Executive Summary
The internet has brought an unprecedented level of interconnectivity on a global scale through which more and more transactions such as banking and even retail are conducted online (Crespo 2009).
Sites such as Amazon.com, Ebay, Craigslist and numerous other online retail suppliers are able to sell items such as computers, books, desks, clothing and even furniture online all of which are growing indicators of a shift in consumer preferences from buying their wants and needs through traditional stores to picking the convenience of the internet for all their shopping needs (Gregg 2009).
Based on this concept this paper explores how the process of production outsourcing can be used alongside online E-commerce platforms in order to make the company, A-Threads.com a viable business without having to expend large amounts of capital during the initial startup.
Introduction
In the apparel industry a distinct shift has occurred in the balance of market power wherein retailers instead of manufacturers take a dominant role in today’s economy (Petrovic & Hamilton, N.D.). This change is reflected in the various procurement strategies of retailers which are no longer limited to a local or regional basis but rather take into account the reality of a global supplier and manufacturing base (Petrovic & Hamilton, N.D.).
The concept of product outsourcing has become an integral strategy for many of today’s manufacturers in the apparel industry this is due to the fact that the production and supply process is far cheaper in countries such as China and the Philippines as compared to locations such as the U.S. and Europe.
One interesting factor to take note of is that production outsourcing is not limited to ordinary clothing brands but rather encompasses various luxury brands as well such as Dolce & Gabana, Louis Vuiton, Chanel and Burberry. These particular companies have production facilities not only in China but in Vietnam, Cambodia, Thailand and Philippines.
Uniqueness of Products
Current trends in the apparel industry all have a habit of appearing one day and disappearing the next. Today’s fashion trends are all about uniqueness, with consumers wishing to have a sense of individuality in their clothes and dressing styles. This has resulted in various companies trying to market styles which are distinctly “individual”.
What most of them do not seem to understand is that achieving a unique individualistic looking style means forgoing the looks company’s sell and instead combining several different styles to create one unique one.
In line with reasoning several companies cater to this particular style trend by allowing consumers to mix and match various styles towards their own taste. Companies such as Von Dutch, Hed Kandi and Nike allow certain levels of customization for their products which are not evident in clothes and various types of apparel sold in big box retailers.
Chosen Apparel
The type of apparel I have chosen for the company, A-Threads.com, are custom designed t-shirts, jeans, coats etc. that are designed by the customer. This will be done by using an online clothing design application similar to what Nike has on their main website that enables customers to custom design their own shoes. The website for A-Threads will come with tools that enable customers to design exactly what type of outfit they want.
The various designs, styles and makes will be based on a pallet of design choices that can be incorporated into shirts, coats, t-shirts and jeans. The customer will be given the option of what particular type of button they want, what style of cut they want on the jeans, how they want the pockets look, basically the site will enable them to design their own unique type of apparel.
They can also choose to incorporate pre-made designs onto the shirts themselves or choose to incorporate their own designs by uploading a picture onto the site and pasting it onto the design of the shirt. Once they have exactly the type of apparel they want the can choose to save the design on their online account for future use.
Transaction Process
If they want to purchase what they made they can click a button which will take them to the online shopping application of the site where the cost of the design will be evaluated for the customer, once an agreed upon price has been set the customer can choose whether to pay for it using a credit card or Paypal account and they can also choose how many shirts they want to buy.
Once the transaction has been approved, the design along with the instructions on how to make it will be sent to the company’s production facility where a trained employee will follow the given instructions on the site and create the custom designed outfit. Once completed it will be washed, pressed, packaged and sent via FedEx to the home of the customer. The estimated time between product completion and product arrival will be roughly five days to a week based on the time the product was paid for.
Mission Statement
At A-Threads, we are committed to providing our customers with the means to dress in the way they like, in the style of their choice and in the most affordable means that we can. We pride ourselves on the quality our work and we assure customers that an experience with us is an experience like no other.
Specific Details about Company
This particular type of Apparel Company will focus on selling customer designed shirts created by visitors to the company’s website who utilize the flash based outfit maker software application that will enable them to pick from a plethora of design choices. The problem with trying to directly compete with larger brands is that they have far better marketing departments, consumer advocacy groups, retail departments, supply lines and contracts with various retailers not only in the U.S. but in other locations around the world.
While trying open a small boutique would enable A-Threads to keep its costs low the fact remains that there is no guarantee that the clothing brand the company creates will actually be successful. It was decided that the best possible method would be to utilize an E-commerce platform in order to reach a wide consumer base while at the same time keeping costs at a minimum.
Using the Internet
Due to its the widespread proliferation with thousands of users being added to the online browsing population on a daily basis the breadth and depth of the internet is not to be underestimated (Lacharite 2009). With estimates placing the number of users in the hundreds of millions companies have started to capitalize on this trend by moving traditional operations such as advertising and retail to online mediums in order to attract customers to their products.
Traditionally the buying and selling of products and services has always occurred either through a face to face transaction, a letter of intent or even a simple phone call where a person places an order and pays upon delivery (Crespo 2009). Due to advances in technology where the scale and scope of the retail industry has come to encompass a global market place the traditional processes by which this industry has always followed has started to change.
This trend has not been limited to small scale online retail transactions even wholesale suppliers of basic raw materials ranging from building supplies to even chemicals as well as numerous other materials have started selling their products online and making them readily available in bulk shipments (Hashim 2009
Initial Service
The initial service the company will offer would be for customers to use our patented online “Apparel Maker” software that gives them the ability to design their own unique type of shirt, dress, jeans, coat etc. I believe that this level of customization will sufficiently attract customers since few sites actually enable customers to customize what they wear to such a degree.
While other apparel makers may attempt to focus on retailers such as Walmart I believe that trying to directly compete against large and established clothing brands would be folly. Rather, focusing on a niche market with something truly unique has the possibility of bringing in more sales compared to direct competition.
The initial roll-out of A-Threads will be on the international level with the primary language on the site being English but with subsequent expansions will incorporate other languages depending on site statistics detailing which international demographic visits the site more.
Advantages of Online Retail
One aspect of regular retail stores and outlets is that they require employees in the form of cashiers, stock clerks, baggers, store managers and an assortment of other personnel within the store that enables a store to operate and give a customer a pleasant shopping experience ( Ramaswami 2009).
With an online store a company is able to save money on employee salaries, benefits and bonuses since the entire process has been automated using computers resulting in the potential for a greater product to profit ratio due to the lower costs involved in operations.
The only cost involved in such a venture would have to be the cost of the domain name or in the case of rented online capacity the cost of cyberspace which is actually negligible considering the fact that the cost of putting up an online retail store today is equivalent to only a quarter of a single employees salary in most retail outlets in the U.S (Okonkwo 2009).
As mentioned earlier the store will primarily focus on custom designed apparel however most of the materials and the production process itself will be done primarily in the Philippines. It is expected that in the first year alone of production the company could potentially save thousands of dollars due to the relatively low priced production rates in the Philippines. In order to properly market the website Google Ads and Social Networking advertising will be extensively utilized.
Physical Space
Since the production facilities will be done in the Philippines my research shows that the best place to set up a production facility would have to be in the Philippine province of Cavite. The overall cost as stated by the various people I contacted through the Philippines Association of Realtors Boards (PAREB) reveals that on average a single small factory can be rented out for 420,000 pesos a month which is equivalent to 9,767 U.S. dollars.
Marketing costs
Marketing costs for this particular venture will reach $20000 during the first few months of operations with $2000 going towards online advertising and will increase depending on the level of consumer response.
The reason why the initial amount for online advertising is low is due to the fact that Google Ads and Facebook ads will be the primary marketing tool used in this study. The remaining $18,000 will go into hiring a reputable PR firm that can start a small advertising and information campaign for the company. If the venture should prove to be successful more money will poured into the PR marketing and online advertising campaigns.
Contractors
In order to save money on operating costs and production all apparel ordered from the company will be directly sourced from a small factory that will be created in the Philippines. After contacting several Philippine retailers the average cost of made to order shirt, pants, jackets etc. including labor and materials will be roughly $9 to $12 per piece.
This is for shirts consisting of high grade material for normal products consisting of cotton and various synthetic fibers the average cost ranges from $3 to $4 per piece. As such in order to lower the cost of production even more the company will setup its own factory unit and hire local tailors to be part of the production process.
Equipment costs
Due to the rather unique method of product creation where the customers themselves design the product there is a distinct need for a better degree of product process control as such instead of hiring an outside contractor the company itself will setup shop within the Philippines. In total the basic cost of factory equipment, various supplies, and delivery equipment will total roughly $100,000 in total expenses in order to properly get the factory started.
Employees
With most of the operations being handled by an automatic E-commerce system salary costs for this particular business venture will be limited to the following: Tailors: $372 a month per person ( seven people), Factory Supervisor: $550 a month per person (two people), Delivery truck driver: $300 a month per person, IT Support Department in the Philippines: $600 a month
The reason why the salary range is so low is due to the fact that the basic minimum wage limit in the Philippines is far lower compared to that of the U.S. As such the company is able to save money on the cost of labor which will further enhance the cost of profits.
Website
The overall cost of the website will be equivalent to $1000 per month as estimated from GoDaddy.com. The reason behind this lies with the fact that the overall server architecture needed to run a site of this complexity will require a certain amount of bandwidth and storage space which cost a certain degree per month. This also includes the price of individual accounts granted to customers when they become members of the site.
Miscellaneous costs
In order to celebrate the launch of the site $30,000 will be spent on a well advertised party with various members of the media and press invited in order to promote the site via their print and online articles.
Break Even Point
Based on current estimates regarding the overall cost of production, the site must make on average at least $15,000 in order to break even in terms of the overall cost of production, marketing and website maintenance. This is equivalent to the sale of 200 items from the online store at an estimated cost of $25 each. This estimate is based on the cost of labor, delivery and employee salaries and is dependent upon the type of item made.
Conclusion
As consumer preference continues to change towards developing their own unique style demand will rise for a particular type of company that can satisfy their need for individuality while at the same time being a commercially viable solution. With more and more people turning towards the use of internet shopping as method in which they can reach the world and shop at their leisure the website for this business will be able to provide them with an outlet for their desire to be individualistic without breaking the bank so to speak.
Based on this investors in the company would be individuals who would like to get on the ground floor of a new type of business model for the apparel industry that caters towards individualism and uniqueness while at the same time allowing products to be produced cheaply and effectively.
Works Cited
Crespo, Herrero., DelBosque, Rodriguez., & De los Salmones Sanchez, Garcia. The influence of perceived risk on Internet shopping behavior: a multidimensional perspective. Journal of Risk Research, 12(2), (2009): 259-277
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Hashim, Noor. Ecommerce and SMEs The Need for Caution. Prometheus, 27(2), (2009): 125-140.
Lacharite, Jason. Major Inconvenience or Minor Irritation? Canadian Perspectives on Electronic Commerce, Globalisation and Taxation. Commonwealth & Comparative Politics, 47(2), (2009): 151-173.
Okonkwo, Uche. Sustaining the luxury brand on the Internet. Journal of Brand Management, 16(5/6), (2009). : 302-310.
Petrovic, Misha. & Hamilton, Gary. Making Global Markets Walmart and its Suppliers. pg. 107 – 141
Ramaswami, Sridhar., Srivastava, Rajendra., & Bhargava, Mukesh. Market-based capabilities and financial performance of firms: insights into marketing’s contribution to firm value. Journal of the Academy of Marketing Science, 37(2), (2009): 97-116