The Fashion Business Back to Table of Contents
Chapter 3 The Fashion Business Types of Businesses Fashion and Economics 2
The Fashion Business Chapter Objectives Explain the three main market segments of the fashion industry. Describe the primary forms of business ownership. Identify the key risks faced by fashion businesses. Explain how globalization has affected the fashion industry. Describe the impact of the fashion industry on the U. S. and world economies. Explain the relationship between supply and demand. 3
The Fashion Businesses A series of events must take place for a business to have a fashion product that consumers will accept and buy. It is important to understand the various businesses that comprise the fashion industry. Section 3. 1 4
The Fashion Business Fashion Industry Segments One of the three main segments in the fashion industry is the: Primary market Section 3. 1 primary market the industry segment that includes businesses that grow and produce the raw materials that become fashion apparel or accessories 5
The Fashion Business Fashion Industry Segments One of the three main segments in the fashion industry is the: Secondary market Section 3. 1 secondary market the industry segment that includes businesses that transform raw materials into fashion in the merchandise production phase 6
The Fashion Business Fashion Industry Segments One of the three main segments in the fashion industry is the: tertiary market the industry segment that includes retail businesses such as stores Tertiary market People who work in each of the segments must have knowledge of the other segments of the industry. Section 3. 1 7
The Fashion Business Fashion Industry Segments The businesses in the primary market generate products used in the production of the final products. The textile industry is the largest segment of the primary market. Textile is a broad term referring to any material that can be made into fabric by any method. Section 3. 1 8
The Fashion Business Fashion Industry Segments Businesses in the secondary market produce garments by transforming textiles into the finished products. The main types of producers in the secondary market are: Manufacturers Section 3. 1 Wholesalers Contractors Product Development Teams 9
The Fashion Business Fashion Industry Segments The tertiary market is concerned with retailing the selling of products to customers Selling can be either direct selling or the exchange of merchandise in return for money or credit. Section 3. 1 10
The Fashion Business Fashion Industry Segments Support industries include: Advertising and public relations Accounting and financial Product development and market research Support industries may help lower operation costs and allow companies to focus on fashion. Section 3. 1 11
The Fashion Business Types of Fashion Business Organization There are three common types of business organization: Sole Proprietorship Partnership Corporation New fashion companies must decide which form of business entity to establish. Section 3. 1 12
The Fashion Business Types of Fashion Business Organization The sole proprietorship is the most common form of business organization. Section 3. 1 sole proprietorship a business owned and operated by one person 13
Types of Fashion Business Organization Sole Proprietorship Requires licensing from local authorities, not federal authorities Owner is personally responsible for the company. Section 3. 1 Owner has freedom to operate as he or she feels is necessary. Business profit is taxed as personal income tax. 14
The Fashion Business Types of Fashion Business Organization In a partnership each , partner contributes money, property, labor, or skill, and expects to share in the profits or losses of the business. Section 3. 1 partnership a business created through a legal agreement between two or more people who are jointly responsible for the success or failure of the business 15
Types of Fashion Business Organization Partnership Business has fewer regulations than a corporation. Each partner is personally liable for debts. Each partner is taxed separately on individual tax returns. Section 3. 1 16
The Fashion Business Types of Fashion Business Organization Wal-Mart is an example of a large corporation a business that is chartered by a state and legally apart from the owner or owners A charter is a legal document that grants certain rights and privileges to the company by the state. Section 3. 1 17
Types of Fashion Business Organization Corporation Must be chartered by the state Continues to exist even after the death of of one of the owners, or shareholders Has the right to issue stock Profit taxed to both the corporation and to the shareholders when profit is distributed as dividends Stockholders are owners. Section 3. 1 18
The Fashion Business Fashion Risks Fashion business owners take a risk when they start a business. risk the possibility that a loss can occur as the result of a business decision or activity Fashion business owners should use risk management a strategy to offset business risks Section 3. 1 19
Fashion Risks Types of Risks Economic Human Natural Weak economy Human error Natural disasters Workplace safety Weather Theft Section 3. 1 20
Fashion Risks Other Categories of Risks Pure Risks that occur when there is a possibility of a loss, but no chance to gain from the event Speculative Risks that occur when gains or losses are possible Controllable Risks that can be prevented or reduced in frequency Section 3. 1 Uncontrollable Risks Events that a fashion business cannot prevent from occurring Insurable Risks Pure risks that could exist for a large number of businesses, including those for which the probability and amount of loss is predictable Uninsurable Risks that occur when the chances of a risk cannot be predicted or when the amount of loss cannot be estimated 21
Fashion Risks purchase insurance Managing Risk implement employee training pass risk back to the manufacturer through warranties Section 3. 1 22
The Fashion Business Web Power For emergingan e-tail business on an electronic channel—the Operating designers wanting to sell their products, the choice is between clicksdue to design, delivery, returns, and Web—can be costly, and bricks—online retail versus operating expenses. traditional in-store retail. Online stores are a great way to start a business without the overhead of renting retail space. Though Many larger dot-com companies crashed in the However, building an online store Cyclery reaching Newton, 1990’s, small stores like Harris means of West customers Massachusetts, with a increase sales using and receive and providing themactuallysecure way to pay for a basic Web site. Today, a third of Harris’s bicycle business rides in their purchases. To do this, many entrepreneurs team up on the Web to get hard-to-find as Yahoo!, e. Bay, service. with established e-tailers suchparts and personaland Amazon. Known as an online auction site, e. Bay also sponsors fashion Describe an e-business’s home page to your class after stores. viewing one through marketingseries. glencoe. com. For more information, go to marketingseries. glencoe. com. Section 3. 1 23
The Fashion Business 3. 1 1. What are three main market segments of the fashion industry? 2. What are three types of fashion business ownership? 3. How can fashion businesses minimize risk? Section 3. 1 24
The Fashion Business Impact on Global Economy Changes in government policies and new trends in international trade have caused the market for fashion goods to increase. Section 3. 2 25
The Fashion Business Impact on Global Economy Globalization allows citizens of most countries to shop and enjoy products from around the world. Section 3. 2 globalization the increasing integration of the world economy 26
The Fashion Business Impact on Global Economy Globalization has created increased competition between countries in the manufacturing sector of fashion. Labor is a major component of the cost of production for fashion products. Section 3. 2 27
The Fashion Business The Balance of Trade involves imports and exports. imports goods that come into a country from foreign sources or goods that a country buys from other countries exports goods that a country sends to a foreign source or goods that a country sells to other countries Section 3. 2 28
The Fashion Business The Balance of Trade The balance of trade affects the economic health of a country. Section 3. 2 balance of trade the relationship between a country’s imports and exports 29
The Balance of Trade Surplus Balance of Trade Deficit Section 3. 2 30
The Fashion Business Trade Agreements and Restrictions Free trade exists when a government allows products to move freely across its borders. Section 3. 2 31
The Fashion Business Trade Agreements and Restrictions The North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada is an example of a free-trade agreement. The World Trade Organization (WTO) is an international organization that promotes and enforces trade laws and regulations. Section 3. 2 32
The Fashion Business Globalization and America The globalization of the fashion industry is evident in the United States. Givenchy of France has stores in New York City, Europe, the Middle East, and Asia. Escada of Germany has shops in Las Vegas, Nevada. Benetton of Italy has stores in the United States and India. Gap stores are in the United States, Canada, France, and Germany. Section 3. 2 33
The Fashion Business International Fashions Advances in technology have increased communication around the world. Producers, designers, and retail buyers cover the globe in search of new products. Section 3. 2 34
International Fashions Produced in China with fabric from India Designed by a designer in France For sale in a shop on Rodeo Drive in Beverly Hills Modeled on the runways in Milan, Italy, and Paris, France Section 3. 2 Purchased by a customer in New York City to wear at a trendy party 35
The Fashion Business Impact on Domestic Economy According to the American Textile Manufacturers Institute (ATMI), U. S. consumers spend $275 billion every year on apparel. 3 billion slacks or pants Section 3. 2 5. 7 billion shirts or blouses 370 million sweaters 36
The Fashion Business Impact on Domestic Economy Approximately 1 million employees work in the U. S. textile segment, representing 6 percent of all U. S. manufacturing industries. These industries support 2. 75 million jobs in the textile industry. Section 3. 2 37
The Fashion Business Impact on Domestic Economy Issues in the textile industry include: Declining use of domestically grown cotton affecting the U. S. cotton industry Rise of global competition Section 3. 2 38
The Fashion Business Supply and Demand The law of supply and demand affects pricing in the fashion industry. If a price is low enough, the demand for a product will probably increase. Section 3. 2 supply the quantity of product offered for sale at all possible prices demand the consumer’s willingness and ability to buy and/or use products 39
The Fashion Business Supply and Demand The interaction of supply and demand creates the conditions of surplus, shortage, or equilibrium. These conditions often determine whether prices will go up, down, or stay the same. Section 3. 2 40
The Fashion Business Supply and Demand Profit dictates the supply of goods available for sale. Section 3. 2 profit the money a business makes after all costs and expenses are paid 41
The Fashion Business Supply and Demand Other factors that influence supply include: Government laws, regulations, and subsidies Bad publicity Consumer actions such as boycotts Promotion such as advertising Section 3. 2 42
The Fashion Business Employment in the Fashion Industry The most obvious impact the fashion industry has on the domestic economy is in the area of employment. Section 3. 2 43
The Fashion Business Employment in the Fashion Industry The United States regulates the amount of imported textiles by setting trade quotas restrictions on the quantity of a particular good or service that a country is allowed to sell or trade Businesses must be able to compete without quotas. Section 3. 2 44
The Fashion Business Employment in the Fashion Industry Studies show that the textile and apparel industries will continue to be major providers of a variety of jobs as the fashion business continues to grow. Section 3. 2 45
The Fashion Business 3. 2 1. How has globalization impacted the fashion industry? 2. What is the difference between supply and demand? 3. Describe the state of employment in the U. S. fashion industry. Section 3. 2 46
The Fashion Business Checking Concepts 1. Name three segments of the fashion industry. 2. Identify common forms of business organization in the fashion industry. 4. Globalization are 3. The key secondary, 2. Three forms of 1. primary, risks is the increasing economic, business are sole and tertiaryhuman, integration risks. and naturalof the proprietorship, world economy. partnership, and corporation. 3. List risks experienced by fashion businesses. 4. Define globalization. continued 47
The Fashion Business Checking Concepts 5. Explain how globalization has affected the fashion industry in the U. S. and around the world. 6. Define supply and demand. continued 6. Supply is the 5. It has allowed quantity of product people in most offered for sale at countries to have all possible prices. access to products Demand is the from around the consumer’s world. It has willingness and caused increased ability to buy competition and/or use products. between manufacturers in different countries. 48
The Fashion Business Checking Concepts 7. Describe economic conditions that result from the interaction of supply and demand. Critical Thinking 8. Discuss the impact of NAFTA on the fashion industry. 8. NAFTA has allowed 7. The interaction of global and demand supply free trade, which in resultshaseither eliminated or surplus, shortage, reduced tariffs or equilibrium. for trading goods, including textiles, apparel, and other fashion products. It has also increased global competition. 49
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