Chapter Two

Business and Legal Framework of Textile and Apparel Companies

Business Organization and Company Ownership

Sole Proprietorships
Individual owns business and inventory Typically runs business Profit considered personal income and taxed Owner personally liable for dept

Sole Proprietorship
Advantages:
Few licenses needed Easy to dissolve Control and flexibility Personal satisfaction

Sole Proprietorship
Disadvantages
Personal liability Diverse expertise needed Difficult to raise capital Profits taxed as personal income

Partnerships
Two or more individuals own business together Contract to form Profit shared according to contract and taxed as personal income Unlimited liability Change in partners requires a change in contract

Partnerships
Types:
General
Major partners Decision makers

Partnerships
Advantages:
Easy to establish Few licenses needed Can pool expertise of partners Raising capital somewhat easier Advancement possibilities

Limited
Liable only fro invested amount Profits shared according to contract Usually not decision makers

Partnerships
Disadvantages
Liability exposure unlimited Must keep minutes of meetings Potential for disagreement

Corporations
Complex ownership Considered a legal entity Stockholders are owners and are considered liable up to their investment Board of directors
Elected by stockholders Governing body

Profit to stockholders as dividends Dividends taxed as personal income

Corporations
Types
Public
Shares can be owned by public Traded on public stock market Submit financial info to SEC

Corporations
Advantages
Easier to raise capital Limited liability for owners Ease of transfer of ownership Management not completely dependant on ownership Potential for employee advancement

Private
Shares owned by a small number of individuals Not sold to public Stockholders highly involved in operations

Corporations
Disadvantages
Complicated to establish Formal Charter restricts type of business Laws vary by state Higher taxes Seen as impersonal by employees Owners typically not involved in daily operation

Company Expansion and Diversification

Types
Merger
Blending of one company into another A+B = New A (One leaves, the other stays)

Types (cont)
Takeovers
One company gains control by obtaining large enough portion of shares Either mergers or consolidations Friendly or hostile

Consolidation
Combing of two companies into one new company A+B=C

LBO
Leveraged buy out Public corporation stock purchased by a group of investors Use corporation assets as collateral to borrow the money

Types (cont)
Conglomerates
Diversified companies involved with significantly different lines of business Example Sara Lee
Food Also owns
Hanes, Bali, Champion, Coach

Competition
Goal of all companies: to make a profit Forms of strategies:
Price Quality Innovation Services Combination

Competitive Situations
Monopoly:
One company dominates

Monopolistic Competition
Most common for textile and apparel industry Many companies compete within a product type Consumers consider products of different companies unique
Example - Jeans

Oligopoly
A few companies dominate and control

Pure competition
Many price determined by market demand

Ways to achieve product differentiation Design characteristics Branding Buy brand recognition through licensing Private labels or store brands Manufacturer vertical integration
Own retail outlet

Licensing
An agreement where the owner of particular property sells the right to use the property to another party for royalties. Typically manufacturers buy rights

Types of licensed goods

Character Disney Corporate Coca-cola, Porsche sunglasses Designer name Ralph Lauren Celebrity name Martha Stewart Nostalgia Marylyn Monroe Sports and College Universities Events and Festivals Super Bowl Art Replications of famous art

To make it work
Consumers must desire the brand name Perception of difference in product based on brand name Well-established image oriented property a must

Marketing Channel
Defined:
The process of moving products from manufacturer to the ultimate consumer

Types
Direct:
Manufacturers sell to the consumer Inefficient for most consumers Consumers rely on retailers to screen and provide a more narrow choice

Involves:
Manufacturing Wholesaling Retailing

Limited
Manufacturer sells to retailer Retailers may arrange for production of their own goods
Private label

Extended
Manufacturer, wholesaler, retailer, consumer Used for basics
A long time in the channel Fashion goods use a shorter channel

Retailers as gatekeepers
Narrow choice Convenient access

Apparel manufacturers as retailers

Ralph Lauren, Nike,

Marketing Channel Integration

Defined:
The process of connecting various levels of the channel to work together

Vertical Multichannel/Dual
Manufacturer has own store (vertical) and other retailers (conventional)

Conventional
Independent companies Perform separately

Marketing Channel Flow

Physical flow:
Actual movement of merchandise

Payment flow:
Transfer of money

Ownership/title flow:
Transfer of ownership Who owns what when negotiated at time of sale

Promotion flow:
Communications to promote goods, increase sales Trade promotion and consumer promotions

Information flow:
QR, EDI Information about product

Laws
Patent
An exclusive right to a idea, product, or process
Typically technological innovations in production of the products themselves

Trade dress
Similar to trademark Law to protect the overall look or image of a product or the packaging Shape of the coca-cola bottle

Differing periods of time

Trademark
Distinctive mark used to identify a product Registered and renewable Counterfeit goods

Copyright
VERY complex!! Fair use

Laws (cont)
Fair competition
Sherman Anti Trust
Prevent monopolies

Cellar-Kefauer
Competitive advantage through mergers and acquisitions

FTC Act
Unfair trade Interstate commerce

Wheeler-Lea
Amend FTC act Extend unfair competition protection

Robinson-Patman
Exerting excessive economic power

International trade
To establish fair trade among countries Administered by US Customs

Environmental practices
Pollution control

Consumer protection
Labeling laws Flammable fabrics

Employment practices
Fair hiring and employment practices