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The Innovative Design Protection and Piracy Prevention Act
- Spells out American designers' intellectual property rights
- Will provide protection to new and original designs for three years
- The only copycat designs prohibited by law have to be deliberate copies that are "substantially identical" to original designs
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We judge another company by its _____, but we judge our own company by our _____...
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How do we measure success?
- Gross margin
- Net margin
- Sell through
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Gross margin
- Net sales - total cost of goods
- Generally a pre-determined markup that covers ALL expenses (marketing & selling costs, operating expenses) plus profit
- Profit is planned as a % of gross sales
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Net margin
Net sales - (cost of goods + operating expenses)
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Sell through
Percentage of units sold at full price
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Net income
- The amount of revenue earned after ALL relative costs have been deducted during an accounting period
- Used by most businesses as the ultimate determining factor for success
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Pricing formula
Cost of goods + markup = selling price
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Pricing strategies: 3 variables
- 1) The cost of goods
- 2) The gross margin
- 3) The retail price
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Rigid calculation approach (pricing)
- Uses a formulaic approach to pricing
- For example, ALL wholesale prices will meet a pre-determined gross margin
- Works for basic styles but may cause problems for updated products
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Subjective pricing
- Strategy that takes the following into consideration:
- -Current selling price of similar competitive items
- -Uniqueness of the style compared to competitors
- -Current value of the product brand
- -Current consumer advertising plans
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Issues with subjective pricing
- Care has to be taken to evaluate the effect
- Deviates from the rigid calculation process a company might currently be using
- Merchandiser must be able to justify new pricing on the basis of final margin
- Volume vs. margin %
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If a wholesale price is reduced by $2...
- Gross margin is greatly reduced
- Style must sell more or other styles in the line have to be priced to compensate for the loss
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Costing levels
- Multi-level costing process for product developers
- 1) Quickie costing (estimates)
- 2) Costing for sale (calculating)
- 3) Production costing (monitoring)
- 4) Accounting costing (reporting)
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Quickie costing
- Preliminary cost estimates during early part of the development process
- Based on previous costs and fabric requirements
- Allows product developers to pick out styles that have little chance of adoption due to price
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Costing for sale
- Accurate cost calculations used in considering product adoption
- Based on an actual garment sample
- Fabric requirements are calculated from a test marker using size scale and fabric width details
- Used in determining wholesale prices
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Production costing
- Measure of actual variable manufacturing expenses for labor and materials
- Depicts the actual cost of production but does not consider all aspects of sales volume
- Figures can be used in the next season's quickie & costing for sale
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Accounting costs
- Measures cost of goods, fixed variable manufacturing costs, plus G&A costs
- Corporate accountants use this method to evaluate profit and loss for the company
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Things to consider when traveling overseas
- Passport / visa
- Shots
- Hotels
- Air travel
- Navigating around the country
- Cultural anomalies
- Currency
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What are overseas agents responsible for?
- Negotiation
- Local knowledge
- Quality control
- Day-to-day updates on production and sample status
- Shipping arrangement
- Quota procurement
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How do agents make money?
Flat monthly fee + sales commission (based on first cost of garment)
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Negotiating prices
- Determine target prices (must know import costs, final selling price, expected gross margins)
- Must have a basis or precedent for target prices (if style was made before, how much did it cost?)
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Negotiating prices process once the factory/agent quotes an initial price
- Does it meet the target?
- If not, how far off is the price?
- Ask for justification of price
- Can you revise the garment to achieve price?
- Is price including quota?
- Is price FOB factory or FOB port?
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Methods of production
- FOB (free on board)
- CMT (cut, make, trim)
- LDP (landed duty paid)
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FOB
- Factory undertakes full responsibility of garment until it reaches the port and is loaded onto a vessel
- Price includes:
- -Fabric, trims, all raw materials
- -Labels
- -Cutting, sewing
- -Embellishments, printing, embroidery
- -Packaging, cartons, hangers
- -Shipping to port of departure
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CMT
- Factory is NOT responsible for any raw materials
- Fabric & trims must be shipped to the factory in time to meet production schedules
- Used mostly when importer has a specialized fabric
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LDP or "full package"
- Factory will pay for everything
- One price is paid to get the fully finished goods into your Distribution Center
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807
- Fabric purchased and cut in the US
- Cut pieces trucked to another country to be sewn
- Duty is only paid on the sewing costs
- Label says "Made in America"
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Freight forwarders
- Organizes the shipment of goods
- Best freight raets
- Full or partial container loads
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Import brokers
Responsible for ensuring the smooth clearance of goods through US customs
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Documents needed for US customs
- Bill of lading, airway bill, or carrier's certificate
- Commercial invoice (obtained from the seller), showing the value and description of the merchandise
- Entry manifest
- Packing lists
- Quota documents
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How is duty calculated?
- Depends on the goods being imported
- Apparel is usually "ad-valorem" = a % added to the FOB amount quoted on the commercial invoice
- Duty is not added to any quota costs
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How is duty paid?
- Money goes to the US govt
- The amount of duty has to be paid to customs prior to release of goods
- Duty does not need to be paid on goods not for commercial use (mutilated samples)
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What needs to be shown on clothing labels?
- Country of origin
- Care instructions
- Fabric content
- RN number (importer of record)
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Three methods of mutilating a sample
- 1) Section is cut or torn from the main body of the garment, at least 2" in length
- 2) A hole is punched or cut on the outside in a prominent area of at least 1" in diameter
- 3) May be marked with the word "SAMPLE" (at least 1" x 2") in indelible ink or paint
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Cash in advance
- Importer must send payment to the supplier prior to shipment of goods
- Importer must trust that the supplier will ship the product on time and that the goods will be as advertised
- All risk is placed on the importer/buyer
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Down payment
- Buyer pays the seller a portion of the costs up front
- Buyer must hope that the seller makes the product
- Seller must begin production without guarantee of full payment
- Shared risk between buyer & seller
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Open account
- Normally used when the buyer and seller have a good, long-standing relationship
- Buyer pays seller all or portion of costs at a pre-determined time
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Letter of credit
- Most common form of papyment
- Buyer pays for goods up front but hte money is held by the bank untnil the seller has produced the requisite documents
- Documents needed: commercial invoice, bill of lading (shows shipping info), certificate of inspection
- Disadvantage for buyer is that they are out the costs up front, but advantage is that they are protected
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