problems

Problem 1: What is the proportion of cost that raw material constitutes is a garment costing Rs. 140 and which consumes 2.2 m of fabric. The fabric details are as follows: Fabric cost

: Rs. 400/kg

Warp count

: 40s

Weft count

: 401

EPI

: 100

PPI

: 64

Finished width : 48" Warp crimp

: 4%

Weft crimp

: 4%

Assume any other detail that is required for working out the raw material cost. Here, first we have to find the fabric price/meter. First step: Find GSM = w1 + w2 w1 = Weight of warp/square meter in gram w2 = Weight of weft/square meter in gram w1 = (nt × 100) × [1 + c1%] ×

T1 100

where n1 = Ends/cm c1 = Wrap crimp % T1 = Warp tex Ends/Inch = 100'

Ends/cm

=

Warp count = 40s Tex

= 590.5/40 =

Warp crime % = 4%

= c1

w1 = 39 × 100 [1 + 4/100] × 14.76/1000 = 3900 × 1.04 × 0.01476 = 59.86 g/m2

100/2.54

= 39 = n1

14.76

= T1

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Fashion Marketing Management

w2

= n2 × 100 [1 + c2%] × T2/1000

w2

= Weight of weft threads in g/m2

n2

= Picks/cm

C2

= Weft crimp %

T2

= Weft tex

Picks / Inch = 64 N2

= 64/2.54

= 25

T2

= 590.5/40

= 14.76

C2

= Weft crimp % = 4%

W2 = 25 × 100[1 + 4/100] × 14.76/1000 = 2500 × 1.04 × 0.01476 = 38.37 g/m2 GSM of fabric = w1 + w2 = 59.86 + 38.37 = 98.23 Weight in G/Lincar Mt = GSM × Width of the fabric in m Width of the fabric = 48" Width of the fabric in meter

=

48 × 2.54 100

= 1.2192 m G/Lin Mt

= 98.23 × 1.2192 = 119.76 g

Fabric cost

= Rs. 400/kg

Fabric cost per meter

=

400 100

= Rs. 47.9/m Fabric consumption

= 2.2 m

Total fabric cost for a garment = 22 × 47.9 = Rs. 105.39

247

Garment costing

Problem 2: Estimate the cost of raw material in a garment with the following particulars: Cost of garment

Rs. 150

Fabric consumption

2.25 m

Cost of fabric

Rs. 450/kg

Warp count

403

Weft count

401

EPI

110

PPI

68

Width of the fabric

48"

Warp crimp

4%

Weft crimp

5%

Assume relevant details Problem 3: If 3/803 sewing thread is used and its cost is Rs. 120/kg, what is the thread cost in a garment that consumes 400 m of sewing thread? English count = 3/803 = 80/3 = 26.6 Tex

Tex

= 590.5/26.6 = 22.19 Weight in grams = Length in 1000 m =

22.19 1000 m

× 400

= 8.876 g = 0.00876 kg = 120 × 0.008876 = 1.06 Rs.

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References 1.

Johnson, M and Moore, E (2001) Apparel product development. Om Book Service, New Jersey.

2.

Lall Nigam, B M and Jain, I C (2007) Cost accounting principles and practice. Prentice Hall of India, New Delhi.

3.

Khan, M Y and Jain, P K (2007) Cost accounting, Hill publishing Ltd., New Delhi.

4.

Glock, R E and Kunz, G I (2005) Apparel manufacturing sewn product analysis. Dorling Kindersley (India) Pvt. Ltd., Noida.

5.

Chakraborty, S K (2004) Cost accounting and financial management. New Age International, New Delhi.

6.

Pandey, I M (1999) Management accounting, Vikas Publishing House, New Delhi.

8 Export documentation

Abstract: The chapter 8 explain the various export documents required for apparel exports. The four types of documents such as commercial documents, shipping documents, foreign exchange related documents, Documents specially required by the buyer are described in detail. The illustrations of major documents such as Bill of Lading, Bill of exchange, Letter of Credit, Packing List, Invoice, Certificate of origin are given in this chapter. The last topic of this chapter explains the terms of delivery, Incoterms and pricing. Key Words: export documents, shipping bill, bill of exchange, invoice, foreign exchange, incoterms.

8.1

Export documentation

8.1.1 Introduction to documentation Documentation is evidence for whatever we do as facing terms about exports, the documentation process is very important.1 The export documentation itself is a risky job, which needs lot of experience to carry out that regard. The main purpose of the documents accompanying a shipment is to provide a specific and complete description of the goods so that they can be assessed correctly for duty purpose and meet the import licensing requirements or import quota restrictions imposed on the goods for clearance purpose. If there are any discrepancies in the documents and or if the required documents are not produced, the shipment may not be allowed for import or may even be confiscated by the customs of the importing country. Export documentation plays a vital role in international marketing as it facilitates the smooth flow of goods and payments thereof across national frontiers. Exporters are requires to follow certain formalities and procedures, a number of documents. Each of these documents serves a specific purpose and hence carries its own significance. A clear understanding of all documents and their purpose, how to prepare these, number of copies required, when and where to file, is a must for all export professionals.

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There is a plethora of documents in export trade – different forms, applications and documents are required to be filled in for obtaining export licenses, completing pre-shipment inspection, for customs clearance and shipping, for obtaining payment and export finance and for claiming export benefits such as duty drawback and so forth. Export documentation work constitute a heavy charge on our export activity. It is complex, cumbersome and costly. This is partly due to the nature of export trade itself involving, as it does, a number of intermediary organizations and authorities at different stages of export activity between the seller and the buyer. All these, in turn, generate a lot of paperwork and procedural formalities. The documents material to an export sales contract are not many in number. However, the problem is complicated due to the heavy paperwork and the procedural formalities, which are required to be compiled with before the essential documents, can be procured. The experienced exporter, because of the complexity of documentation, will find it good idea to have the various documents prepared for him by a shipping and forwarding agent.

8.1.2 Master documents Earlier, Indian exporters were supposed to submit 25 documents to various agencies and authorities merely to ship the goods. Each document had to be individually prepared. The new system standardized these documents and aligned them on the basis of the united key layout, which has already been adopted by most of India’s trading partners.2 Thus, now instead of typing out 25 documents exporters prepare only two master documents. These documents can be classified into commercial or regulatory documents. Export documentation in India has evolved a great deal of interest since 1990. Prior to 1990, documentation was done manually and it lacked proper coordination. As a result, there were lot of delays and mistakes, rendering the task very clumsy, tiresome, repetitive and truly frustrating. India adopted the Aligned Documentation System (ADS) in 1991 which is the internationally accepted documentation system. A garment exporter has to prepare various types of documents at various stages, before and after the exports. The ADS involves the preparation of documents on a uniform and standard A4 size paper. ADS simplifies the export documentation to quite an extent as the common items of information are placed in the same boxes in each of documents thus making it possible to prepare one master document which includes the information common to all documents included in the aligned system. The ADS thus enables an exporter to achieve efficiency in export operations management. The two master documents contain all the information that was common to individual documents. Earlier, there were a plethora of commercial

Export documentation

251

documents, which include among others, invoice, packing list, information of inspection, insurance declaration form, shipment advice and the exchange control declaration form. The Government of India identified some export documents for standardization with the help of the concerned official and commercial interest in the country. The documents taken up for standardization include Invoice, certificate of origin, packing list, bill of lading (B/L), mate’s receipt, shipping order, shipping bill, port trust document, Insurance declaration form and certificate of insurance. Different forms in respect of each of these documents used in the country were examined from the point of view of standardization and putting into an aligned system. In preparing these standard documents, the UN layout key has been followed.

8.1.3 Standardized documents A standard document means that different forms in respect of a document presently used by different exporters, agencies and bodies are printed on the same size of paper with identical layout and design.2 The standard documents included in the aligned series which this chapter presents are the quota certificates, the invoice, packing list, certificate of origin, B/L, shipping orders, mate’s receipt, shipping bill, bill of exchange, GR forms and so forth. Each of these documents can be reproduced from the same master by using the relevant mask. Reproduced signatures on individual documents may indeed present some problem. Until an agreement is reached among all concerned exporters, agencies and bodies as to their acceptability. It would be necessary to mask the signature column also on the master and to sign the individual documents manually as all the copies of the reproduced documents, particularly where the spirit duplicator is used, will have the same impression, will be difficult to distinguish the original from the copies of the document. This is, however, not a serious problem and can be solved by a universal understanding that unless, ‘copy’ is marked, and the document will be treated as ‘original’. It is no doubt convenient to give the dates on the documents in the numeric way. In doing so, however, the exporter should ensure that such dates would be interpreted abroad in the same way as they interpret them. To avoid ambiguity, it would be better to express the date of the month in two figures, followed by the name of the month in three letters and the year in four figures.

8.1.4 8.1.4.1

Preliminary documentation for the readymade garment exporters in India Bank account

An entrepreneur has to open a bank account in the name of the company or fi rm (any name as per their choice as long as it is not patented) at fi rst.

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The Apparel Export Promotion Council (AEPC) does offer help in verifying if a particular name selected is already in use or no. The bank account should be opened with any commercial bank which is authorized to deal with foreign exchange.1 8.1.4.2 Importer – exporter code number Once a bank account is opened in the name of the firm, the entrepreneur has to apply for an importer exporter code number from the Director General of Foreign Trade (DGFT) or the Joint DGFT.’ The customs, excise, post office does not entertain any export form which does not have the importer exporter code number issued by the DGFT. Moreover, only one EC number can be issued against a single permanent account number (PAN). To obtain a PAN number the exporter needs to approach the Income Tax Department. This code number is cited on all export declaration forms. Acquiring the importer–exporter code number is the most important step for an entrepreneur. After receiving this code number the entrepreneur can be called an exporter. 8.1.4.3

Identity cards

To facilitate the collection of license, certificates, permissions and other such documents, the DGFT provides identity cards to the proprietor/director/ partners and the authorized employees of the export–import firm. However, not more than three identity cards are provided except in the case of limited companies wherein an application requesting for more than three identity cards can be submitted to the DGFT. 8.1.4.4

Issue of registration-cum-membership certificate

The readymade garment exporter applying for a license/certificate/permission to import/export, (except items listed as restricted items in ITC (HS)) or any other benefit or concession under the foreign trade policy is required to furnish the registration-cum-membership certificate granted by AEPC or Federation of Indian Export Organisations (FIEO) according to the procedure specified in the concerned handbook. 8.1.4.5

Mandatory returns

The exporter must furnish the yearly details of exports/imports made by him in the preceding licensing year by 31st October. 8.1.4.6

Registration

Registration with the Apparel Export Promotion Council, Federation of Indian Exporter and other organizations involved in the promotion of readymade garment exports: To avail various benefits and concessions, the exporter has to register him with the various export promotion organizations.

Export documentation

8.2

253

Classification of export documents

Export documents can be classified into the following four categories: 1.

Commercial documents

2.

Shipping documents

3.

Foreign exchange-related documents

4.

Documents specially required by the buyer

8.2.1 Commercial documents These documents are used by exporters/importers to discharge their respective legal and other incidental responsibilities under the sales contract. The following are the commercial documents. These documents serve the following purposes: a)

To effect the physical transfer of goods and title of the goods from exporter to the buyer

b)

To realize export sales proceeds

Commercial invoice It is the basic and most important document in an export transaction and extreme care has to be taken by the exporter to prepare this document (Fig. 8.1). This document requires the exporter to submit details such as 1.

His own details

2.

Invoice number with date

3.

Details of the consignee and buyer (if the buyer is other than consignee)

4.

Buyer’s order number with date

5.

Country of origin of the goods

6.

Country of final destination

7.

Terms of payment and delivery

8.

Pre-carriage details (road/rail)

9.

Vessel/flight number

10.

Port of loading

11.

Port of discharge

12.

Final destination

13.

Container number

14.

Number and kind of packaging

Commercial invoice

Fashion Marketing Management

Figure 8.1

254

Export documentation

15.

Detailed description of goods

16.

Quantity

17.

Rate and

18.

Total amount chargeable and so forth

255

Therefore, a commercial invoice contains the complete details of the export order. Normally, the trade practice is to raise and send a proforma invoice to the buyer for his approval, once the order has been finalized. On receipt of the approved proforma invoice, the exporter can use it as a part of the export contract. The commercial invoice then becomes easier to prepare on the basis of the approved proforma invoice. Packing list This document provides the details of number of packages; quantity packed in each of them; the weight and measurement of each of the packages and the net and gross weight of the total consignment (Fig. 8.2). •

Net weight refers to the actual weight of the items and the gross weight means the weight of the items plus the weight of the packing material.

•

The packing list serves a useful purpose of the exporter while dispatching the consignment as a cross-check of goods sent.

•

For the port personnel, it comes handy while planning the loading and offloading of cargo.

•

It is also an essential document for the customs authorities as they can carry out the physical examination of the cargo and conduct checks on the weight and measurements of the goods smoothly against the declarations made by the exporter in the packing list.

Certificate of inspection: This is the certificate issued by the Export Inspection Agency after it has conducted the pre-shipment inspection of goods for export provided the goods fall under the notified category of goods requiring compulsory shipment of inspection (Fig. 8.3). Certificate of insurance/insurance policy: •

Insurance is an important area in the export business as the stakes are usually very high.

•

Protection needs to be taken in the form of insurance cover for the duration of transit of goods from the exporter to the importer.

Packing list

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Figure 8.2

256

257

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Figure 8.3

Certificate of inspection

Bill of lading: •

This is issued when the goods are shipped using ocean (marine) transport.

•

When the exporter finally hands over the goods to the shipping company for loading on board the ship for transport to their final destination, the shipping company issues a set of bills of lading to the exporter.

Airway bill: •

Airway bill is a B/L when the goods are shipped using air transport.

•

It is also known as air consignment note or airway B/L.

Combined transport document: •

This is also known as multi-modal transport document.

•

Ever since containers have become popular, the concept of combined transport document has gained solid ground.

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Certificate of origin: •

This document serves as a proof of the country of origin of goods for the importer in his country (Fig. 8.4).

•

Imported countries usually require this to be produced at the time customs clearance of import cargo.

•

It also plays an important part in computing the liability and the rate of import duty in the country of import.

•

This certificate declares the details of goods to be shipped and the country where these goods are grown, manufactured or produced.

•

Such goods need to have substantial value addition so as to become eligible for certification of this nature.

Figure 8.4

Certificate of origin

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Bill of exchange: Also known as draft, this is an instrument for payment realization. It is a written unconditional order for payment from a drawer to a drawee, directing the drawee to pay a specified amount of money in a given currency to the drawer or a named payee at a fixed or determinable future date (Fig. 8.5). The exporter is the drawer and he draws (prepares and signs) this unconditional order in writing upon the importer (drawee) asking him to pay a certain sum of money either to himself or his nominee (endorsee). •

This order could be made for payment on demand, called a bill of exchange at sight

Figure 8.5

Bill of exchange

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Shipping advice: •

The exporter sends this document, called shipping advice, to the buyer soon after the shipment is made to provide him with all the shipment details.

•

This serves as an advance intimation of the shipment and allows the importer to arrange for delivery of the same.

Letter of credit: This method of payment has become the most popular form in recent times; it is more secure as company to other methods of payment (other than advance payment). A letter of credit (L/C) can be defined as ‘an undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C’ (Fig. 8.6). 8.2.1.1

Contents of a letter of credit

An L/C is an important instrument in realizing the payment against exports. Therefore, needless to mention that the L/C when established by the importer must contain all necessary details which should take care of the interest of importer as well as exporter. Let us see shat an L/C should contain in the interest of the exporter. This is only an illustrative list. •

Name and address of the bank establishing the L/C

•

L/C number and date

•

The L/C is irrevocable

Figure 8.6

Letter of credit

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261

•

Date of expiry and place of expiry

•

Value of the credit

•

Product details to be shipped

•

Port of loading and discharge

•

Mode of transport

•

Final date of shipment

•

Details of goods to be exported such as description of the product, quantity, unit rate, terms of shipment like Cost Insurance and Freight (CIF), FOB and so forth

•

Type of packing

•

Documents to be submitted to the bank upon shipment

•

Tolerance level for both quantity and value

•

If L/C is restricted for negotiation

•

Reimbursement clause

8.2.2 Shipping documents 8.2.2.1

Bill of lading

A B/L is a document issued and signed by a shipping company or its agents acknowledging that the goods mentioned in the B/L have been duly received for shipment, or shipped on board a vessel, and undertaking to deliver the goods in the order and condition as received, to the consignee, or his order or consignee, provided that freight and other charges specified in the B/L have been duly paid. B/L serves the following purposes: i. It is receipt for goods received by the shipment company. ii. A contract with the carries: – It contains the terms of the contract between the shipper and the shipping company, between stated points at a specific charge and, iii. Evidence of title – It is a certificate of ownership or title to the goods. For the B/L to be negotiable, in fact, three requirements must be fulfilled. a)

It must be made out to the order to the shipper.

b)

It must be signed by the steamship company.

c)

It must be endorsed in blank by the shipper.

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Figure 8.7

Bill of lading

Endorsement of B/L By practice and custom, the B/L has been transferable. If, however, the bill requires the goods to be delivered to a particular named person and does not include a reference to his assignees, the B/L is not transferable. It is only namely that a B/L would be drawn this way (Fig. 8.7). The consignee or consignor, as the case may be, can transfer the bill and lading either by a special endorsement, an endorsement that makes the transfers in the blank (i.e. not naming an endorse). In the latter case, the goods are deliverable to the bearer. The holder may, however, correct the blank endorsement in to a special endorsement by inserting the name of the person to whom delivery is to be made. It is then called, ‘the endorsement in full.’ Sending of B/L to the importer B/L is made out in sets and any number of copies may constitute the set according to the requirements of the particular transaction and the importer.

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The number of copies to be made out will be indicated by the importer before the shipment takes place. In case there is no such indication, normally two copies of B/L are prepared together with a number of non-negotiable copies. One set of documents is sent by first-class airmail and the second following by mail so that one is lost, delivery of goods may be taken by the importer on the basis of the second set. Types of bills of lading The B/L could be 1.

Freight paid or freight to collect

2.

The former is the case when the contract is C and F and one of the terms in the L/C would be that B/L should indicate, ‘freight pre-paid’

3.

Clean or classed B/L

A clean B/L is one, which is without any advance entry, about the apparent order and condition of the goods. A classed B/L is one in which there are some adverse remains lice, for example, ‘Two cases in damaged Conditions’. Direct or through B/L The former is the case when the vessels take the goods directly from the port of loading to the destination. If there is transshipment or where a vessel of another line takes the goods from an intermediary port to the port of destination, the latter is used. Shipped B/L or on-board and received for shipment B/L. When the goods are already taken into the ship and then B/L is issued, it will be a shipped B/L. When goods have not yet been put into the ship but have kept in storage in the doc** and the B/L is issued at the time, it will be received for shipment B/L. The buyer naturally insists on the former and makes it a term of credit under the L/C. B/L copies The shipping company indicated as original issues several copies of B/L, second copy and so on. The original alone can transfer the title to the goods. In many cases, buyers instructs the exporter to send the first two copies of B/L, along with certificate of origin and insurance policy directly to obviate consequences of delay (that may arise when documents are routed through the negotiating bank) and get delivery of goods (or claim for damages or losses through insurance) while other copies are sent along with other documents through the negotiating bank.3

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Care required by the exporter regarding B/L Before submitting the B/L along with other documents to the bank of negotiation, the exporter should check for the following points: •

Is it of the same type as stipulated by buyer (shipped, clean)

•

Is the date the same as or earlier than the date specified in the L.C

•

Be there any modifications, corrections and one they duly altered by the seal and signature of the carrier.

•

Ports of shipment and delivery – these should be the same as per L.C.

•

B/L should not state (considered stale if presented to the bank so long after its date that it is not possible for the bank of dispatch it in time to reach the buyer by or before the time of arrival of the vessel carrying the goods).

•

Marks and number detailed in the B/L do they correspond with those in the invoice, packing list.

•

Should contain number of the GR/ Post Parcel form (PP) used.

8.2.2.2

Shipping bill

Shipping bill is required by the customs. It is only after the shipping bill is stamped by the customs that cargo is allowed to be carted to the docks. The aligned shipping bill has been prepared after taking into consideration the requirement of the custom’s public notice No. 39, which suggests a uniform shipping bill for different categories of export, namely free goods, dutiable goods and goods under claim for drawback. As the standard A4 size paper defies accommodation of all the information requirements as per this public notice, some columns for duty/cell and drawbacks particulars have been printed at the bank of the shipping bill. It is also not possible to accommodate all the declarations as per the public notice. One has however been taken to incorporate that description which have not been included in the standard shipping bill can be taken as implied. In fact, these have never formed part of the declaration on the shipping bill currently in use. The name and address of the customers house agent as also CHA no. can be printed in the box provided for the purpose. To facilitate identification and processing of different categories of shipping bill, it will be desirable to introduce uniform colour scheme at all ports. Identification will be easier and quicker if the different categories of shipping can be distinguished by the colour of the forms rather than by the colour of the letters print on the shipping bills.

Export documentation

8.2.2.3

265

Marine insurance

Marine insurance declaration form and marine insurance certificate/policy: The standard marine insurance declaration and the marine insurance certificate included in this chapter are based on the format approved by the Lloyd’s and the Institute of London underwriters. It is suggested that open cover/policyholders/may be supplied with the blank forms of these documents. These can be reproduced from the master and then sent to the appropriate office of the General Insurance Corporation. The corporation can issue the Insurance Certificate after completion of necessary entries and certificate.

8.2.3 Foreign exchange-related documents 8.2.3.1 GR form This is known as the Exchange Control Declaration Form. It required to be completed in duplicate for shipments otherwise than by port to all countries other than Nepal and Bhutan. It should be submitted to customs at the time of shipment. Important details to be provided in GR form are: Exporter, his address, IE Code No., Bank through which the documents are being sent to buyer, details of buyer, amount of invoice, break up into C and F, freight and FOB value, any discount or agency commission deducted from invoice value and so forth. 8.2.3.2

PP form

This is a declaration made by parcel (except when made of Value Payable (VP)/Cash on Delivery (COD) basis). It is required particularly when jewellery items or precious stones are exported. The products are checked, valued and the parcels are sealed in the presence of customs authorities. Then, the bank countersigns the bill (invoice) and PP form. Details are furnished to RBI and later the fact of remittance is intimated to RBI through periodical statements. The countersignature will indicate any advance OT advance payment of bill received or the details of irrevocable L/C’s opened.

8.2.4 Documents specially required by buyer 8.2.4.1

GSP

This is a form used as part of the generalized system of preference (GSP) under which scheme certain duty concessions are provided to exports from certain underdeveloped countries. To provide proof of the eligibility, the buyer (importer) required the GSP form.

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8.2.4.2 Inspection certificate (auxiliary certificate) This certificate relates to the quality of the goods shipped or their conformance to the specified quality description. An accredited person indicated by the buyer may give this certificate or an agency indicated by him like SGS, Marine Products Export Development. 8.2.4.3

Language certificate

The Textile Committee in respect of cotton fabric of certain classification issues this. Post-shipment procedures: Presentation of documents to the bank: The exporter must submit all the necessary documents to the respected bank for further processing, after which the bank will send back attested copies of commercial invoice and a bank certificate to the exporter. The exporter can also get his exports certified by an authorized dealer in foreign exchange in the form ‘Bank Certificate of Export and Realization’. The process flow of documentation is shown in Figure 8.8. Realization of export proceeds and incentives: The bank of the exporter collects the export proceeds from the importer through his bank. The exporter can claim for the export incentives on the basis of the bank certificate.

8.3

Terms of delivery and pricing

The International Commercial Terms (INCOTERMS) is a universally recognized set of definition of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks. The purpose of INCOTERMS is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of INCOTERMS is limited to matters relating to the rights and obligations of the parties to the

267

Export documentation

Figure 8.8

Process flow in documentation

contract of sale with respect to the delivery of goods. INCOTERMS deal with the number of identified obligations imposed on the parties and the distribution of risk between the parties.2

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More Clarification on INCOTERMS ‘E’-term, ‘F’-term, ‘C’-term and ‘D’-term: INCOTERMS 2000, like its immediate predecessor, groups the term in four categories denoted by the first letter in the three-letter abbreviation. Under the ‘E’-term (Ex Works (EXW)), the seller only makes the goods available to the buyer at the seller’s own premises. It is the only one of that category. Under the ‘F’-term (FCA, FAS and FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer. Under the ‘C’-term (CFR, CIF, CPT and CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge. Under the ‘D’-term (DAF, DEQ, DES, DDU and DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.

8.3.1 8.3.1.1

E-terms EXW (At the named place) ex-works

Ex means from. Works mean factory, mill or warehouse, which are the seller’s premises. EXW applies to goods available only at the seller’s premises buyer is responsible for loading the goods on truck or container at the seller’s premises and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the seller’s premises without charging loading fee. The term EXW is commonly used between the manufacturer (seller) and export trader (buyer), and the export trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term ex-factory, which means the same as ex-works.

8.3.2 8.3.2.1

F-Terms FCA (At the named point of departure) free carrier

The seller delivers the goods, cleared for export, at a named place (possibly including the seller’s own premises). The goods can be delivered to a carrier nominated by the buyer, or to another party nominated by the buyer. The point (depot) at origin may or may not be a customs clearance centre. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier are considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.

Export documentation

8.3.2.2

269

FAS (At the named port of origin) free alongside ship

Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller’s expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance and other costs and risks In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example, FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels. 8.3.2.3

FOB (At the named port of origin) Free on Board

The delivery of goods on the board the vessel at the named port of origin (loading) at seller’s expense. Buyer is responsible for the main carriage/ freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example, FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the airfreight. In North America, the term FOB has other applications. Many buyers and sellers in Canada and the USA dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB destination. FOB origin means the buyer is responsible for the freight and other costs and risks. FOB destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer’s premises which may include the import custom clearance and payment of import customs duties and taxes at the buyer’s country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB origin and FOB destination, which are not part of the INCOTERMS.

8.3.3 8.3.3.1

C-terms CFR (At the named port of destination) cost and freight

“Cost and Freight” means that the seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.

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8.3.3.2 CIF (At named port of destination) cost, insurance and freight The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example, CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIFI is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight. 8.3.3.3 CPT (At the named place of destination) Carriage paid to In a Carriage Paid Too (CPT) transaction the seller delivers the goods to a carrier or to another person nominated by the seller, at a place mutually agreed upon by the buyer and seller, and that the seller pays the freight charges to transport the goods to the specified destination. 8.3.3.4

CIP (At the named place of destination) Carriage and Insurance Paid To

The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller’s expense. Buyer assumes the importer customs clearance, payment of customs duties and taxes and other costs and risks.

8.3.4

D-Terms

8.3.4.1 DAF (At the names point at frontier) Delivered at Frontier Delivered at Frontier is a term used in international shipping contracts, when a seller is required to deliver a particular good at a border location. When a contract specifies goods to be delivered at frontier, the seller of the good is typically responsible for all risks and expenses associated with the delivery. 8.3.4.2 DES (At named port of destination) delivered ex-ship Delivered ex ship (DES) is a trade term requiring the seller to deliver goods to a buyer at an agreed port of arrival. 8.3.4.3 DEQ (At the named port of destination) delivered ex-quay The delivery of goods to the Quay (the port) at the destination on the buyer’s expense. Seller is responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other costs and risks.

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8.3.4.4 DDU (At the named point of destination) delivered duty unpaid Delivery Duty Unpaid – Is a fairly common incoterm and can be used for any mode of transport. Under DDU terms the seller is responsible for making the goods available to the buyer at a named place of destination but not cleared for import. 8.3.4.5 DDP (At the named point of destination) delivered duty paid The seller is responsible for most of the expenses which include the cargo insurance, import custom clearance, and payment of custom duties, and taxes at the buyers end, and the delivery of goods to the final point of destination, which is often the project site or buyers premise. The seller may opt not to ensure the goods at his/her own risk.

8.4

Export financing

Financial assistance extended by the banks to the exporters pre-shipment and post-shipment stages. Financial assistance extended to the exporter prior to shipment of goods from India falls within the scope of pre-shipment fi nance while that extended after shipment of the goods falls under postshipment fi nance. While the pre-shipment fi nance is provided for working capital for the purchase of raw material, processing and fi nishing of the goods meant for export, post-shipment fi nance is generally provided in order to bridge the gap between shipment of goods and realization of money.3

8.4.1 Pre-shipment finance Pre-shipment finance is issued by a financial institution when the seller wants the payment of the goods before shipment. The main objectives behind preshipment finance or pre-export finance are to enable exporter to: •

Procure raw materials

•

Carry out the manufacturing process

•

Provide a secure warehouse for goods and raw materials

•

Process and pack the goods

•

Ship the goods to the buyers

•

Meet other financial cost of the business

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•

Export duty or any other tax

•

Freight and insurance charges

Types of pre-shipment finance: •

Packing credit

•

Advance against cheques/draft and so forth representing advance payments.

Pre-shipment finance is extended in the following forms: • •

Packing credit in Indian rupee Pre-shipment credit in foreign currency (PCFC)

PCFC Authorized dealers are permitted to extend PCFC with an objective of making the credit available to the exporters at internationally competitive price. This is considered as an added advantage under which credit is provided in foreign currency in order to facilitate the purchase of raw material after fulfilling the basic export orders. The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR). According to guidelines, the final cost of exporter must not exceed 200 bps over 6 month LIBOR, excluding the tax. The exporter has freedom to avail PCFC in convertible currencies such as USD, Pound sterling, Euro, Yen and so forth. However, the risk associated with the cross-currency transaction is that of the exporter. The sources of funds for the banks for extending PCFC facility include the foreign currency balances available with the bank are •

Exchange, earner foreign currency account

•

Resident foreign currency accounts

•

Foreign currency (non-resident) accounts

8.4.2 Post-shipment finance Post-shipment finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters do not wait for the importer to deposit the funds.

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Types of post-shipment finance •

Export bills purchased/discounted

•

Export bills negotiated

Export bills purchased/discounted (DP and DA bills): Export bills (non-L/C bills) is used in terms of sale contract/order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for the purchase of export bill facility. Export bills negotiated (bill under L/C): The risk of payment is less under the L/C, as the issuing bank makes sure the payment. The risk is further reduced if a bank guarantees the payments by confirming the L/C. Because of the inborn security available in this method, banks often become ready to extend the fi nance against bills under L/C. However, this arises two major risk factors for the banks: The risk of non-performance by the exporter is when he is unable to meet his terms and conditions. In this case, the issuing banks do not honour the L/C. The bank also faces the documentary risk where the issuing bank refuses to honour its commitment. Therefore, it is important for the negotiating bank, and the lending bank to properly check all the necessary documents before submission.

8.4.3 Post-shipment credit Post-shipment credit is required to bridge the gap between the times of shipment of goods and the actual payment received. Post-shipment credit is provided against the security of approved shipping documents submitted against L/C or otherwise. Post-shipment loans normally are of three types Short term: Short-term period is normally for 6 months and is provided by commercial banks. Medium term: Medium-term period is up to 5 years, loan is provided by the commercial banks in collaboration with export–import banks.

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Long term: Loans are provided for the purchase of capital goods or turnkey projects. Period of credit is normally more than 5 years. Banks enjoy certain benefits for advancing loans to the exporter: •

Refinance by export and import bank or by RBI at a given rate of interest

•

Guarantee provided by the ECGC or a substantial part of risk is covered by ECGC

References 1.

Shivaramu, S (1996) Export marketing – A practical guide to exporters. Wheeler Publishing, ISBN: 81-7544-166-6.

2.

Nandi, T K (1989) Import–export finance, IIMS, Calcutta.

3.

Rampuria, P (2010) Export procedure and documentation: A case of SPL industries ltd. Thesis.

Index

A Apparel 1, 3, 6, 14, 16 Autumn 8 Acrylic 8, 40, 153 Advertising 1, 22, 30, 33, 44, 54, 65, 78, 81, 110, 149, 171, 173, 176 Assortment 77, 88, 95, 96, 143, 149, 154, 160, 164, 171 Accessories 9, 14, 21, 42, 61, 91, 97, 102, 117, 119, 121, 213, 221, 230, 237 B Business 1, 6, 16, 19, 61, 68, 149, 155, 167, 178, 207, 255 Buyer 5, 31, 37, 61, 99, 101, 141, 236, 271 Button 133, 167, 202, 225, 226, 236, 240 Bottoms 14, 225 Bridal wear 14 Blouse 221 Bed spreads 14 Banians 14 Belts 3, 15 Brand 6, 18, 28, 36, 45, 53, 56, 62, 94, 133, 175, 184, 212, 222, 244 C Calendar 124, 128, 156, 199 Cardboard 235, 236, 237 Cargo 143, 221, 255, 264, 266, 270 Carton 146, 148, 203, 236, 240 Catalogue 73, 110, 157, 172 Chain store 157 Chalk 210, 225, 226 Change 1, 6, 7, 8, 87 Claim 111, 263, 266

Client 74, 114, 133 Clip 234 Cloth 209, 212, 216 Coat 212 Collar 75, 167, 235, 240 Communication 3, 25, 43, 103, 106, 152, 191, 197, 206 Compacting 214, 244 Competition 3, 24, 30, 36, 41, 46, 160, 174, 197 Consignee 253, 261, 262 Consignment 104, 236, 255, 257, 269 Consultancy 55 Consumer 10, 37, 47, 50, 54, 91, 153, 230 Consumption 101, 133, 214, 246 Container 238, 240, 253 Contract 18, 189, 201, 253, 261, 263, 266 Coordination 28, 33, 102, 175 Coordinator 42, 103 Costing 74, 104, 108, 209, 213 Cotton 8, 76, 100, 126, 214, 225, 228, 266 Counter sample 61, 112 Course 50, 112 Credit 31, 102, 141, 207, 260, 272, 273 Cuff 236 Currency 44, 58, 272 Custom 13, 107, 189, 262, 271 Customer 22, 71, 74, 112, 152, 164 Cycle 2, 9, 12, 69 Colour 202, 20, 226 Couture 4 , 12, 38, 52, 93

276 Costume 7 Cotton 8, 76, 100, 126, 146, 167, 214, 225, 229, 266 Closures 15 Count 202 Carton 102, 146, 148, 201, 203, 236, 241 D Damage 29, 268, 269 Deadline 103, 104 Decision-making 17, 64 Decline 2, 12, 68, 71, 194 Defective 207 Delay 99, 127, 130, 132, 200, 207, 263 Demand 10, 23, 41, 46, 49, 68, 71, 82, 87, 112, 133 Demographic 10, 160 Designer 5, 12, 25, 26, 38, 93, 95, 134, 230 Distribution 20, 32, 33, 35, 35, 36, 37, 54, 154 Distributor 47, 94, 100 Documentation 46, 58, 62, 124, 249, 251, 267 Domestic 45, 56, 72, 187, 188 Dye 120, 199, 228, 229 Drape 7, 8 Design 7, 25, 26, 74, 75, 107, 194, 202, 215 E Economic 3, 11, 12 Elasticity 228 Electronically 44, 45 Embroidery 76, 111, 126, 129, 134, 137, 213 Employee 191, 210 Engineering 78, 81, 94 Enquiry 102, 109, 114 Entrepreneur 251, 252 Environment 10, 57, 63, 84, 89, 152, 155 Equipment 187, 194, 201, 204 Estimation 147 Exchange 28, 30, 57, 253, 259, 265, 272 Exhibition 177, 178 Expenditure 150

Index Expenses 209, 211, 216, 219, 271 Export 72, 197, 199, 249, 252, 271, 273 Exporter 54, 100, 252, 266, 271 EXW 268 F Fabric 7, 9, 19, 38, 42, 62, 102, 114, 130, 133, 135, 167, 198, 199, 200, 201, 213, 214, 221, 240, 245 Factory 74, 110, 114, 210, 268 Fashionable 9, 38, 43, 105 Fiber, fibre 14, 38, 105, 130, 189, 200, 202 Filament 202 Financial 22, 25, 55, 141, 161, 271 Finishing 14, 58, 118, 132, 202, 210, 214, 271 Flexibility 17, 18, 96, 127, 204, 218 Fluorescent 88 FOB 240, 261, 265, 269 Follow-up 93, 101, 103, 106, 112, 117, 118, 121 Forecast 66, 74, 93, 112, 159, 160 Foreign exchange 57, 253, 265 Forwarder 123, 127, 238, 239 Fragile 183 Frame 199 Freight 127, 204, 238, 240, 261, 263, 269, 270 Functional 25, 156, 183, 219, 230 Fusing 209, 212 G Garment 9, 13, 19, 35, 73, 74, 75, 102, 106, 107, 133, 209, 213, 251 Gathering 27 Gauge 202 Gender 37, 38, 52 Geographical 157 Globalization 28, 43, 44 Gored skirt 7 Grading 28, 29, 67, 129 Graphic 134, 137 Greige 42 Grey 167, 169, 215, 228 Gross 67, 146, 154, 225, 255 Guarantee 141, 207, 274 H Hanger 67, 212, 233, 234, 237 Haute 4, 5, 12, 38 Hypermarket 171

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Index I Illustration 75, 162, 163 Import 57, 103, 249, 258, 269, 270, 271 Importer 57, 252, 255, 258, 269, 270 Incoterms 198, 266, 269, 270 Indicator 54 Industry 1, 13, 14, 15, 35, 94 Infrastructure 198, 201, 207 Inspection 28, 102, 111, 116, 124, 129, 210, 255, 266 In-store 173, 176, 181, 183, 184 Insurance 22, 31, 88, 210, 251, 255, 261, 265, 270 Interlining 67, 101, 147, 203, 214, 230, 232, 241 International bank 44, 58 Internet 44, 72, 74, 91, 173, 189, 190 Inventory 92, 95, 127, 133, 146, 149, 150, 159, 161, 180, 215 Investment 17, 55, 66, 83, 94, 151, 165, 195, 197 Invoice 106, 112, 253, 254, 165 J Jacket 153, 228 Jacquard 203 Jersey 242 Jewellery 3, 15, 171, 183, 265 K Kids wear 221, 235 Knife 216 Knit 42 Knitting 14, 41, 42, 121, 214, 244 Knotting 42 L Lab dip 115, 117, 130, 133, 200, 202 Label 29, 53, 201, 203, 221, 222, 223, 224 Labour 13, 46, 151, 204, 209, 210, 221 Layout 178, 180, 181, 184, 250, 251 Lead-time 101, 123, 125, 130, 194, 200, 207 Letter of credit 102, 141, 143, 189, 260 Line plan 65, 66 Loading 253, 255, 257, 261, 268, 269

Logistics 154, 198, 204, 207, 213 Long-run 3 Long-term 24, 125 Loom 101, 130, 199, 200, 214 M Machinery 81, 82, 201, 216, 218, 225 Magazine 78 Maintenance 210 Managers 35, 43, 56, 81, 154, 156, 210 Mannequin 183 Manufacturing 1, 14, 38, 46, 55, 63, 106, 124, 126, 127, 195, 199, 204, 271 Margin 31, 67, 154, 209, 213, 220 Marker 210, 214 Market 2, 5, 24, 31, 34, 35, 37, 38, 46, 53, 58, 61, 69, 85, 87, 92, 97, 165 Marketing 21, 22, 23, 25, 26, 31, 34, 35, 50, 52, 56, 68 Mass acceptance 68 Measurement 100, 114, 133, 134, 202 Menswear 95 Merchandiser 61, 62, 63, 75, 103, 114, 132, 183, 199 Metallic 236 Mock-up 110 Model 51, 66, 83, 167, 169 Motivator 156 N Natural fibre 41, 229 Neck 218, 224, 242 Needle 218, 260 Negotiate 239 Network 43, 51 Non-woven 7, 14, 203, 232 Nylon 40, 202, 226, 228, 229, 232 O Operation 31, 76, 77, 115, 151, 157, 204, 210 Operator 204, 211, 218 Order confirmation 112, 114 Outlet 36, 170

278 Outsourcing 194, 196, 197 Ownership 16, 18, 28, 167, 170, 261 P Package, packaging 29, 104, 115, 130, 196, 200 Pad 209, 212, 226 Pant 5, 7, 14, 71, 221 Parkas 14 Partnership 17, 18, 167 Party wear 14 Pattern 6, 46, 67, 106, 107, 216 Pay 11, 48 Payment 31, 102, 127, 141, 207, 240, 249, 259, 260, 265, 270, 272, 273 People 4, 7, 10, 11, 31, 63 Permanent press 42 Personality 10, 12, 37, 38, 69 Petite 3, 14 Philosophies 3, 4 Photography 53 Piping 15 Place 9, 35, 38, 69, 75, 199, 238, 261, 268, 270 Plan 68, 84, 103, 124, 132, 151, 160, 167, 169 Planning 27, 61, 65, 78, 79, 81, 93, 94, 96, 104, 146, 151, 154, 158, 159, 160, 161 Pleat 7 Ply 202, 229, 236 Polybag 148, 201, 203, 230, 233 Polyester 41, 76, 214, 225 Poplin 215, 240, 241 Population 7, 10, 11, 50, 69, 87 Port 236, 253, 261, 269, 270 Positioning 35, 37, 63, 224, 225 Post shipment 266, 271, 272, 273 PP sample 110, 120, 131 Pre shipment 250, 255, 271, 272 Press 42, 91, 216 Price 4, 9, 21, 27, 30, 32, 37, 45, 54, 57, 61, 74, 75, 82, 87, 91, 94, 104, 112, 114, 154, 209, 233 Printing 14, 131, 213, 225 Private 17, 81, 172 Procurement 28, 198, 207 Producer 21, 105, 238, 240

Index Product 8, 14, 27, 35, 63, 65, 67, 78, 79, 83, 85, 86, 87, 88, 261 Product mix 43, 63, 85, 86, 87, 88, 89 Production sample 101, 111 Profit 17, 18, 31, 74, 88, 175, 209, 213 Promote 21, 28, 65, 76, 84, 152, 177 Promotion 4, 9, 10, 26, 35, 36, 53, 75, 156 Propaganda 32, 33 Protect 29, 59, 223 Proto sample 115, 117 Psychographic 10, 69, 96 Psychological 3, 11, 12, 52, 53 Public 18, 22, 41, 78, 89, 150, 183, 264 Puller 202 Purchase 33, 35, 49, 69, 141, 167, 177 Pyjama 23, 242 Q Qualitative 24 Quantitative 45, 57 Quay 270 Quick response system 96, 195 Quota 44, 46, 103, 189, 249, 270 Quotation 269, 270 R Range 2, 9, 14, 22, 62, 68, 74, 90, 134 Raw material 125, 198, 199, 202, 271 Rayon 40, 229 Ready-made 1 Receipt 115, 255, 261 Regional 30, 37, 57, 96, 157, 189 Regulation 58, 192 Reliability 201 Renegotiation 115 Reorder 73 Repeat 22, 47, 48, 163, 178, 214 Report 63, 99, 118, 122, 133, 146, 155, 184 Research 22, 24, 25, 26, 35, 36, 37, 45, 56, 74, 78, 91 Reshape 23, 43 Resource 17, 24, 72, 79, 150, 196 Response 9, 13, 43, 63, 173, 187, 200

279

Index Retail 13, 14, 19, 30, 16, 17, 42, 63, 149, 150, 151, 153, 155, 158, 164, 170 Rise 2, 13, 41, 68 Rubbing 104 Rug 8 S Salesman sample 111, 123 Sample 26, 28, 75, 101, 105, 107, 108, 110, 111, 115, 130, 131 Sampling 105, 106, 108, 110, 112, 114, 130, 214 Scheduling 83, 96, 101 Screening 9, 78, 79, 81, 82 Seam 218 Season 4, 6, 8, 9, 12, 35, 50, 62, 103 Segment 24, 42, 58, 105 Seller 30, 141, 155, 266, 270, 271, 272 Selling space 63, 180 Sewing 107, 119, 125, 133, 198, 209, 218, 229 Sewn 13, 44, 105, 218, 225 Shade 7, 61, 133, 226 Shape 7, 51, 82, 105, 235, 236 Shipment 111, 123, 238, 239, 240, 264, 266, 268, 271, 272, 273 Shirt 100, 146, 221 Shoe 3, 15, 87 Showroom 19, 47, 97, 230, 235 Shrinkage 42, 104, 121, 202, 203 Silhouette 3, 7, 89, 92 Size 33, 68, 75, 102, 118, 130, 133, 134, 141, 157, 221, 223, 233, 234 Size label 221, 223, 224, 240 Size set, Size-set 118, 130 Sketch 44, 74, 104, 115, 133 Skirt 7, 14, 47, 50 Snap 228 Sourcing, source 14, 61, 67, 101, 108, 130, 153, 187, 188, 193, 195, 197, 198, 199, 200, 204 Speciality store 171 Specification sheet 133, 135 Spring 8, 74, 97 Stack 176, 181 Stitch 117, 134, 138, 224 Stock 14, 63, 93, 96, 161, 167, 180

Store 14, 29, 150, 167, 170, 171, 172, 173, 178, 180, 181, 183, 184, 221 Street fashion 5, 38, 89 Street store 35, 37 Strike 117, 133, 199 Style 2, 7, 13, 96, 133 Summer 8, 74, 97 Supervisor 210 Supplier 9, 72, 121, 122, 194, 196, 205, 206 Supply 11, 58, 68 Swatch 75, 112, 114, 115, 133, 202 Sweater 3, 7, 14, 15, 153, 154 Synthetic 14 T Taffeta 223, 224, 232 Tailor 50, 174 Tape 205, 229 Target customer 2, 8, 26, 91, 99, 150, 153, 175 Tariff 45, 57, 189 Tax 17, 45, 57, 270 Tech-pack 99, 214 Territory 58 Test marketing 9, 79, 83, 84 Textile 13, 14, 15, 38, 46 Texture 2, 3, 7, 22, 38 Thread 14, 50, 133, 199, 202, 221, 229 Tight fit 8 Tissue 235, 237, 244 Total cost 213, 216 Trade 41, 57, 71, 73, 78, 97, 188, 189 Tradition 8, 13, 31, 92, 198 Transport 29, 50, 257, 270 Transportation 22, 29, 74, 204, 207 Trend 1, 12, 35, 92, 177 Trim 61, 62, 115, 130, 140, 141, 219 Trim card 99, 115, 133, 141, 144, 199 Trouser 7, 14, 36, 95, 221 T-shirt 134, 214, 216, 242 Tubular 7 U Uniform 14, 229, 250, 264 Unit 17, 86, 102, 141, 155, 202

280 Upward flow theory 5 User 21, 29, 78 V Value 93, 138, 163, 213, 261, 265 Variation 69, 134, 161, 162, 200 Vendor 62, 65, 141, 191, 193, 204 Visual merchandising 63, 149, 173, 175, 177 Volume 7, 31, 52, 67, 68, 143, 194, 196 W Wage 191, 210 Waist 7 Warehouse, warehousing 49, 268, 271 Warm 8 Washing 104, 117, 123, 131, 222 Wastage 215 Waterproof 14, 25, 42

Index Wear 5, 8, 38, 95, 221 Weaving 14, 19, 41, 42 Website 122 Wholesale, wholesaler 37, 65 Width 7, 87, 88, 164, 166, 202 Wig 15 Window display 30, 177, 180, 181 Winter 8, 9, 74, 153 Wool, woollen 8, 153, 214 Workflow 112, 113, 126 Woven 7, 202 Wrinkle 41, 225 Y Yarn 14, 42, 133, 199, 202, 214, 229 Yarn-dyed 214 Yen 272 Z Zip 229 Zipper 133, 201, 244