FM 2.01 Understand the role of distribution in the fashion industry

Strategies of Distribution Within Fashion Retailing

Distribution Terms  Agents: Intermediaries who assist in the sale and/or promotion of goods and services but do not take title to them  Channels of distribution: Paths, or routes, that goods or services take from the producer to the ultimate consumer or industrial user  Exclusive strategy: A distribution pattern in which a producer sells a product through just one middleman in a geographic area  Intensive strategy: A distribution pattern in which a producer sells a product through every available wholesaler and retailer in a geographic area where consumers might look for it  Intermediaries/middlemen: Channel members operating between the producer and the consumer or industrial user to help in the movement of goods and services  Logistics: comprehensive plan for scheduling the delivery of required supplies and materials at destinations as needed.  Manufacturing: The process of converting raw materials, components, or parts into finished goods that meet a customer's expectations or specifications.

Distribution Terms  Order processing: activities involved in managing the details of preparing and receiving a customer order.  Retailers: Businesses that buy consumer goods or services and sell them to ultimate consumers  Selective strategy: A distribution pattern in which a producer sells a product through a limited number of middlemen in a geographic area  Transportation: A marketing function that adds time and place utility to the product by moving it from where it is made to where it is purchased and used. It includes all intermediate steps in the process.  Vendors:  (industrial definition) An organization that supplies specific goods or services to the business markets and/ or organizational markets.  (retailing definition) Any firm from which a retailer obtains merchandise.  Vendor-managed Inventory: Inventory replenishment arrangement whereby the supplier either monitors the customer's inventory with own employees or receives stock information from the customer. The vendor then refills the stock automatically, without the customer initiating purchase orders.  Warehousing: Performance of administrative and physical functions associated with storage of goods and materials. These functions include receipt, identification, inspection, verification, putting away, retrieval for issue, etc.

Role of Distribution in Fashion Retailing  Place, in the marketing mix, is how and where products are offered to customers. It represents distribution, or the best ways to get the products into the hands of potential customers.  A materials supplier might sell directly to garment manufacturers at trade shows.  An apparel manufacturer might have salespeople who sell to department stores, discount chains, or other types of retailers.  Sometimes apparel producers might sell directly to consumers in other ways, such as their own mail order catalogs or websites.  Some manufacturers use multiple distribution systems by combining several distribution methods.  Transportation must also be considered, such as moving the goods by train, plane, or truck. Companies use the most efficient method to get their products to the right locations.

Role of distribution in fashion retailing  Each of the distribution channels has distinct characteristics and different strengths and weaknesses:  Manufacturer Owned stores - brand is strongest, but requires investment in property, stock and sales people  Independent fashion stores - offers a unique or more specialized sales channel, but carries a limited amounts of stock. Also, the costs of processing, e.g. for delivery and administration, are relatively higher for smaller orders.  Department stores - will buy centrally but may want discounts if they order in bulk, reducing profitability  Possible 'shop-in-shops' a unique concept where the customer feels that they are in a specific store.  Some stores share its marketing information about what types of customers are purchasing and which products are most in demand. This will enable the company and department store to provide the relevant stock to maximize revenue.

Textile/Apparel Pipeline Soft Goods Chain Textile/Apparel Pipeline The Soft Goods Chain Textile Segment Apparel Segment Retail Segment Natural and manufactured fiber production Yarn production Fabric manufacturing, finishing Apparel design Apparel manufacturing Apparel sales Retail quantity buying Single-item selling to consumer

Textile/Apparel Pipeline Soft Goods Chain  The soft goods chain is the channel of distribution for apparel and home decorating textiles. It is also called the textile/apparel pipeline.  The textile/apparel pipeline, or soft goods chain, has three main segments that feed products beginning raw materials to finished items for consumers, what are the end users.

The Textile Segment  The Textile segment starts with fiber production. The next step is yarn production. Next is fabric manufacturing which is done in textile mills. The final step in textile production is fabric finishing. This is done by bleaching, dyeing, printing, or applying special coatings. These processes impart color, texture, pattern, ease of care, and other characteristics to fabrics. They change the appearance, feel, and/or performance of each fabric to suit various end users.

The Apparel Segment  The Apparel Segment produces finished garments and accessories. First the apparel must be designed. After fashions have been designed, they must be manufactured. Almost all are mass produced in factories. Apparel sales involves selling the manufactured garments in large quantities to retail stores. This serves as the wholesale sales step in the chain since apparel does not have a separate wholesale segment the way many other industries do. Most garments are sold and shipped directly from the manufacturer s at a wholesale price, to retailers. The lack of a separate wholesale segment also helps to keep prices low since fewer middle men are involved. Inexpensive accessories and small, non-fashion products do go through wholesalers, often referred to as resellers.

The Retail Segment  The Retail Segment sells the merchandise directly to consumers. Retailers buy in large quantities at wholesale prices and then mark up the goods in order to cover costs of heat, lights, taxes, sales help, and other expenses and then sell individual items to the consumer. The retail price also includes some profit for the retailer. Consumers are at the end of the soft goods chain, but satisfying their wants and needs is the objective of all the preceding companies in the pipeline.

Intermediaries of distribution in fashion retailing Intermediary Channels  Manufacturers- a person or company that makes goods for sale.  Agents- Intermediaries who assist in the sale and/or promotion of goods and services but do not take title to them  Wholesalers – Organizations that purchase products from suppliers, such as manufacturers or other wholesalers, and in turn sell these to other resellers, such as retailers or other wholesalers.  Retailers – Organizations that sell products directly to final consumers.  Resellers- A wholesaler of inexpensive accessories and small non-fashion products. They distribute goods between and retailers or users.  Franchisee-The person or group that owns a franchise business.  Franchisor-The person or firm with the famous or established name used by franchisees.  Consumer- People who buy and use finished products.  OTHER:  Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers.

Intermediaries of distribution in fashion retailing Specialty Service Firms - organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product)  Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee.  Distribution Service Firms – Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing.  Others – This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance.

The process of distribution in fashion retailing A direct distribution system allows the product to reach the intended final user of their product by distributing the product directly to the customer. There are no other parties involved in the distribution process that take ownership of the product. The direct system can be further divided by the method of communication that takes place when a sale occurs.  Direct Marketing Systems – With this system the customer places the order either through information gained from non-personal contact with the marketer, such as by visiting the marketer’s website or ordering from the marketer’s catalog, or through personal communication with a customer representative who is not a salesperson, such as through toll- free telephone ordering.  Direct Retail Systems – This type of system exists when a product marketer also operates their own retail outlets. As previously discussed, Starbucks would fall into this category.  Personal Selling Systems – The key to this direct distribution system is that a person whose main responsibility involves creating and managing sales (e.g., salesperson) is involved in the distribution process, generally by persuading the buyer to place an order. While the order itself may not be handled by the salesperson (e.g., buyer physically places the order online or by phone) the salesperson plays a role in generating the sales.  Assisted Marketing Systems – Under the assisted marketing system, the marketer relies on others to help communicate the marketer’s products but handles distribution directly to the customer. The classic example of assisted marketing systems is eBay which helps bring buyers and sellers together for a fee. Other agents and brokers would also fall into this category.

The process of distribution in fashion retailing  Provide a link between production and consumption. A distribution channel can be very simple, with just two layers (producer and consumer). A distribution channel can also be very complicated, with several levels.  Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a "channel level". The figure below shows some examples of channel levels for consumer marketing channels. Channel 1 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers' goods and then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have an incentive to cut out the wholesaler. Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store.

The strategies of distribution in fashion retailing  Place is not always a physical building such as a retail outlet or shop, but includes any means by which the product is made available to the customer. A business has to balance getting enough of its products to its target customers against the problems or costs of distributing them.  For a premium or luxury brand, making the products too easily available might reduce the perceived value of the brand. (This illustrates the need to select carefully how the marketing mix is put together to match the product to the needs of the target market.) Distribution Strategies  In intensive distribution, the producer's products are stocked in the majority of outlets.  In selective distribution, the producer relies on a few intermediaries to carry their product.  In exclusive distribution, the producer selects only very few intermediaries.  Not only does intensive distribution provide convenience and availability to consumers, it also increases their brand preference and loyalty.

Inventory control and management within fashion retailing

Inventory Control Terms  Inventory Control: accounting system of maintaining inventories to prevent stockouts, reduce holding costs, and permit detecting theft.  Material handling: moving, packaging, and storing of materials in every form, ranging from raw materials to finished goods. It includes the shipping, receiving, and processing of incoming items and outgoing products, returns to suppliers, and disposal of scrap.  Periodic inventory: At the end of an accounting period, the ending-inventory is determined by an actual count of every item and its cost is computed by using a suitable method such as FIFO. This amount is subtracted from the sum of purchases (or cost of goods manufactured) and the beginning-inventory of the new accounting period to arrive at the cost of goods sold.  Perpetual inventory: A manual or automated inventory accounting system where inventory is accounted for in a real-time basis with adjustments, delivery, movements, and receiving being updated as they occur.  Physical inventory: Actual count, weight, volume, measure, or sighting of items in an inventory.  Point of Sale (POS): A data collection system that electronically receives and stores bar code information derived from sales transactions.  Shrinkage: Difference between book-inventory and physical-inventory due to counting or recording errors, or resulting from pilferage, spoilage, theft, or wastage.  Universal Product Code (UPC): Twelve-digit barcode printed or affixed on virtually everything sold in supermarkets or retail stores, including books, magazines, candy, etc., for automatic checking-out at the cashier counter. UPC not only identifies an item, it also provides real time information on quantity sold, store traffic pattern, and inventory and ordering information.

Inventory Control and Management in Fashion Retailing  Inventories are goods held on hand for the production process or for sale to customers. Manufacturers have three main groups of inventory:  Raw materials - production fabrics, trimmings, and notions.  Work-in-Process – includes partially completed products in parts or sections that have not yet been joined together.  Finished Goods – completed post production items.

Inventory Control and Management in Fashion Retailing  Inventory Control is the process of maintaining inventories at a level big enough to prevent stock-outs yet small enough to minimize holding costs. Keeping large or wrong inventories is expensive (higher insurance premiums, taxes, warehouse space, etc ). Fashion goods lose their appeal, becoming obsolete as time passes.  Materials handling includes all activities of the goods not involved in actual production processes. Examples include moving, storing, packing, and transporting of the raw materials, semi-finished parts, or final products.

Factors that impact inventory control in fashion retailing  Finances  Cost of borrowing money to stock your inventory.  Watching interest rates help plan purchases.  An installment loan requires payments regardless of your sales.  An equity loan usually doesn't require repayment until you've made some profits.  Warehouse operations and transportation costs.  Cost of gas  Goals  Sales goals  Customer service objectives  For example, if you promise same-day delivery, your inventory management must have the product on hand to meet customer demands.  Flexibility to deal with market ups and downs  Offer discounts or sit on your inventory when shifts in consumer buying habits occur.  Responsibility  To oversee your inventory  Ensure orders are placed appropriately and regular audits performed.  Your primary overseeing duties are the only internal control you can count on.  Employees typically don't have the same stake in your business as you do and may not keep a close eye on inventory.  Employees who maintain inventory controls set in place can be rewarded and those who continually make bad inventory decisions can be removed.  Availability  Product suppliers who deliver poor-quality merchandise also can throw unexpected snags into your inventory supply chain.  Understanding suppliers' lead-time requirements can help you maintain sufficient inventory.  Find and utilizing backup suppliers is an internal decision that also can cover inventory shortages.  Joining a bulk-purchasing group places some of your inventory control in the hands of others, but may prove to be worthwhile.