HOW TO IMPROVE AND EXPAND TOMMY HILFIGER WOMEN S UNDERWEAR IN THE CHINESE MARKET?

HOW TO IMPROVE AND EXPAND TOMMY HILFIGER WOMEN’S UNDERWEAR IN THE CHINESE MARKET? MADE IN CHINA BIYUN HU STUDENT NUMBER: 199696 INTERNATIONAL FASHIO...
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HOW TO IMPROVE AND EXPAND TOMMY HILFIGER WOMEN’S UNDERWEAR IN THE CHINESE MARKET?

MADE IN CHINA

BIYUN HU STUDENT NUMBER: 199696 INTERNATIONAL FASHION MANAGEMENT BACHELOR GRADUATION THESIS 2011

How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

Amsterdam Fashion Institute – Final Thesis

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market

Biyun Hu Amsterdam Fashion Institute – HvA International Fashion Management Amsterdam, 25th May 2010 Coach: Mr. Henny Jordaan Second Reader: Joop Smit

Declaration of authorship I, Biyun Hu, declare that the work presented in this thesis is original and done by myself. Any usage of the work from other author or organization within this thesis is properly recognized in the footnotes and a list of references is included.

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Table of contents SUMMARY.............................................................................................................................................................7 PREFACE ..............................................................................................................................................................9 CHAPTER 1 1.1 1.2 1.3 1.4

PURPOSE OF THE THESIS ......................................................................................................................10 PROBLEM DEFINITION ............................................................................................................................10 RESEARCH OBJECTIVES ........................................................................................................................11 RESEARCH METHODOLOGY ...................................................................................................................11

CHAPTER 2 2.1 2.2

TOMMY HILFIGER UNDERWEAR......................................................................................13

TOMMY HILFIGER UNDERWEAR .............................................................................................................13 TOMMY HILFIGER IN CHINA ....................................................................................................................14

CHAPTER 3 3.1 3.2 3.3

INTRODUCTION .....................................................................................................................10

THE CHINESE UNDERWEAR MARKET............................................................................19

UNDERWEAR MARKET POTENTIAL IN CHINA .........................................................................................19 COMPREHENSIVE MARKET SHARES IN CHINA ......................................................................................21 THE CHALLENGES IN CHINA ..................................................................................................................21

CHAPTER 4

SUPPLY CHAIN MANAGEMENT ........................................................................................23

4.1 GARMENT MANUFACTURER....................................................................................................................23 4.2 HUMAN RESOURCES ..............................................................................................................................24 4.2.1 Logistic Coordinator ....................................................................................................................25 4.2.2 Sales & Marketing Coordinator..................................................................................................26 4.2.3 Buying & Planning Coordinator .................................................................................................27 4.2.4 Production Coordinator...............................................................................................................28 4.3 LOGISTICS ..............................................................................................................................................29 4.3.1 Distribution Process ....................................................................................................................29 4.3.2 Pick and Pack Service ................................................................................................................30 4.3.3 Incoterm ........................................................................................................................................31 4.4 BRAND PROTECTION ..............................................................................................................................31 CHAPTER 5

ELEMENTS OF THE MARKETING MIX .............................................................................33

5.1 PEOPLE ..................................................................................................................................................33 5.2 PRODUCT ...............................................................................................................................................34 5.2.1 The collection ...............................................................................................................................35 5.2.2 Size offering..................................................................................................................................38 5.2.3 Garment Fitting and Grading .....................................................................................................40 5.2.4 Packaging .....................................................................................................................................54 5.3 PLACE.....................................................................................................................................................55 5.4 PROMOTION ...........................................................................................................................................58 5.4.1 Sales Personnel...........................................................................................................................58 5.4.2 E-commerce .................................................................................................................................59 5.5 PRESENTATION ......................................................................................................................................60 5.6 POSITION ................................................................................................................................................62 5.7 PRICE .....................................................................................................................................................66 5.7.1 Cost and Price in Europe ...........................................................................................................66 5.7.2 Price strategies at Chinese market ...........................................................................................67 CHAPTER 6

SWOT ANALYSIS / MATRIX ................................................................................................70

CHAPTER 7

CONCLUSION AND RECOMMENDATIONS.....................................................................71

REFERENCES ....................................................................................................................................................73

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Summary China is well known for its manufacturing capabilities. For decades many companies around the world have delegated their production to the factories in China. The words “Made in China” have become one of the most recognizable labels in the world today and can be seen on a huge range of goods from electronics to clothing. Meanwhile the economy in China has kept on growing and is no longer just a country with low-cost labour. Having a huge population (1.3 billion people) and a growing economy, China is becoming a very important market in the world. Taking notice of the economic growth in China and the government’s intension to stimulate the domestic market, many foreign companies have been triggered to explore and seize the market opportunities there. Tommy Hilfiger is one of these companies. By realizing that the development and expansion of the business in this important market is better supported by assuming direct control, Tommy Hilfiger Group reacquired the direct control on wholesale and retail distribution in China from Dickson Concepts and set up a new branch in China called Tommy Hilfiger China, which will start operating in January 2011. Tommy Hilfiger has already been active in China for many years and its apparel is generally well-received by the Chinese consumers. On the other hand, its lingerie business has limited success in the Chinese lingerie market. The women’s underwear collection was introduced to Chinese retailers in 2008, however to date only one Tommy Hilfiger retail store located in Hong Kong has started selling women’s underwear products next to its huge apparel collection. Therefore the main question of this thesis has been raised: “How can Tommy Hilfiger improve its supply chain, product image and sales of women’s underwear to become more successful in the Chinese market?” The following sub questions are:  What is the current situation and comprehensive market shares in the Chinese local lingerie market?  What are the main challenges that Tommy Hilfiger women’s underwear is facing in China?  How can Tommy Hilfiger efficiently improve its supply chain in the local market?  Who are the consumers of Tommy Hilfiger women’s underwear in the local market? What are the buying behaviour, preferences and body type for this group?  What are the possibilities for implementing and expanding the business in China?  Who are the competitors in the local market?  Why is it beneficial for Tommy Hilfiger to invest in the local market? And what will be the long-term goal for Tommy Hilfiger women’s underwear business in China? Through investigating the challenges inside the local supply chain, researching the potential in the Chinese lingerie market and studying the existing Tommy Hilfiger lingerie products, five recommendations are summarised:  It is advised to prioritize the constructing of a professional body wear team in Tommy Hilfiger China. Though close cooperation with the European head office, this team is expected to be able to handle the local market independently in 2~3 years by creating design, product development, advertising and sales completely customized to the local market.  Via exploring the direct distribution routes to the local customers and utilizing the advantages offered by a local carrier will minimize logistics costs and lead-times.  Adjusting the styling, fitting packaging and price of the existing garments to the local market can lead to a positive brand perception.

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 The business of Tommy Hilfiger women’s underwear will discover more opportunities at the second tier cities in China once it finds solution to a few problems in these regions.  Presenting unique “shop-in-shop” concepts and offering high quality customer service will make the Tommy Hilfiger women’s underwear collection more competitive in the Chinese mid-high level lingerie market.

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Preface In 2008 I started my internship at Tommy Hilfiger Europe B.V in Amsterdam. I was assigned to the Bodywear department which is a small and new department within in the whole company. The division handles sales, design, production, and logistics for its product line. Currently Bodywear have four main product categories: women’s underwear, women’s loungewear, men’s underwear and men’s loungewear. After my internship of 5 months I was employed as Production Coordinator in Bodywear. In the coming 2 years I have experienced the improvement, growth and strategies in this division. Although living, studying and working in Europe for many years, I am always expecting to connect my career to the region where I come from – China. The country’s GDP has kept on growing and is no longer just a country with low-cost labour but a very important market in the world. This has inspired me when I started to write final graduation assignment to complete my study at Amsterdam Fashion Institute. I would like to thank to Mr. Henny Jordaan– my coach; Ms. Marian McLaughlin, Mr Stephen Fetherston and Mr. Joop Smit – the readers and advisers of this thesis. I would like to thank the following people from Tommy Hilfiger Europe B.V for their support and input: Annique van der Zande, Director of Bodywear Christine Ngin, Senior Product Developer of Bodywear Katrina Hardy, Senior Product Developer of Bodywear They have been inspiring, supporting and advising me throughout the whole process. Last but not least, I would like to thank to Albert who has accompanied and supported me from the beginning till the end.

Biyun Hu May 2010

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Chapter 1 1.1

Introduction

Purpose of the Thesis

Since China’s “Reform and Opening Policy” in 1978, the Chinese economy has become one of biggest in the world. The Chinese government had focussed mainly on the modernisation of industry and export, until the recent economic crisis in the Western world and its effect on the Chinese economy. As a reaction to these events, the leaders of the government have decided that the development of a Chinese domestic market should have priority in the next five year plan. Taking notice of the economic growth in China and the government’s intension to stimulate the domestic market, many foreign companies have been triggered to explore and seize the market opportunities there. Tommy Hilfiger is one of these companies. Tommy Hilfiger is famous in China for its casual wear, sportswear, denim, and accessories. Its women’s underwear business has four years of history in the European market and has become more and more competitive within the European mid-high level lingerie segment. However, the business has limited success in the Chinese lingerie market. The women’s underwear collection was introduced to Chinese retailers in 2008, however to date only one Tommy Hilfiger retail store located in Hong Kong has started selling women’s underwear products next to its huge apparel collection. The purpose of this thesis is to analyse the challenges and opportunities for the development of Tommy Hilfiger women’s underwear business in China and to draw conclusions that will benefit its business in the long term. Recommendations in this thesis will focus on helping Tommy Hilfiger women’s underwear to achieve the following: - A more efficient supply chain for its products - Providing more satisfaction to its target group - Minimizing complete modification of its existing European products - Having its existing products smartly and swiftly adjusted for the local market - Better sales at developing cities in China - Competing in the high level lingerie segments 1.2

Problem Definition

Many mid-high level lingerie brands (including Calvin Klein, Triumph, Chantal Thomass, etc.) have successfully entered the Chinese market while the activities of Tommy Hilfiger lingerie are still restricted to the European regions. Realizing from this fact, it is interesting to investigate the main research question: “How can Tommy Hilfiger improve its supply chain, product image and sales of women’s underwear to become more successful in the Chinese market?”

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To support the final conclusion of the main research question, the following sub questions are defined: - What is the current situation and comprehensive market shares in the Chinese local lingerie market?

1.3

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What are the main challenges that Tommy Hilfiger women’s underwear is facing in China?

-

How can Tommy Hilfiger efficiently improve its supply chain in the local market?

-

Who are the consumers of Tommy Hilfiger women’s underwear in the local market? What are the buying behaviour, preferences and body types for this group?

-

What are the possibilities for implementing and expanding the business in China?

-

Who are the competitors in the local market?

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Why is it beneficial for Tommy Hilfiger to invest in the local market? And what will be the long-term goal for Tommy Hilfiger women’s underwear business in China? Research Objectives

Starting from January 2011, Tommy Hilfiger group has reacquired the direct operating on wholesale and retail distribution in China. Therefore, this thesis will investigate in depth the factors, prospects and complications that Tommy Hilfiger women’s underwear business are facing in the Chinese lingerie market. The conclusions and recommendations will be supported by the research outcomes, experiments and several comprehensive proposals. The main aim of this research is to offer a new management, marketing and merchandizing approach for Tommy Hilfiger women’s underwear business to successfully operate in the local market in China. 1.4

Research Methodology

Many primary and secondary data are used in order to answer the main question and sub questions. Primary data includes internal meetings, interviews and target group research from the company. Secondary data is collected from the books, journals, sales report, lecture materials, newspapers and websites. A long time spent working at the company and daily contacts with the clients and personnel offer direct access to practical information. After this introduction chapter, the chapters that follow will each focus on one or more research questions. The outlines of the chapters are as follows: Chapter 2 – Tommy Hilfiger underwear This chapter will introduce briefly the background and the development history of Tommy Hilfiger underwear collection. The data from the graphics in this chapter will show that Tommy Hilfiger lingerie is not doing well in the Chinese market.

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Chapter 3 - Chinese underwear market This chapter will first describe the current Chinese women’s underwear market and the top 10 lingerie brands in the local market. Afterwards, the challenges that Tommy Hilfiger women’s underwear are facing will be identified. Chapter 4 - Supply chain management This chapter will analyse the main existing problems within its supply chain to the local market such as: lack of qualified personnel, inefficient logistics routes and brand imitation. Possible ways to improve its supply chain management will also be investigated in this chapter. Chapter 5 - Elements of marketing mix This chapter will research and analyse the 7 marketing Ps. Several ideas will be suggested regarding target group, styling, packaging, fitting, location, promotion and pricing in order to adjust to the local market and improve sales. Chapter 6 - Swot analysis matrix This chapter will present the swot analysis matrix in which the internal and external factors will be listed in the form of “bullet points”. Chapter 7 - Conclusion and Recommendation This chapter will draw conclusions on Tommy Hilfiger’s women’s underwear business in China. Recommendations will be made at the end of the chapter.

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Chapter 2

Tommy Hilfiger underwear

This chapter will give a brief introduction of Tommy Hilfiger women’s underwear business and its current performance in the Chinese market.

2.1

Tommy Hilfiger Underwear

Tommy Hilfiger is a lifestyle brand founded by Thomas Jacob “Tommy” Hilfiger in 1984. The brand targets consumers with a taste for classic American fashion with a twist. The brand covers a wide range of products for men and women including: clothing, underwear, footwear, swimwear, accessories, fragrances and bedding products. These are sold at dedicated retail stores, department stores and specialty stores worldwide.

Tommy Hilfiger Summer Collection advertisement

The department that is responsible for the brand’s underwear collection is called “Bodywear” in Tommy Hilfiger. It is situated in the European head office based in Amsterdam and it handles sales, design, production, and logistics for its product line. Currently Bodywear have four product categories: women’s underwear, women’s loungewear, men’s underwear and men’s loungewear. Men’s and women’s underwear represent 70% of the total bodywear collection. Before 2008, a manufacturing company called Delta Galil Industries LTD was responsible for the entire body wear collection of Tommy Hilfiger. This means all designs, development and logistic were arranged by Delta Galil. Unfortunately, the designs and quality delivered by Delta Galil did not meet the expectations. At that time, the entire line experienced long lead time, unprofessional fittings and postponed deliveries. As result, Bodywear was losing business, especially for women’s underwear. Therefore, beginning of 2008 it had been decided for Bodywear to do everything internally instead of relying on Delta Galil. Design, product development, quality control and logistics are all done internally in the head office in Amsterdam.

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2.2

Tommy Hilfiger in China

Tommy Hilfiger Asia-Pacific is a branch of the Tommy Hilfiger group founded in 1998. It owns and operates free standing Tommy Hilfiger stores and concessions within big department stores (also known as “shops-in-shops” concept) in Asia. Since the opening of the first Tommy Hilfiger retail store in Hong Kong in 1998, the brand has achieved strong recognition and a growing customer base not only in Hong Kong but also in other Asian markets including Taiwan, China, Singapore and Malaysia where retail and wholesale networks have been established. Its success led to a HK$396 million acquisition by a company called Dickson Concepts (International) Ltd. in August 2006.1 As result of this acquisition all brand operations in Asia are no longer controlled directly by the Tommy Hilfiger Group. Four years had passed and the Tommy Hilfiger group came to the realization that the Chinese market was becoming increasingly important. Fred Gehring, the CEO of Tommy Hilfiger Group, is convinced that the development and expansion of the business in this important market is better supported by assuming direct control.2 Therefore Tommy Hilfiger Group reacquired the direct control on wholesale and retail distribution in China from Dickson Concepts and set up a new branch in China called Tommy Hilfiger China, which will start operating in January 2011. Meanwhile Dickson Concepts will still continue as Tommy Hilfiger authorized licensee at other areas in Asia including Hong Kong, Macau, Taiwan, Singapore and Malaysia. Tommy Hilfiger has currently 103 selling points in China including its own retail stores and shops-in-shops. The chart on page 6 shows the Tommy Hilfiger retail stores located in China

A Tommy Hilfiger store in Hong Kong Time Square shopping mal

1

Dickson Concepts, press-release. From: http://www.dickson.com.hk/doc/pressrelease/Release%20-E.pdf [retrieved 11-112010] 2

PR Newswire, news-releases. From: http://www.prnewswire.com/news-releases/tommy-hilfiger-to-assume-direct-control-ofdistribution-in-china-89578017.html [retrieved 11-11-2010].

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City

Store & Location Tommy Hilfiger store

Products menswear, womenswear, accessories, handbags

wangfujing avenue

Beijing

Tommy Hilfiger outlet

menswear, womenswear, accessories, handbags

dong si huan road(e.)

Tommy Hilfiger outlet

menswear, womenswear, accessories, handbags

xiang jiang road(n.)

Tommy Hilfiger store

First tier cities

west nanjing road

Shanghai

Tommy Hilfiger outlet

menswear, womenswear, denim men, denim girls, accessories, handbags menswear, womenswear

pu qing ping road

Tommy Hilfiger store

menswear, womenswear, accessories, handbags

changle road

Shenzhen

Tommy Hilfiger store

menswear,womenswear,accessories, handbags

shen nan road(e.)

Tommy Hilfiger store new town plaza

Tommy Hilfiger store

Special administrative regions

Hong Kong

the landmark central

Tommy Hilfiger store

menswear, womenswear, fragrance childrenswear, accessories, footwear, underwear, socks, handbags, watches menswear, womenswear, fragrance childrenswear, accessories, footwear,underwear, socks, handbags, watches childrenswear, footwear, socks

harbour city

Tommy Hilfiger outlet pu qing ping road

Macao

Tommy Hilfiger store

menswear, womenswear, denim men, denim girls, accessories,footwear, underwear, handbags sportswear

the grand canal shops

Changsha

Tommy Hilfiger store

menswear, womenswear, accessories,footwear, socks, handbags

huang xing road(m.)

Hilfiger Denim store

Chongqing

hilfiger denim, accessories, footwear, socks, handbags

metropolitom plaza

Hilfiger Denim store

hilfiger denim, accessories, handbags

Beichengtian street

Chengdu

Tommy Hilfiger store

menswear, womenswear

Da ke jia lane

Fuzhou Second tier cities

Tommy Hilfiger store

menswear, womenswear, accessories, handbags

yang qiao road

Nanjing

Tommy Hilfiger store

menswear, womenswear, accessories, handbags

zhong shan road

Shaoxin

Tommy Hilfiger store

menswear, womenswear, accessories, handbags

east shengli road

Wenzhou

Tommy Hilfiger store guozheng mansion plaza

Wuxi

Tommy Hilfiger store

Xi’an

Tommy Hilfiger store

menswear, womenswear, denim men, denim girls, accessories, handbags menswear, womenswear, accessories, handbags

zhongshan road menswear, womenswear, accessories, handbags, fragrance

century ginwa (gaoxing)

Suzhou

Tommy Hilfiger store

menswear, womenswear, accessories, handbags, fragrance

guanqian street

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Core – Fall 2011 Licensees buy quantity overview ( in units ) for body wear products

How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

China is already well known for its manufacturing capabilities. For decades many companies around the world have delegated their production to the factories in China. The words “Made in China” have become one of the most recognizable labels in the world today and can be seen on a huge range of goods from electronics to clothing. Meanwhile the economy in China has kept on growing and is no longer just a country with low-cost labour. Having a huge population (1.3 billion people) and a growing economy, China is becoming a very important market in the world. So it is definitely worthwhile for Tommy Hilfiger to pay more and more attention to the fashion purchase power from the Chinese market. From Spring 2009 till now Tommy Hilfiger Body wear has clients (called Licensees) in the following regions: China, Hong Kong, Korea, Japan, Panama, USA, India and Canada. The graphic on page 13 and 15 are the buying data in the recent years regarding China and Hong Kong as well as other licensee regions. Although Tommy Hilfiger has already been active in China (and Hong Kong) for many years and its apparel is generally well-received by the Chinese consumers, the women’s underwear business isn’t particularly successful. From the figures it is evident that in the recent years the buy quantity for Tommy Hilfiger women’s underwear products in China is very low, especially when compared to the quantities bought by clients for other regions.

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Buy quantity overview for China (in units)

Buy value overview for China (in US Dollars)

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Chapter 3

The Chinese underwear market

This chapter will analysis the current Chinese lingerie market and describe the challenges that prevent Tommy Hilfiger women’s underwear business from operating in the market successfully.

3.1

Underwear Market Potential in China

In the 1980s~1990s foreign lingerie was quite rare in China. The market was dominated by local brands which offered products that were rather of simple/boring design and poorly manufactured from knitted cotton. However, changes have taken place in recent years following the opening-up of China. With the improvement of people's living standards, international underwear enterprises have begun to enter the Chinese market. Intimate brands from the US and Europe are eager to sell their products in the Chinese market, instead of only doing the mass production in China. As a result, consumers have far more choices and better products nowadays, which have innovative designs, quality fabrics and, more importantly, finer workmanship. Nowadays, in the Chinese underwear market, the average growth rate of sales amount and sales volume of bras, briefs, bodies is keeping 15%-20% per year, far exceeding the growth level of China's Gross domestic product (GDP).3 China, as an emerging lingerie market has seen a great growth rate during the same time. The lingerie market is estimated to be of a total value of 2 billion euros, and industry experts predict a further positive increase of 20% every year. The country is the third largest for luxury consumption and is expected to catch up with the position of Japan in the next 10 years.4 Although Chinese lingerie manufacturers are looking at the global market, the rest of the world is giving more and more attention in the Chinese market. Major lingerie brands in China have reconsidered their market positions. They are now offering fashionable lingerie at lower prices and are putting a lot of marketing efforts to sustain their brand image in China. Products from different sources now share the Chinese Lingerie market, each dominating a different segment of it. The medium-to-top end is controlled by brands produced through joint venture companies, bringing together western technology and local manufacturing capacity. These brands have a significant presence in shopping malls. Then there are brands designed and manufactured domestically, mainly targeting the medium-to-low end of the market. Imported brands of women's lingerie are usually sold at fashionable department stores, with price tags at several hundred to over a thousand Yuan (about 100 euro), internal products in local boutiques sell for about Rmb100 (around 10 euro). Inner-city consumers in China can usually afford underwear cost Rmb100 to Rmb200 (10 to 20 euro). Products within this price range account for 60% of total sales. Most are manufactured by joint venture enterprises.5 60% of the underwear consumers who are buying lingerie are females aged between 15 - 45 years old. At the beginning female consumers were focusing on comfort, body form, ultra-thin and other major functions from the brand while taking into consideration regarding the cost. 3

China Research & Intelligence, December 2010,”Research Report on China's Underwear Industry, 2011-2012”

4

Fibre2fashion, Lingerie and lingerie's only–A global report (Part II - China). From: http://www.fibre2fashion.com/industryarticle/15/1418/lingerie-and-lingeries-only-part-ii1.asp [retrieved May 2011]

5

Liu Xianguang,”Foreign brands lead China's underwear market”. From: http://info.hktdc.com/imn/01062802/lingerie01.htm [retrieved May 2011]

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Currently Chinese female consumers have higher requirements to their underwear, in addition to comfort, adjustable and body formed. They expect their underwear to be fashionable and add more fashion and feminine elements to their entire outfit. Lingerie has become part of outwear as much as underwear. The hundreds underwear sales people from main Chinese department stores in international cities such as Shanghai, Shenzhen, Nanjing etc all agree that underwear is now developing closer to a fashion product from the design, material, production technology aspects. Moreover, with the improvement of Chinese living standards, it's a trend to match underwear with fashion. Besides for beauty, women's underwear is also expected to function as body beautification and body strengthening. Lingerie is increasingly becoming one of the most desirable items in the wardrobe of Chinese women. Chinese woman spend on average 8% of their fashion budget on lingerie annually. Though 8% doesn’t sound much, China has a huge population and so it is very promising to do business in China. International brands including CK, Triumph, Esprit, Aubade, Christian Lacroix, Eminence, Cacharel and Janine Robin have entered the Chinese market, focusing on its potential and believing that China's market is as important as the European market. "I don't see any difference between Chinese women and French women who look at the same movies and read the same fashion magazines," said the famous lingerie designer Chantal Thomass during an interview. "Chinese women also want to be seductive; it is the same all over the world." China is a major target of many international brands. The main target is the first tier cities like Hong Kong, Beijing, Shenzhen, Shanghai, Dalian, Chengdu, and Guangzhou. Demand for branded lingerie in these cities is always very high and the trend is slowly spreading to smaller cities as well. Shenzhen is considered as the new 'fashion capital' of China. Many popular brands sold in the global market are being exported from here. Many domestic lingerie brands and international lingerie brands (including Topform, Calvin Klein, Triumph and Victoria's Secret) are having their production base in Shenzhen. Another leading manufacturing centre for lingerie is the city of Shantou in the Guangdong province. Its port is one of the leading harbours in China and shipping of goods to many foreign countries are relatively cheaper. Lingerie exports of Shantou average around $650 million for a year. Associated towns of Gurao, Chendian, Liangying and Xiashan are also leading manufacturing cities. Gurao has more than 440 intimate wear manufacturers. Xiashan and Chendian produce $100 million worth of intimate apparels annually. To put it briefly, China has the fastest expanding underwear industry in the world. It is estimated that domestic underwear sales will hit 500 billion Yuan (US$62.27 billion) in the year 2012.

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3.2

Comprehensive Market Shares in China

According to the statistics of China National Commerce Information Center by end of 2010, there are 10 top brands who are leading the local lingerie market. These top 10 lingerie brands in China is account for 64% comprehensive market shares of the total Chinese lingerie market. Amier leads the market with 13.85% of the comprehensive market share. Followed by Maniform, with 9.63%. Triumph and Embryform ranked No. 3 and No. 4 respectively by their comprehensive market shares over 5% of. Then Wacoal and Ordifen, whose comprehensive market share nearly 5%; From No. 7 to No. 10 were Gujin, Sunflora, Gracewell and Haoby, whose comprehensive market share less than 5%.

3.3

The Challenges in China

To improve and expand Tommy Hilfiger women’s underwear in the Chinese market, Tommy Hilfiger will have to face the following challenges: Supply chain Need to set up the system of organizations, people, technology, activities, information and resources involved in moving Tommy Hilfiger Women’s underwear products from supplier to customer.

Brand protection There are a lot of illegal imitations of Tommy Hilfiger underwear on the market which are sold much cheaper. Asian taste vs European styling It is important to filter the European collection to what is suitable for the Chinese market. Understanding that Tommy Hilfiger just began its exploration to the women’s underwear in the Chinese market, it is not wise to completely modify existing designs and shapes all at once. Target group aiming Amsterdam Fashion Institute – Bachelor Thesis

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In general Tommy Hilfiger targets young adults to women around 45 years old for its women’s underwear products. However the products are only affordable for people with a relatively high income which is uncommon for young adults in China. Sizes offered and fitting This is the most difficult subject to realize in this whole project from both technique and production aspects. Competitors from same specialization Tommy Hilfiger is still unpopular with its women’s underwear products in China compared with other famous lingerie brands.

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Chapter 4

Supply Chain Management

This chapter will analysis the current problems inside the local supply chain of Tommy Hilfiger women’s underwear business and detailed advices will be given accordingly.

4.1

Garment manufacturer

Tommy Hilfiger women’s underwear collection is handled completely by a manufacturing company called ‘Sunlane International Ltd’ based in Hong Kong. 70% of Tommy Hilfiger’s underwear bulk garments is produced there. Therefore Sunlane is the most important direct vendor for Tommy Hilfiger underwear and has been working with Tommy Hilfiger Europe for 4 years under very good cooperation and a close relationship. Sunlane’s head office is located in Hong Kong while its production factory is over the border of China in Shenzhen. Sunlane is specialized in the production of bras, swimwear and all kinds of knitwear. Besides Tommy Hilfiger, they also have other clients from famous brands like Ralph Lauren, Esprit, Triumph (for Chinese and Japanese market) etc. Shenzhen is the third busiest container seaport in China, ranking only after Shanghai and Hong Kong. Having a factory in Shenzhen, Sunlane can offer a great convenience to the transportation and competitive cost price per product which will benefit the project of Tommy Hilfiger women’s underwear expansion hitting the Chinese market.

Port of Shenzhen viewed from Shenzhen Bay

Sunlane provides the service from the preparation, sampling and production until the garments are completely labelled, packed for departure from the factory. The company has a good merchandising team that follows up with clients from design, fabric selection, price quotation, pattern making and packaging instructions. Furthermore, Sunlane is a part of the Sun Hing group. The Sun Hing group consists of many companies and factories that produce from accessories, fabric to packaging. In a word, being a member of the Sun Hing group Sunlane has the direct access to all internal suppliers of everything related to clothing. Sunlane works closely with Tommy Hilfiger Europe underwear department for the entire production process. From the moment the design packages are handed over, the merchandize team from Sunlane starts immediately with fabric, trimming sourcing. In the meantime, translated technical information will be passed to its sample room in Shenzhen to start with pattern making, arranging proto types, lab dips etc. The sample room becomes extremely busy each year during May – June and DecemberJanuary. During these periods the sample room is completely occupied for Tommy Hilfiger’s underwear salesmen samples. Tommy Hilfiger’s underwear has many clients in Europe and per season the salesmen sample quantities needed is around 16,800 pieces. Aside from these samples, Sunlane also needs to arrange the Chinese specific fitted salesmen samples for the international sale meeting held in Amsterdam at the same time. Even with this enormous demand of salesmen samples, Sunlane hardly ever uses its production line to

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produce salesmen samples. This line is strictly reserved in order to keep their production capacity up and stick to the standard lead time for Tommy Hilfiger’s bulk underwear garments. After the international sales meeting in Amsterdam, Sunlane will receive the garment development comments together with the actual bulk orders for each kept option. The bulk orders consist of 2 parts: Part 1 European order This is a consolidation of all the European buy quantity. The bulk garment will finally be delivered to the Tommy Hilfiger European bulk warehouse located at Venlo in the Netherlands. Part 2 International order This includes licensee orders from Panama, Japan, Korea, USA and also China. All these non-European buys are considered as a tag-on to European orders, they must follow exactly the European way of sizing and styling. For factory it is not cost and timing effective at all to satisfy each Non-European client with their different requests on styling or fitting of the products. However orders for the Chinese market receive a special treatment. This is because over the past years Sunlane have enjoyed working smoothly with Tommy Hilfiger Europe’s underwear department and the owner of Sunlane sees great opportunity in Tommy Hilfiger underwear’s potential in the Chinese market. Therefore they are willing to stimulate Tommy Hilfiger’s expansion in China by offering more flexibility on sampling, fitting, production, packaging and most importantly, lower production minimums. Compared with other underwear vendors, Sunlane has a shorter lead time and offers lower minimum quantity on underwear garments. The following minimum order quantities are normally applicable for Tommy Hilfiger: Bras: 500 pieces per colour, minimum 20 pieces per size. Bottoms, cami tops and t-shirts: 500 pieces per colour, minimum 20 pieces per size. Being motivated by Tommy Hilfiger entering the Chinese underwear market, the owner of the Sunlane garment factory is willing to lower the above minimum for Chinese buy portion to 300 pieces per style per colour with a minimum of 20 pieces per size on some of the solid cotton lycra or lace all over styles. 4.2

Human Resources

Even with today’s technological advances in computer systems and the huge amount of information available on the internet, a company still needs qualified personnel with specialized knowledge to keep the company running. This is especially true for the new office in China. The employees in Tommy Hilfiger European body wear department are all very well educated, highly qualified and productive. However, the workload will be much heavier if they have to focus both on the European market (where the current profit comes from) and the Chinese market at the same time. Even though the employees are highly motivated, they will be facing many difficulties to monitor the activities in China over long distance. The business will demand extra marketing research, order consolidation, delivery tracking and sales activities in the local area. These can’t be done efficiently in Europe without bringing the efficiency down on the current tasks there.

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It is therefore important and urgent for Tommy Hilfiger to find employees for its new office in China. Not just anyone, but people with professional knowledge and trustable for decisionmaking. They are expected to handle the daily communication with Europe head office, sales in local market and customer services. For the time being design and product development will take place in the European head office, despite the bringing the efficiency down there in Europe. Instead of relying on the personnel in Europe, Tommy Hilfiger China office should consider to start building up their own body wear team to focus more on the demands from local market and meanwhile closely cooperate with European head office. This way it will not only reduce the working pressure on the European side but also by having its own complete body wear team (from design to production to customer service) will provide a good foundation for Tommy Hilfiger China when it launch its own underwear products in the local market in the near future. A good example to be inspired is from the famous underwear brand Triumph with its matured underwear team that is located in China, which is specialized in design, fitting and sales towards the local market. The Body wear department for Tommy Hilfiger China office will need to hire employees for the beneath job titles: -

Logistic coordinator Sales & Marketing coordinator Buying & Planning coordinator Production coordinator

4.2.1 Logistic Coordinator

Logistics is defined as a business-planning framework for the management of material, service, information and capital flows.6 It includes the increasingly complex information, communication and control systems required in today’s business environment. The main task of the logistic coordinator is to take care of the whole inbound and outbound activities. It includes, salesmen samples inbound & outbound, bulk cartons packaging and shipping marks, distribution, checking and approving all inbound & outbound invoices. Responsibilities and job functions of the logistic coordinator are: Salesmen samples inbound & outbound The salesmen samples are supplied for sales personnel to promote Tommy Hilfiger underwear products to its clients before the season starts at the market. Salesmen samples are very important for the whole underwear team. Not only do the sales personnel need to review the collection in advance but also the production coordinator has to use them for development purpose. Besides, some of the key clients might require salesmen samples for photo shoot or other promotion activities. On many occasions the sales personnel take the samples with them and travel to the clients, therefore it is the responsibility of the logistic coordinator to make sure there are enough salesmen samples in the office at any given time. Bulk cartons packaging and shipping marks The logistic coordinator is responsible to give directions to the factory on the bulk packaging. This has to meet the standards set by Tommy Hilfiger and what has been agreed with its clients. The cartons used for bulk shipment should be filled but not over packed. Over packing will lead to bruising and impressions on garments during shipment. Underutilizing carton causes the carton to collapse and burst open at the sides. The outer cartons must be 6

Logistix Partners Oy,1996, Helsinki, FI

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clearly labelled for forwarder to scan on the barcode to register the product and the destination per carton. The goods need to be distributed to different clients without fail. Therefore, the packing units must be well checked and labelled before being picked up by the forwarder. The logistic coordinator is also required to visit the factory’s warehouse during the peak season before the goods leaving the factory to make sure there are no problems with the pick and pack. Bulk distribution When the bulk garments are packed, they are delivered to the nominated forwarders. Tommy Hilfiger forwarders will take over the shipment to distribute the products to it’s clients. The bookings of the shipment will be sent in advance to the logistic coordinator for approval on four aspects: - estimated time of delivery - estimated time of arrival - packing units per purchase order - freight mode The delivery progress needs to be closely followed by the logistic coordinator. In case of delivery delay or products damage happen, the logistic coordinator will take action to adjust the planning and inform affected clients as soon as possible. If the delay and damages are caused by a third party, the logistic coordinator has to found to what extend the third party can be held liable for. In a word, the logistic coordinator is expected to be on top of inbound & outbound and is responsible to resolve any issues happening during the distribution. Logistic invoices The logistic coordinator is responsible to review every logistic invoice received from the forwarders. The amount on the invoice must match the actual shipped carton units and freight mode. Once the logistic coordinator approved these invoices, the finance department of Tommy Hilfiger China can proceed with payment. 4.2.2 Sales & Marketing Coordinator The sales coordinator directs the sales programme for Tommy Hilfiger China Body wear department. He assigns the sales territories, sets goals for sales and establishes training programs for the sales representatives. The sales coordinator is expected to instruct sales representatives on how to improve their sales performance and he makes sure the expected quotas will be reached. The sales coordinator will be leading the marketing research projects. His other tasks are: communicate with the clients, arrange photo shooting, making promotion booklet. By end of the season he reviews all feedback from the market to offer suggestions for improvement. Responsibilities and job functions of the sales coordinator are: Marketing research The sales coordinator will have to assess marketing potential of new and existing store locations based on statistics and expenditures. He will also analyse the competitors and the market percentage of the competitors. Closely communication with Clients One of the most important tasks of this position is to travel a lot between different clients and introducing the seasonal collection to them. Therefore it is important to carry the samples while travelling. The sales coordinator has to monitor customer preferences to determine focus of sales efforts. He has to resolve customer complaints regarding sales and services. He visits big department stores to stimulate interest in establishing “shop in shop” projects and discussing with them regarding equipment needs and also give advice on types of equipment to purchase. Besides, the sales coordinator is required to confer or consult with Amsterdam Fashion Institute – Final Thesis

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department heads to plan advertising services and to secure information on equipment and customer specifications, such us photo shooting, special promotion capsules, events etc. Reviewing feedbacks and reports The sales coordinator will review operational records and sales reports to determine the profitability. He reviews activities in sales and service accounting and recordkeeping. In addition, any feedback he has regarding on the product (for fitting, shape, and/or styling) need to be passed to production coordinator on time. Store personnel training The sales coordinator plans and directs training programmes to improve sales and services. 4.2.3 Buying & Planning Coordinator A buying & planning coordinator oversees and organizes many facets of the division. He is good at working with numbers and he is responsible for the buying of each season. He also has to handle other tasks, such as: making sure orders are tracked, shelves are stocked, books are balanced and invoices are mailed.7 Lastly while the sales coordinator is absent (because of travelling), the buy & planning coordinator will take over the communication with the clients. Responsibilities and job functions of the buying & planning coordinator are: Forecasting and planning The buying & planning coordinator is closely involved in the manufacturing/production processes. He ensures that the resources required to make the products are in stock and available. He has to plan the flow of supplies based on the given budget and the constraints on quantity and quality. The buying & planning coordinator have to forecast the buy quantity for a collection. This forecast is important, because orders will be placed to the garment manufacturers before receiving all buy data from the clients to shorten the product lead-time. For this he will review the collection with the sales & marketing coordinator to analyse specifications, sales performance history and stock level data in order to do the calculations for the forecast. Purchase order After the forecasting has been made, purchase orders have to be placed to factory on size break level. The buying & planning coordinator has to work closely with European side to consolidate the purchase order from both side for better pricing and production planning. Finally, he will enter the final data into the system which will send the official purchase order to the garment manufacturer. Reporting and Analysing The buying & planning coordinator will take care of making seasonal reports. The reports are usually an overview of numbers and analysing on several points including; margin, buy value, buy quantity, sales value, sales quantity, best-selling products, stock level. In addition, it is important to coordinate the resolution of discrepancy reports, initiates replacement orders for lost, damaged or discrepant items and resolves problems utilizing acquired knowledge & analytical abilities.

7

Sam Amico, “Job Description for a Supervisor or Manager”, From http://www.ehow.co.uk/about_6326904_job-descriptionsupervisor-manager.html [retrieved May 2011]

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu4.2.4 Production Coordinator

The main task of the production coordinator is to make sure the production is running smoothly without any delays or problems. He instructs the factory on the correct packaging, labelling and ticketing. He handles all production related invoices. He tracks on the important sample and bulk delivery dates. He reviews all issues on fitting and sizing. Responsibilities and job functions of the production coordinator are: Garment packaging and ticketing At the beginning the design and styling of Tommy Hilfiger women’s underwear will closely follow the European collection. But the product will have its own tailored packaging for the Chinese market. The production coordinator needs to make a packaging manual to instruct factory the correct position to attach the labels, how to fold the garments and box them properly to avoid damage on both the garment and the outside packaging. Ticketing will have the UPC barcode for scanning in local stores. The production coordinator is responsible for developing the packaging and issuing the UPC ticketing from Tommy Hilfiger global system. The packing and ticketing lead-time needs to be followed up closely. It is important for production coordinator to make sure that no delays with packaging and ticketing supplement. Invoices controlling The production coordinator will have to work closely together with Buying & Planning manager to check on debit and credit notes for any production related costs. This includes the salesmen samples costs, bulk invoices that need to pay back to factory, and the commissions for design and product development which need to be paid to Tommy Hilfiger European head office. Production planning & tracking For the bulk order tracking the production coordinator needs to work closely with both the factory and the production coordinator from European head office. The factory will purchase the materials, start the production and finish the production in one lot for both European and Chinese order when both product groups have the same fabric and trimmings. However European order have to sail to Europe which add one and half month to the total lead-time while the lead-time for distributing Chinese order to local clients or Tommy Hilfiger selfowned retail stores in China is estimated to be maximum 12 working days. Therefore, it is important to instruct the factory on the production priority. It also important to direct the factory based on: the production quantity, different packaging lead-time and the required instore date by clients. If the China office and the European office can mix and coordinate their production planning together well, it will not only boost the efficiency, but also avoid extra storage charges due to early shipment or charges on expensive freight mode (by airplane) that has to use to compensate the production delay. This job function requires the production coordinator to be open minded, flexible, quick responding and creative towards any unpredictable issues during production. Fitting and sizing Same as with design and styling, at the beginning product development will be handled by the European head office. Currently the European head office has more expertise and it already has experienced all kind of technical issues with women’s underwear. Nevertheless, the production coordinator from Tommy Hilfiger China has to assist the product developers from European head office on improving the Chinese fitting per product. Detailed actions are: - Joining the European team the proto & production meeting in Hong Kong where fitting session will be arranged each season.

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4.3

Reviewing all the positive and negative fitting feedbacks received from the local customer. Discuss the issues together with the European product developers and adjust the Chinese fitting accordingly. Study the fitting from competitive brands and give advice to European product developers. Logistics

Tommy Hilfiger logistics is about creating value-to-value for its clients and suppliers. Value of logistics is expressed in terms of time and place. Products and services have no value unless they are in the possession of the customers at the time and place they wish to consume them. Logistic management views each activity in the supply chain as contributing to the process of adding value. For the project of Tommy Hilfiger women’s underwear expansion in the Chinese market, logistics has become an increasingly important valueadding process. It is suggested that Tommy Hilfiger will offer the most complete and convenient services to its clients, however the distribution route needs to be planned wisely to lower the costs. 4.3.1 Distribution Process Although from 2011 Tommy Hilfiger has taken its full ownership of the Chinese market, the underwear garments are still distributed following Tommy Hilfiger’s regular route. Once the goods were departing from the garment factory located in Shenzhen, they are transported across the border to Tommy Hilfiger distribution centre in Hong Kong. Afterwards, from the Hong Kong distribution centre garments are picked & packed following per client’s order then are distributed to the stores accordingly inside the Chinese mainland. The current distribution method has the following advantages: - It is easier for Tommy Hilfiger European office to handle. - The goods for China mainland and Hong Kong area can share the same warehouse. - The goods are better consolidated. - The quality of the shipment to clients are well controlled by Hong Kong distribution centre, for instance any packaging or ticketing issue can be checked and fixed at the distribution centre before goods leaving to shops. Nevertheless, a couple of disadvantages are expected to reconsider for improvement with the aim of benefiting the development of Tommy Hilfiger women’s underwear at the local market. - Higher cost prices. Firstly, goods need to be transported across the border which means additional logistic cost will be included. Secondly, the cost prices are calculated in USD but the local currency is RMB, so always rate differences need to be taken into account. - The delivery route is repeated. Most of the Tommy Hilfiger sales points are located in Shanghai, Nanjing, Shenzhen, etc. However the goods have to transported to Hong Kong first and then distributed to the mainland stores. This will not only increases the ground transportation cost but also increases the lead-time. - Easy to cause damage to the product. The goods will be moved around multiple times, cartons received from the factory will be opened and allocated. All these activities increase the risk that the products will be de-shaped or be damaged during the operations. - Inefficient logistic management. The logistic coordinator from Tommy China office will have to instruct the factory, forwarder and the personnel at Hong Kong distribution centre. This is likely to cause confusions as the communication line is extended by having more operators involved.

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It would be ideal to have the goods distributed from the same city where they are produced from. However it will exceed the budget to set up a warehouse in Shenzhen just for its underwear distribution. Thus, for the starting seasons it is worthwhile to apply new transport procedure to reduce the lead-time and minimize the costs. 4.3.2 Pick and Pack Service “Pick and pack” is a part of a complete supply chain management process that is commonly used in, but not limited to, the retail distribution of goods. It entails processing small to large quantities of product by truck or train and transports the relevant products to its destination.8 Garment factory Sunlane has the capacity for pick and pack. The garments will be split into different portions in the factory and will be collected by the forwarder. Once the domestic forwarder picks up the orders, they will be delivered directly to different stores. The preconditions that this distribution plan is considered suitable for Tommy Hilfiger are: - Women’s underwear orders are produced in one garment factory and the total order quantity is not expected to reach a very high volume that surpasses the brand’s apparel products in short term. So the factory is able to handle the pick and pack internally. - The underwear garments are occupying less space and are weighted much lighter compare with apparel garment. - The garment purchase order quantity will be 90%~100% from the actual sold quantity, so it is not expected to have stocks per purchase order. The small portion of leftovers will be stored in the factory till the end of the season and will be distributed to Tommy retail stores or E-commerce department for seasonal sales. The recommended domestic forwarder who will handle the shipment process is DHL. DHL is not only well known as its offering a world wide courier, but also as a logistic forwarder who is experienced and reliable in handling textile transportations. Furthermore when the garment factory has to face heavier work flow during the peak season, DHL also offers comprehensive warehousing and distribution solutions for fashion companies which includes; - Distribution to stores with door to door service and time specified deliveries. - Manage E-commerce transactions and deliveries - Pre-retailing services to ensure that stock is available for sale immediately following delivery. - Re-work or redress is the customization or modification of products, often to suit a local market. It covers the re-packing of finished product to support customers’ product launches and promotions. - Garment processing activities to fashion garments to make them ready for the shop floor: unpacking and de-shrouding, steam pressing, hanging and folding. - Pick and pack service for garment before distribution to stores.

8

Wikipedia, “Pick and pack”, From http://en.wikipedia.org/wiki/Pick_and_pack [retrieved May 2011]

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4.3.3 Incoterm The delivery term will be FCA (free carrier). FCA term is suitable for all modes of transport. In this case, the garment factory is considered as the seller; Tommy Hilfiger China is the buyer; DHL is the carrier. No duty needs to be paid as it will be domestic shipment. Free carrier refers to the seller delivers the goods to the carrier nominated by the buyer at the named place. The delivery will be occurring at the seller’s premises; therefore the seller is responsible for loading. The transportation method is ground transport by truck or rail. Below is the chart regarding the documentation, fee and cost responsibility at the seller and buyer’s side.

Documentation

Fees and Costs

Seller— Sunlane garment factory - Proforma Invoice - Packing List - Certificate of Origin - Bill of Lading - Commercial Invoice - Buyers Product Cost - Packaging - Certification Fees - Inspection Fees - Loading Fees - Cartage Fees - Buyers Bank Fees

Buyer— Tommy Hilfiger China

-

Re-consignment Fees Pier Delivery Charges Loading Cost Forwarding Fees Consular Fees In-Land Freight at destination Insurance Unloading Fees Cartage from Pier Warehousing

4.4 Brand Protection Thanks to the good relationship between Tommy Hilfiger and its garment manufacturer Sunlane, both sides are in close contact to report for any illegal imitations appearing on the market.

Illegal imitations sold in local markets

Besides supporting Tommy Hilfiger’s legal department, the garment factory should encourage its employees and material suppliers follow strictly on the several rules to protect the brand name: - The local supplier for embroideries should follow accurate workmanship of Tommy Hilfiger’s flag logo. - Garment factory pays attention on Tommy Hilfiger’s underwear garment quality and stresses fine workmanship as top priority. - The factory and its supplier follow closely Tommy Hilfiger’s internal artwork for any Tommy Hilfiger’s print or branded trims and protect its copyright.

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-

-

The factory works closely with Tommy Hilfiger’s underwear only nominated brand label suppliers to make sure global care labels, brand labels are correctly purchased and stitched on the garment -- each brand label there is a security feature inside the letter “O”, which is only visible under the micro scope. Any Tommy Hilfiger branded trims products or packaging that are determined to be second or third quality should be strictly prevented from showing up in the local textile market.

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Chapter 5

Elements of the Marketing Mix

This chapter will research on the essential marketing elements. Proposals are given from different aspects with the aim of achieving a successful improvement of Tommy Hilfiger women’s underwear position at the local market.

What will be the best way for Tommy Hilfiger to use marketing mix in the process of implementing the strategies of cost leadership and differentiation for its women’s underwear? The marketing mix approach is one model of constructing and implementing marketing strategies.9 It strains the “mixing” of various decision factors, in such a way that both organizational and consumer objectives are attained. The 4Ps model is one of many marketing mix lists that have been developed over the years. Its elements are the basic, tactical components of a marketing plan.10 To extend the marketing mix, the organizational objectives of Tommy Hilfiger Women’s underwear will be represented in 7Ps, which stand for the seller’s view of the marketing tools available for influencing buyers. From a consumer viewpoint, each marketing tool must deliver a customer benefit for which will be used the corresponding Cs. The marketing mix consists of the seven Ps and seven Cs. Seven Ps People Product Price Place Promotion Presentation Position 5.1

Seven Cs Consumer oriented Consumer needs and fits Cost Concern of A location Communication Convincing customers Competitors

People

The first step of a marketing analysis is defining the target group of Tommy Hilfiger for its Women’s underwear in China. This is needed in order to filter in the European collection for what is suitable for this consumer group. The more existing designs from the European collection being reused for China, the better it is on the budget planning. Tommy Hilfiger Women’s underwear will be aiming for women between the age of 25 ~ 45. This is a group that wants trendy & casual underwear of good quality and can afford to buy underwear at medium – high price level. The group of female consumers that Tommy Hilfiger underwear will be target on is independent and self-confident. They are the women that look within their own abilities and resources to build their life, career, assets and personal happiness. They are socially and politically aware of issues, events, and world news. They work hard and reward themselves with luxury and quality. Moreover they are style conscious and addicted to fashion.

9

Christian Grönroos, 1994, Management Decision, Vol. 32 No. 2, 1994, pp. 1 Authority Directory, “Marketing Mix and the Four Ps”, From: http://www.authoritydirectory.com/blog/marketing-mix-and-thefour-ps [retrieved May 2011]

10

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The majority of them have a middle to high income which is 8.000 ~ 20.000 Yuan (about 833 ~ 2082 euros) monthly. Therefore this group of women is economically independent and therefore they can afford to visit high-priced shopping malls weekly. Some core characteristics of the customers: • Females 25– 45 year old • Fashion conscious • Have good income • Expects value for money • Knows who she is, what she wants and how to get it • Willing to purchase good quality lingerie to take care of her body and boost her confidence 5.2

Product

The product is the most important aspect of marketing mix. Products have both tangible and intangible benefits. 11 Tangible benefits include benefits which can be measured such as the quality of the product itself. The quality is subjective to every person expectations. In the case of Tommy Hilfiger it will be the quality of the materials, production and fitting based on local market standards. Intangible benefits are benefits that cannot be measured physically such as the enjoyment the customer will get from the product. It is important that the product is changed as necessary to bring it up to date and prevent it from being overtaken by competitors. Positioning the product correctly can make a significant difference in the success of the marketing campaign. There are three positioning alternatives; - The first strategy suggests strengthening the brand’s current position in the mind of the consumer. - The second strategy is to search for a new unoccupied position that is valued by enough consumers. - The third strategy is to deposition or reposition the competition. Having spent four years of developing and maturing at the European market, Tommy Hilfiger women’s underwear is not only well known for its good design, but is also appreciated by the customer on the quality of fabrics and detailed finishing. Now it is time to introduce Tommy Hilfiger women’s underwear collection to China. The most important aspect to work on is how to stimulate the consumer to desire the product. The way to do this is to make use of existing quality, shape and concept of Tommy Hilfiger women’s underwear products and make improvement based on these aspects to fit into the Chinese market. Tommy Hilfiger women’s underwear consists of 2 collections: Fashion & Core. The collections include padded bras, brief, shorty, brazilian, cami tops, corset. In the collection of each season there are different stories which will be expressed through colours, fabrics and shapes. The products are always designed using good quality fabric combined with a full brand awareness design. Currently the bras are available in size 70A- 85D, while tops and bottoms are available in

11

Project Alevel, “Marketing mix”, From: http://www.projectalevel.co.uk/as_a2_business_studies/marketing_mix [retrieved May 2011]

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size S-XL. The collection exists for 60% of casual and sporty styled products and 40% of classic but fashionable styled products. As a starting point for Tommy Hilfiger women’s underwear exploration in Chinese market, it is more proficient to closely follow the EU collection on its design, delivery stories and existing shapes. At the same time invest on the fitting, size offering and packaging to adjust for the local market. On one hand, by combining the EU quantity with the China quantity together the production quantity per style per colour will be easier to reach the minimum order quantity. On the other hand, it will ensure that Tommy Hilfiger will always get the best offer from the factory on both the quality and price especially under the current cotton price rising situation. Normally for underwear the minimum order quantity is much higher than outwear. This is because underwear garments are small, fabric and trims consumption is much less if compared with apparel garments. In underwear production, it is not only the production minimum which needs to be reached but also the fabric, material dying, trims and accessories surcharges all need to be avoided. 5.2.1 The collection Tommy Hilfiger women’s underwear collection is divided into Core and Fashion. The Core collection will be sold for couple of seasons, while the Fashion collection is designed per season. Core Collection It is a basic collection that will last at least several seasons. Core collection is also called the “Never out of stock” collection and will be only updated once per two years. This collection is composed by the basic solid colours; black, white, nude and grey heather. The Core group has around 60 SKUs (stock keeping unit, option per style per colour). The styles are clean but sophisticated. From material and design aspect, it has one group of cotton/lycra story with repeated “Tommy Hilfiger” branded elastic which represents simple and sporty; one group of microfibre story branded by a silver Tommy Hilfiger accessory hanger attached on the white/navy/red elastic (the Tommy Hilfiger flag colours), which represents clean and classic; 2 groups of lace stories branded by a small tommy metal flag or a 5mm elastic with small “Tommy Hilfiger” repeats, which represents feminine and sophistication.

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“Never out of stock” colour theme

 

Cotton Lycra Micro fibre



Lace

Fashion Collection Unlike the Core programme, the Fashion collection is covering a wider colour and style range. Besides, it is also divided into several shipping groups. The products under different delivery groups will have different in-store dates. For instance, the latest fall 2011 collection has around 600 SKUs over 4 shipping groups. Delivery group I, II, III is accordingly expected to be in store in July, August and September 2011 while the last delivery group” Holiday “is expected to be in store in October for the peak period before Christmas. Colours used in the Fashion collection are vivid including white, red, navy, pink, green, brown etc. Except the solid colours, the Fashion collection is also enriched by various pattern such as all over prints, yarn dyed stripes, jacquard, checks, heather etc. Fabrics are including cotton lycra, modal, micro-fibre, mesh and lace. Therefore the Fashion collection has not only represents the casual and preppy image from the Tommy Hilfiger brand but also reflect the classic and feminine side of lingerie products

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“Fashion collection” ( example ) colour theme

  

Cotton Lycra Micro fibre Modal



Lace

  

Cotton Lycra Micro fibre Modal

In the European market the best sellers from Tommy Hilfiger women’s underwear are often ones with the branded all over prints, stripes or checks. Also selling well are the ones with solid colours as these are easy to combine with outer wear. However in China the female consumers are more interested in colourful underwear with lace. Chinese women begin to enjoy more sophisticated lingerie which means that laces are more and more popular. In Europe the solid colours are also fairly popular and easy for them to accept as the solid colours give the impression of casual, clean and easy for combinations. In the meanwhile, it is an ongoing trend that Chinese consumers are willing to pay more for the story of the brand than for perfect techniques. They value more the inner spirit of the brand that is put in its creation. Thus, during the sales meeting it is not contradictory to present the entire collection to the buyers from Chinese local market. It will be easier for them to understand the seasonal stories. The buyers will be appreciated as well as be motivated when they are offered plenty

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of choices. However it is still essential to highlight the potential groups in the collection to the buyers. For instance the ones with potential can be presented on the fashion models during the sales meeting to impress the buyers. Additionally, the product will be introduced in more detail regarding the design, function and material to convince the buyers. Secondly, it is helpful to use different advertising images in the Chinese market. In Europe the advertised underwear sets are usually colourful prints. However it is better to propose a solid lace set for the Chinese market. Finally, it is wise to use the red colours often. Influenced by their culture, red colours are the favourite of Chinese consumers. The colour red corresponds with fire, symbolizes good fortune and joy. The colour red is found everywhere during Chinese New Year and other holidays and family gatherings. For instance, a red envelope is a monetary gift which is given in Chinese society during holiday or special occasions. The red colour symbolizes good luck. 5.2.2 Size offering What size ranges should the women’s underwear products offer? What size range fits the majority of its target group on both bras and bottoms? Bra sizing is calculated by two separate body measurements: First is the measurement of rib cage immediately below the bust. This is called under bust length for using to decide the band size. 12 Second is the measurement of the fullest part of the chest. This is measured across the full part of the breasts by crossing the breast points. 13 The “Alphabet bra cup size system” was introduced in 1935 with 4 cup sizes to each band size designated: A, B, C & D. A = Youthful B = Average C = Large D = Heavy The current Tommy bra grading uses a “cross grading” system which is the most common used worldwide for the last forty years. The essence of this system is that the complete front of the bra (side seam to side seam) is also used for three other sizes. Hence, the cup of a 75B is also the front section of an 80A, 70C. This system also relates to wire sizes. Tommy Hilfiger bras are available in 14 sizes over 7 cups, 4 band sizes. TOMMY BRA AVAILABLE SIZES Cup 1 Cup 2 Cup 3 Cup 4 Cup 5 Cup 6 Cup 7

12 13

70A 70B 70C 70D 75D 80D 85D

75A 75B 75C 80C 85C

80A 80B 85B

85A

David Morris, 2009, IA Technical Vol. 1, pp. 9-10 David Morris, May 2010, IA Technical Vol. 1, pp. 9-10

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Research 1 Recently a survey was done on a total of 9462 females from the age 20~45 in China. The purpose of the research is to find out how Chinese consumers definite their bra cup sizes and what the actual cup sizes are according to their actual body measurement. The result of the first research shows that most of the women chose B cup as their bra size – 37,7%, then following by A cup 31,8%. The result from the second research on the actual cup sizes percentage is: A 15%,B 30%,C 30% and D 25%14 The following points can be concluded from this survey: - The majority of Chinese women do not have correct realization of their breast size. The main way they use to judge their breast size is either by comparing themselves from the model image of any brands’ products promotion booklet or simply come to a decision after purchasing one bra from one brand that fit their breast the most. This on one point also reflects the common bra consuming habit that once the fit of a brand is acceptable by female consumers they will be in a quite long period sticking to the bra of this brand without trying other brands. - A lot of women even do not have the basic knowledge on A, B, C, D cups. Research 2 Another research was done on the current cups sizes sold overall on Chinese underwear market. Female consumers between 20-45 years old were picked randomly to do a survey. Accordingly to the results, it was found that many women were advised when shopping to buy bras which are marked one size bigger cups than their actual breast size. For instance one female consumer’s actual breast size should be fitted in a 75A cup of a certain brand, but in the latest collection she was advised to buy a 75B cup instead. However after comparing the 2 piece of bras, the 75A from previous collection is of the same cup as the 75B from current collection.15 In China they generally use the same size identity as in Europe for bras. Next to the under bust length “70, 75, 80, …”, “A, B, C, D” is the cup size and is identified by under bust length minus the total breast volume. Normally A cup means that the difference between under bust length and breast volume is 10~12cm, and B cup means that the difference between under bust length and breast volume is 12.5 ~15cm. However, in the above case the 75B cup bra has only 10cm difference between under bust and breast volume. Why are they selling an A cup bra as B cup bra? “A cup is too hard to sell them” said Ms Chen who is the Chinese women’s underwear marketing manager from Triumph Fashion Co, Ltd International. As A cups always give consumers an idea of tiny breasts, therefore retailers have to fully meet consumer’s vanity in order to keep the business running smoothly in China. So most of the brands start selling from B cup which is actually an original A cup. A cup is starting to disappear on the local market and is re-labelled as B cup. By simply changing the size label, it seems to satisfy the clients while making the original small cup bras easier to sell. Research 3 According to a recent report from the Beijing College of Clothing Technology, who has studied the changes in figure for Chinese women in the past decade, the chest 14

53meirong.com, “What are the most suitable bra cups for the Chinese females”. http://www.53meirong.com/zatan/20102/83257.html [retrieved May 2011]

15

nzw.cn, “Is there a difference between 75A and 75B?”. From http://www.nzw.cn/2007/0514/13423.html, [retrieved May 2011]

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circumference of Chinese women has increased by nearly 1cm in the past 10 years. The study also found that Chinese women are 0.5 centimetres taller than in the previous period. The research, which focused on women aged 18 to 30, discovers that the average height of women in China measured round 163cm and their average breast volume is 83.54cm. While their frames may remain smaller, the average cup size of Chinese women has grown two centimetres over the last four years. The college has concluded with data collected from nearly 6,000 women in the last six years that Chinese females are inclined to boast an S-curve silhouette, something that is commonly regarded as an attractive feature. These positive changes owe a great deal to a more balanced daily nutrition and participating in more sports activities. They also contribute to tremendous markets of underwear products. Many bra manufacturers have started to produce larger undergarments as women are wearing more B and C cup bras than before. Conclusions of the researches Conclusions based on above researches while taken into consideration the target group and the fact that Tommy Hilfiger woman’s bras presently starts coming into sight of Chinese female consumers, below 8 sizes are suitable to offer at this moment.

Cup 1 Cup 2 Cup 3 Cup 4 Cup 5 Cup 6 Cup 7

TOMMY BRA AVAILABLE SIZES FOR CHINESE MARKET 70A 70B 75A 70C 75B 80A 70D 75C 80B 85A 75D 80C 85B 80D 85C 85D

The benefits can be concluded as: - Sufficiently use the cross grading system to avoid cup, padding and wire minimum. - Cover the main sizes of Tommy Hilfiger women’s underwear target group in Chinese market - Satisfy consumers from both physical and psychological aspects The sizes for underwear bottoms will be offered in S, M, L, XL as these are the most common sizes correspondent to the local market. The bras and bottoms will be sold separately. 5.2.3 Garment Fitting and Grading International lingerie products are getting less popular among Chinese women than local brands according to industry insiders. One of the most important reasons is the difference in size of the breasts and hips between the Chinese and Western women. Push up bras “Chinese women's chests are not as large as Westerners, I'm a 75 B. Once I tried on a same size bra of a European brand. I found it still very big," said a sales woman from brand Aimer lingerie at Zhongyou Shopping Mall. “Chinese women have smaller breasts compared to Western women. And I think the foreign lingerie companies should consider the big

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difference in bra sizes.” “Most Chinese women prefer padded bras. These bras come with padding inside the cup linings, making the women appear to have larger breasts. The most popular bra size in the store is 75 B cup”, said the sales woman, who declined to be identified. "Padded bras are most popular worn by females aged from 20~30, who might otherwise stuff their bras with cotton to make their breasts look bigger, fuller and more protruding”. 16 In current Tommy Hilfiger women’s underwear collection, 4 types of bra are currently sold in the EU market. They are moulded bra, balcony bra, padded plunge bra and push up bra.

The moulded bra and balcony bra shape are more suitable for EU target group as both bra shapes require more upper breast volume of the wearers. Therefore, as a start at Chinese market, it is more realistic and budget wise to first focus examining the push up bra and padded plunge bra in order to discover the most appropriate fitting to be competitive with other EU brands, which are already well acknowledged by Chinese female consumers. Although both padded plunge bra and push up bra are sharing the same type of wire, and use the same grading rate, but it is apparent that the cups and the fitting created are different.

16

China Daily, May 2010, “European lingerie products not popular among Chinese women”

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A B

Point of measure Top wing length

C

Bottom wing length Side length

D

Armhole

E

Cup volume

F G H

Cup edge Wire length Back distance

I

Shoulder strap length Yoke width top Yoke width bottom Yoke hight Under bust length

J K L M

Description Excl. wire case and Hook & eye Excl. wire case and Hook & eye Measure where wing joints cup From cup edge incl. wire case Cross the highest point on the cup, incl. wire case Incl. wire case From shoulder strap till hook & eye

Amsterdam Fashion Institute – Final Thesis

Cup measurment 75B ( in cm ) Padded Push up Plunge bra bra

Grading ( in cm ) Padded Plunge bra 1.2

Push up bra 1.2

1.2

1.2

0.5

0.5

9

8.5

0.5

0.5

20

21,2

1.2

1.2

18 18.2

18 18.2

0.5 1.5 0

0.5 1.5 0

0

0

0 0

0 0

0 4

0 4

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

After comparing the most common Chinese measurements, the following chart shows the differences of current Chinese measurement to indentify a bra size with Tommy Hilfiger European measurement. Under bust length In cm 68-72

73-77

78-82

83-87

Breast Volume (Chinese) In cm +/-80 +/-83 +/-85 +/-88 +/-85 +/-88 +/-91 +/-94 +/-90 +/-93 +/-95 +/-98 +/-95 +/-98 +/-100 +/-103

Breast Volume (Tommy ) In cm 82-84 84-86 86-88 88-90 87-89 89-91 91-93 93-95 92-94 94-96 96-98 98-100 97-99 99-101 101-103 103-105

Bra size 70A 70B 70C 70D 75A 75B 75C 75D 80A 80B 80C 80D 85A 85B 85C 85D

From this comparison, it is obvious that the band size is of the standard from both Chinese and EU way. The band size is decided by the centimetres measured from total under bust length. So for instance, in both Chinese and European of measurement if the under bust is between 73~77cm, it will be considered as a 75 cm band. However for cup sizes, European standard of breast volume per cup range is 1~2 cm more compared with Chinese body measurement. Which means same labelled bra 75B, the under bust length will be the same measurement for both EU and Chinese, but it seems that Chinese cup size is 1 size smaller compared with EU cups. Chinese consumers prefer bras with a cushion inside and the cushion is flexible to be taken out. Presently this kind of push up bra is the best seller among the Chinese market. In order to research further on a proper fitted bra based on existing Tommy Hilfiger cup shapes and wires, a couple of bras were analyzed through fitting experiments. In these fitting experiments a Chinese with size 70B, 75B is asked to fit the following bras: - 1 Triumph push up bra with size 75B (Chinese fitting), - 1 Cherry push up bra 70A (European fitting) - 2 Tommy Hilfiger push up bras 70A, 75A (European fitting). The brand Triumph has been very successful in China and is known to have a good Asian fitting. Cherry is an intimate brand found in the Spanish El Corte Ingles department stores. Its bras are considered having a suitable push up fitting for Asian body from which Tommy Hilfiger can be inspirited from. The current Tommy Hilfiger push-up cups are not suitable for its Chinese target group. There are four main points that came out of the experiments: -

The push up padding is not of enough volume for small breast. Chinese women expect the padding to be more filled in order to push the breast up.

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

Cherry push up bra

Tommy push up bra

Triumph push up bra

-

The cup volume is too much. The cup is too covered as Chinese women in general have less tissue at the upper breast. The highest cup point is too deep, it often leads to an obvious space between the upper breast tissue and the cup edge.

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

Cherry push up bra

Tommy push up bra

-

The push up padding is not adjustable or removable.

-

The wire is not soft and flexible enough. The best wire quality for this target group should provide better softness and return to original form after stretching.

The current Tommy padded plunge bra is more suitable for Chinese women as the cup volume is less deep compare with the push up bra, but it will not be easy to sell as it is lack of a push up cushion. Besides, same as the push up bra, the softness and the flexibility of the wire are the crucial points.

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

Triumph push up bra

Tommy padded plunge bras

According to this experiment, it is not enough to just simply grade down 1 cup size to have Tommy Hilfiger bras well fitted for its Chinese market. Additional approaches which can be considered are: 1. Tommy Hilfiger should focus on selling push-up shapes, which is the most popular in Chinese market. This is needed in order to have its women’s underwear products quickly known and speeding up the turnover. 2. Tommy Hilfiger can start with using the padded plunge cups in Chinese market but based on the plunge cup the flexible cushion needs to be added to create a push up effect. The order quantity of padded plunge cups will increase after combining the orders from Europe and China. On one hand it is easier for factories to adapt to this new approach quickly. On the other hand the cup prices can be negotiated with better order quantities. From the fitting side, plunge cups have lower cup volume that is more suitable for Chinese target group. With the help of the push up cushion, it will support the breast but have no extra Amsterdam Fashion Institute – Final Thesis

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

space between breast tissue and cup. The cushion is movable so consumer can decide to keep or take out the cushion according to their body. Another advantage of this is that the fitting group is enlarged from people who are less full at upper breast tissue to people who are comparably fuller at their breasts. To approach this point, it is suggested to use thin lightweight cotton lycra as cup lining and have the opening arrange at the side. Chinese consumers are more found of cotton lined underwear as it feels healthy and comfortable, with lycra composition it is easier to stretch out the opening and insert the cushion. By inserting the cushion from the side will keep the workmanship clean, smooth while not irritating the body.

3. Use softer but formable wires. Wire composition is usually 100% nylon-post coated carbonised steel wire with nylon powder coated tips. The post coasting is a process where the raw wires are first formed, heated and then nylon coated. Once adequately coated and heat treated, their shape is stable and offers good anti-distortion, higher flexibility and excellent rust prevention.17 When choosing the wire, it is important to identify the bras potential market by: country of sale, customers’ body shape profile, cup shape, range of intended sizes and flexibility of fit. The current Tommy using wire is having a flat section, which is a popular choice for European targets as it can offer more strength, support and stiffness.

17

David Morris, 2009, IA Technical Vol. 1, pp. 9-22

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However, it is suggested to use the oval cross section of the wire as it provides better comfort and softness against the body plus an advantage of smooth wire insertion into the wire casing. Although in this case the wire ordering cannot be combined with EU order, but it will not be a problem to order enough wire quantity to reach the order minimum and use these wires through several seasons for the Chinese fitted bras.

After having applied the above 3 points and grade down one cup size, the modified bras should be well fitted for the Chinese market. Additionally, it is wise to add the function of racer back at the back shoulder strap. The consumers can freely choose when they would even like to have their breasts more lifted up by simply connect the hook and ring at back shoulder straps. So far Tommy Hilfiger’s competitor does not often use this idea in Chinese market. Example of Tommy Hilifiger existing padded plunge bra with racer back hook & eye

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

After observing what the Chinese intimate market is still lacking of while combining the Tommy Hilfiger concept, one last suggestion is to introduce Padded triangle bras to Chinese market. Tommy Hilfiger offered padded triangle bra in its Spring 2009 and Fall 2009. However, from season spring 2010 this sportive bra shape did not continue in the European market. According to its European target group it was more fitted for teenagers (around 13-15 years old) and it was not supportive enough when compared with wired bras.

Although the Triangle shape was not selling well in Chinese market either, it does have the potential in the Chinese market. It is sportive, easy to wear, comfortable and healthier than wired bras for the target group with a smaller breast volume. Hereby it is suggested for Tommy Hilfiger to introduce padded triangle bras as a new shape to the Chinese market. To achieve a better fitting for its potential consumers, the below points have to be comprehended: -

Keep the triangle bra un-wired, thus the size offer range will be in 3 sizes S, M, L Size XL will not be offered as consumers with bigger breasts are suggested to wear wired bras. Make the padding into push up cup. The push up padding has thick volume at the side and turns smoothly into the cup point. This way it will push the breast up and more to the centre. Use often the spagatti strap to give a young and sportive feeling. Under bust taping needs to be supportive. Use hook and ring for racer back option; therefore the clients can adjust freely the breast shaped effect under their preferences.

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The suggested grading and fitting group are as below. Triangle bras are not aiming breasts with big volume. Therefore, it should focus on consumers that are of 70A, 70B, 75A, 75B, 80B cups when wearing a wired bra. This group of consumers are often more skinny and have less tissue at their upper breast, when wearing the wired bras they are more sensitive to the pressure at their under breast from the wires. In case they cannot bear the pressure then this type of triangle bras can be an option.

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A B C D E F G H

Point of measure Under bust length Top wing length Bottom wing length Cup height Cup volume Cup edge length Cup bottom length Shoulder strap length

Triangle bra size S M L

Description

Under bust measurement ( in cm ) 67-72 73-77 77-82

Grading 4cm 1,2cm 1,2cm 1cm 1,2cm 1cm 1cm 0cm

Breast volume ( in cm ) 82-86 87-91 92-96

Consider the first time that Tommy introducing this new type of padded triangle bras at Chinese market, it is advisable to apply the Tommy Hilfiger underwear general used cotton lycra as main body fabric. Cotton lycra material not only represent an healthy, casual feeling but also it is less easy to have pilling on the surface if compared with fabric in Modal. They can be solid or printed and as one additional shape to the existing groups to easily combine the main fabric and trimmings. Bottoms 4 basic shapes of women’s underwear bottoms are sold in the European market. They are Shorties (boyshorts), Thongs, Briefs and Brasilians.

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Briefs and boyshorts are easier to sell in Chinese market as they are coverable and comfortable to wear. Brasilians are relative more difficult to sell due to its transparency at the lace part, however this shape still has its own group of consumers who would like to have a classic and sexy feeling or to match up the bottoms with their laced bras. Thongs are almost not selling in Chinese market for Tommy Hilfiger underwear target group. The Chinese fitting and grading of the bottoms are less complicated to adjust if compared with bras. Especially the sales will focus on the brief and boyshort shape, both shapes in cotton lycra , modal or microfiber fabric are more flexible with fitting because of the stretchiness from the main fabric. After comparing the Chinese sizing versus hip width, it is suggested to grade down one size from European pattern to create a proper Chinese fit. Therefore EU size XS, S, M, L is accordingly correspondent to Chinese size S, M, L, XL.

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Point of measure A

½ waist length

B

Side seam length

C

Front rise

D

Back rise

E

½ leg opening

F

Back crotch seam

G

Front crotch seam

Hip Width ( Chinese ) 84-88 90-94 96-100 102-106

Description

Grading Brief (in cm ) 2

Grading Boyshorts (in cm ) 2

Grading Brasilian (in cm ) 2

Styles that do not have side seam, no need this measurement Measure from front top waist edge till seam Measure from back top waist edge till seam Fold the front and back leg opening in one line and measure

0.5

0

0.5

1

1

1.2

1

1

0.8

1.5

1.2

1.2

0

0

0

0

0

0

For Brasilian

Hip Width ( Tommy ) 90-94 98-102 106-110 114-118

Amsterdam Fashion Institute – Bachelor Thesis

Bottom size S M L XL

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How to improve and expand TOMMY HILFIGER women’s underwear in the Chinese market? -Biyun Hu-

5.2.4 Packaging Boxed packaging for Tommy Hilfiger underwear is more suitable for its Chinese market than having the garments flat packed in poly bag. Flat packaging offers less protection to the products. During transportation bras cups are prone to be miss shaped caused by the pressure of piled up cartons. Also once the bras are displayed in the stores the poly bags will be taken out, therefore the padding from the lighter colours (white, creamy …) will get yellowish after being fully exposed in air. Besides offering better protection, boxed packaging also emphasises the casual, sporty and preppy styling from the brand. The boxed products will be distinguished from its surrounding competitors (majority of them are using hanger display) and attract the attention of the consumers. The suggested box idea for bra and bottoms is as per image below. The packaging consists 3 parts: - PP plastic box with “Tommy Hilfiger “logo. - Inserted card with model image. - Size sticker and product information sticker (with the product image and fabric composition ) The PP plastic box will keep as transparent, so it can be produced in big quantities in one lot to lower the cost price. The packaging can be customized for each season by simply changing the insert card. By offering separate size and production information stickers makes the packaging combination more flexible.

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5.3

Place

Place represents the location where a product can be purchased and is also known as distribution channel, market coverage and intermediary. Place decisions are made for getting the products to its target consumers. The two components that will be looked in to are Location and Distribution channels. Location First tier cities such as Beijing, Shanghai, Shenzhen and Hong Kong always have been the prime expansion targets for many high profile international brands over the past few years. Apart from the shop-in-shop inside big department stores, Tommy Hilfiger has 10 of its retail stores highly concentrated in these cities. The competition between the brands is getting increasingly intense in the first tier cities. However after realizing the wide space required for expansion and evaluating the lower operational costs, many high profile brands are now growing intrest in China’s second tier cities. The potiential of second tier cities should not be under estimated. Synovate, a market research firm, has made a survey on 68,000 consumers across 66 cities and rural areas in China from December 2009 to June 2010.18 The outcome of the survey reflects the average annual spending on apparel by Chinese consumers aged 15-64 living in different level of cities in China: - First tier cities; +/- 3900 yuan ( +/- 390 euro ) - Second tier ~ fourth tier cities; from +/-3300 to +/-3600 yuan ( +/-330~360 euro ) It is obvious that following the improvement of the living standard at the lower-tier cities, the amount that people can afford to spend on clothing does not have big differences than those in first tier cities. In recent years, the second tier cities have been developing their economy, commerce, industry, city construction as well as their residents income. On one hand the increasing of minimum wages leads to the rise of the local labor and operational cost, but on the other hand it stimulates the residents purchase power positively.

Source; www.52letao.com 18

Synovate, Consumers in upper and lower tier cities have more in common than marketers think, reveals latest Synovate Media Atlas China research”, From http://www.synovate.com/news/article/2010/09/consumers-in-upper-and-lower-tier-citieshave-more-in-common-than-marketers-think-reveals-latest-synovate-media-atlas-china-research.html [retrieved May 2011]

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The second tier cites are nowadays very attractive for Tommy Hilifger to expand its women’s underwear market. And indeed during the recent 2 years, many luxury brands including Channel, Louis Vuitton, Hugo Boss, Armani, etc have already started their presence in these cities where they have invested huge resources on marketing and branding. There is now an ongoing trend where a lot of well known international brands which have established presence in Chinese markets are now actively planning their expansion to lower tier cities in China. Below is a list of some leading second tier cities: •

Chengdu



Chongqing



Dongguan



Changsha



Qingdao



Hangzhou



Huizhou



Xi’an



Zhengzhou



Wuhan



Shijiazhuang



Xiamen



Nanjing



Ningbo



Suzhou



Zhuhai



Tianjin



Harbin



Wuxi



Haikou



Dalian



Shenyang



Yiwu



Kunming

Compared with first tier cities, the second tier cities are still facing several disadvantages: the supply chains and logistical services are less comprehensive, employees are less qualified/educated, longer distances from air and sea ports, embassies/consulates, legal services, quality and logistics providers, testing and inspection offices. 19However the existing benefits are more attractive: - relative cheaper operational, energy and labour costs - favorable local policies - steady flow of workers - rapid city development - less chance that employees will quit to get jobs with a competitor. The key employee are more loyal to its employer and more flexible with relocating.

The most popular second tier cities in China such as Nanjing, Hangzhou, Suzhou, Xian, Chengdu, Chongqing, Tianjin etc are forcasted to be the next major markets for high profile brands in the coming future. Currently Tommy Hilfiger have opened 11 of its retail stores among 10 second tier cities. Though its women’s underwear product has not distributed to any of its retail stores in China yet. It is predicted that the expansion of Tommy Hilfiger women’s underwear will focus more on second tier cities in the future. With local goverments stimulating new business and investment proposals for international brands who wish to enter these regions, these second tier cities will be the strongest and quickest growing markets. Distribution channels Currently in the Chinese local markets there are two major distribution channels for fashion brands: department stores and specialty stores.20 Besides these two, Tommy Hilfiger also 19

Trudat, Investing in China’s Second Tier Cities”, From http://trudat.info/2010/04/investing-in-chinas-second-tier-cities/ [retrieved May 2011] 20 Li & Fung Research Centre, “China’s apparel market, 2010” ,2010, Hong Kong

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has an additional distribution channel which is the self-operated retail stores that are already presenting its apparel collection in the market. Department stores are retail establishments which satisfies a wide range of the consumer’s need for personal and residential durable goods. At the same time these stores offer the consumer a choice of multiple merchandise lines, at variable price points, in all product categories. Since the Chinese economic reform in 1979, the Chinese department stores also developed swiftly along with the fast growing economy. Based on their product offerings, store environment and management, the department stores in China can be generally divided into three classes: the high-, mid- and low-end. There are different department store groups dominating different areas of China, for example, Intime department store has the biggest market presence in Zhejiang province, while Jinying department stores dominates the Jiangsu Province. Besides, there are many other department store groups, such as Pacific, PARKSON, Wangfujing, New World, etc.21 Many of them are expanding quickly by listing in the financial market. Many international brands like Tommy Hilfiger are merchandised in the department stores via the shop-in-shop concept. Tommy Hilfiger is most well known for its casual wear and denim collection, people are hardly aware of its women’s underwear collection in China. To change this, the priority for marketing is to establish the women’s underwear products image among its current and potential consumers. The priority choice is selling its women’s underwear products through shop-in-shop concepts (setting up standardized stores/ counters) in high-end department stores. This will help to promote the women’s underwear collection image to reach its consumers. A shop-in-shop concept is the balanced composition of the retailing mix resulting from a long term joint effort of brand Tommy Hilfiger and the retailer, in this way that the targeted consumer receives a clear and recognizable distinct image of the shop-in-store concept on Tommy Hilfiger women’s underwear products, apart from the larger store in which the shopin-store concept is located. 22 In this way, Tommy Hilfiger will benefit from the premium store image from the high-end department stores, as these stores place huge emphasis on the best shopping experience for its visitors. In addition, Tommy Hilfiger women’s underwear will develop the shop-in-shop concept in its self-operated retail stores as well so as to complete the brand story with its correspondent apparel garments. Despite the possible inconvenience that might come across size limitation on the counters and restrictions regarding the products offering range or the display method, there exists plenty of valuable benefits in the shop-in-shop concept: -

Minimizes risk of market entry.

-

Benefits of existing customer flow in store

-

Synergistic combination of concession and store images

-

Well education sales employees.

-

More control over selling/display environment

21

Wikipedia, “Department store”, From: http://en.wikipedia.org/wiki/Department_store#China [retrieved May 2011] Marco Mossinkoff, “Looking Behind the Scenes of Shop-in-Store-Concepts:Conceptual Framework Outlining Four Routes to Success” ,2001, Amsterdam

22

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-

Benefits from store advertising and promotions

-

Share the completely advanced equipment from store security, cash control, and credit system

Specialty stores are small stores which specialize in a specific range of merchandise and related items. Most stores have an extensive depth of stock in the item that they specialize in and provide high levels of service and expertise.23 Many well-known brands have their own specialty stores at present in the Chinese market. Most of them opened their first stores in first tier cities. However by following signs of saturation showing in these regions and the fierce competition for prime locations it has driven up the rental cost24, many of them are expanding to second tier cities. Nowadays these cities are showing increasing purchasing power which demonstrates huge market potential and yet require lower operation cost. Although the specialty stores are gradually more popular since enterprises can have assess to better control over the store operation, budget concern wise it is better for Tommy Hilfiger women’s underwear specialized stores to be planned as a long term goal. 5.4

Promotion

Once the products are in store and the prices are set, it is important that potential customers are told about the product. Promotion can apply for reassuring the consumer that the product is of good quality and persuading them to purchase the product.25 The strategies are easily incorporated in the promotional methods used by Tommy Hilfiger women’s underwear which will be currently concentrating on sales personnel skills and e-commerce business development. 5.4.1 Sales Personnel Tommy Hilfiger always considers its personnel as the most valuable asset. This will require Tommy Hilfiger China office to select its customers-contact people carefully and train them well. Personnel in the company must be competent. As professional underwear sales personnel, they have to be courteous, friendly and respectful and possess the required skills and knowledge. They need to serve customers with consistency and accuracy. Furthermore, in order to respond quickly to requests and problems, they must understand the customer needs and communicating clearly with them. Products from any industry will generally experience 4 phases: introduced to the market, growth in the market, peak of demanding, recession from the market. The same is true for underwear business. Once new intimate products are introduced to the market, they can be well known and accepted by consumer during the first couple of weeks, or couple of months and even longer. This depends not only on the quality of the products itself but it also depends on how the sales personnel promote the products to its potential clients. “A sales personnel from one famous domestic brand tried to help a female consumer choosing bras. The consumer has fuller breast tissue and her body is better shaped. The sales personnel choose several pieces of bra with thick cushion or push up padding, which were very popular at the moment. As a result, none of the bras fitted well for this client. They are either too pressing the breast or the shoulder straps are slipping from the body easily. 23

Wikipedia, “Specialty store”, From http://en.wikipedia.org/wiki/Specialty_store [retrieved May 2011] Li & Fung Research Centre, “China’s apparel market, 2010” ,2010, Hong Kong 25 Project Alevel, “Marketing mix”, From http://www.projectalevel.co.uk/as_a2_business_studies/marketing_mix [retrieved May 2011] 24

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The sales personnel overlooked 3 points: Firstly, she did not observe the fit of the client well and therefore the chosen bras were not tailored to client at all. Secondly, she selected the wrong cup sizes. Thirdly, the bra types are not appropriate. In general, thick padded push-up cups are more suitable for women who have less full breast, which is not the case for this client. As result the client had the impression that the quality of this brand is not so ideal and end up never willing to try on future collections from this brand.”26 It is important to learn from this example that if the sales personnel wrongly identifies the target group, the advised product will be incompatible with the consumer’s demand and leads to the failure of sales. Tommy Hilfiger women’s underwear sales personnel will be trained on how to display the garments in store, how to have the garments being popular and widely accessed by the clients. Moreover, they will be trained on the garment fitting in order to help the customer select the well fitted pieces. Before new season starts, the sales personnel in the store must have studied the target group, new styles, colour story and size offer range from the collection. They are not only promoting the underwear garment with passion but also with knowledge. As result, consumers will experience skilful, professional and qualified service from Tommy Hilfiger stores and will feel confident when buying its underwear products. The core actions are: -

-

-

-

Invite the sales representative from Tommy Hilfiger stores and shop-in-shop from department stores to join the sales meeting and fashion shows in Europe. There they can be introduced to the overall collections, shapes, colours. Afterward the sales representative has to brainstorm with the shop employees. Arrange local fitting session to train the sales employee on how to help the customers finding the most fitted products. Invite the sales people to pay a visit to the factory to have general knowledge of the whole underwear production line. The sales people will be more qualified once they understand the general process from the production start till goods pick and packed to stores. They will feel more confident to promote the products even when facing any doubts from clients and will be able to convince the clients professionally. The Tommy Hilfiger underwear department in China should arrange visual merchandising booklet per delivery with the help of European head office to direct self owned retail stores. Based on this booklet Tommy Hilfiger underwear China office will also help its clients to build up the “shop in shop” merchandising according to different situation per retail store. Arrange weekly sales training in groups to give tips and advice on underwear selling to sales employees. In the meantime sales employees will take this chance to exchange their own experiences and discuss on the difficulties they have encountered on products, consumers, etc. A recap will be reported to the China head office as reference for improvement and ideas for forecasting.

5.4.2 E-commerce Online fashion retailing has being developed rapidly in recent years in China. As published by the China Daily, online retailing in China has the world’s largest web population of at least 420 million, soared 117 per cent last year to $39 billion.

26

www.neiy.net, “Underwear sales”, From http://www.neiy.net/zhishi/system/2349.html [retrieved May 2011]

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iResearch, a Shanghai-based research firm’s report shows that the revenue size of China’s B2B e-commerce operators reaches 9.59 billion yuan. With the economic recovery, the revenue size of China’s B2B e-commerce operators will continue to develop at a rapid rate. It is predicted that its growth will tend to be stable and reach RMB80 billion in 2012. About onethird of China's 420 million internet users now shop online. In the first half of 2010, internet sales in China increased by 60 per cent compared to the same period last year. According to the China Internet Network Information Center, in July 2010, 33.8 per cent of Chinese made purchases via the Internet, up from 28.1 per cent in January. Fashion and accessories are the most popular online retailing category and females are the major customers of many online shopping websites. On-line retailing is not the main distribution channel of Tommy Hilfiger women’s underwear in China however it is one of the most important promotion approaches. On-line business will be handled directly by Tommy Hilfiger China office. Goods will be packed and distributed via DHL who will be the same carrier for the bulk shipments to the local stores. In addition to offer a competitive on-line service for its lingerie products, below a few points can be applied; - It is helpful to arrange fitting guidance on the website. So consumer can select the right product matching with their own body measurements before them trying on the garments. - Lingerie fitting, especially bra fitting is more difficult to decide accurately only via photos or measurement data without fitting on the actual product. Therefore it is important to offer the exchange and return system to provide satisfied shopping experience for consumers. However, any returned or exchanged products must be well taken care at the hygiene aspect. - To expand the potential of on-line shopping, the promotion of “free distribution” can be offered when consumer purchase certain value of the goods. 5.5

Presentation

Tommy Hilfiger is well known for its casual, simple and sporty styling in its apparel retail stores and shop-in-shop. During the starting seasons of operating in the Chinese market Tommy Hilfiger women’s underwear should focus mainly on developing its women’s underwear in shop-in-shop concepts inside big retail stores or in Tommy Hilfiger’s own retail stores to accompany its apparel garments. Presentation is the way a product is presented to the customer in shop. Shop-in-shop area layout and visual merchandising are two important factors that add to the distinctiveness of the products.27 The interior design of the shop-in-shop area plays a vital role. Tommy Hilfiger women’s underwear will be presented in a very well structured, clean plain interior yet not lose elegance and feminine. The area will occupy 20-25 square meters (including dressing room plus a small storage) and is composed by fixtures, show tables, advertising banners and show models. The underwear set that has the most sales potential will be placed under the glass of the show table. The European head office will supply the big advertising board with the model image to be placed behind the cash counter. The boxed bras and bottoms will be well organized by size and colour placed in the fixtures. Next to the fixtures is the rail with a couple of samples in different styles, colours and sizes hanging on it, the samples sets are the show models and are used for customer’s trials. Chinese consumers do pay attention to the hygiene of the products that they are buying. They always expected the garments they purchase are new and never worn by others. In order to meet the consumer’s demands, the boxed products will be most of time kept in the fixture with the packaging closed to maintain the neat and fresh impression of the whole shop in shop area. Shop personnel are required

27

Pramit Das, “Effectiveness of store layout strategy in maximizing the operational efficiency of a Retail Store”, From http://www.indianmba.com/Faculty_Column/FC913/fc913.html [retrieved May 2011]

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to check the boxed products regularly to keep the packaging un-scratched and garments are nicely folded in the boxes without any de-shaping. The display of lingerie shop-in-shop counter has two main intentions. First intention is to pass the brand and its value information to the consumers, second intension is to stimulate the sales of the garment. The accomplishment of the first intention will facilitate the achievement of the second intention. In order to achieve both intentions, the display of Tommy Hilfiger women’s underwear garments will comply to following 5 guidelines: -

Easy to spot. The position where the garments can be easily spotted by the customers will be 30 degree slightly when head-down towards the display.

-

Easy to fetch. The display of goods needs to be easier for customer to reach, touch and pick. Taking into consideration of the average height from the female target group, if divide the fixture into 3 section: The middle section which is 50cm~150cm from the floor is the easiest section for customer to fetch the product. In this area for displaying the best forecasted sellers or the products that are point of sale, besides these garments are mainly in size M for bottom and 75B for bras. The semi-upper section which is 150cm~170cm from the floor and the semi-bottom section which is 30-60cm from the floor are the area for displaying other colours and sizes from the same style. The top part which is 170cm~190cm from the floor and the bottom part which is 10-30 cm from the floor are the least easy section for consumer to pick up the goods, at these areas the least popular colour and sizes ( such as A cups, XL sizes ) will be displayed.

-

Increase the product value. Increasing of value is realized by adding some accessories, light or reserve more space to emphasis certain underwear set so that the consumer feels more tempted to purchase these products based on the creativity put in displaying it.

-

Change the display frequently. Even the new garments from the next delivery story are now in store yet; the counter display needs to be changed once per week or two weeks to refresh and attract consumer’s sight. The possibilities are another theme recommendation, partially updating and different colour combination.

-

Ensure there is always variety of options available. The customers are satisfied not only from purchase their ideal product, but also from the experience of enjoying the freedom of shopping and being surrounded by a rich selection. Therefore the shop personnel are expected to keep on filling up the fixture to maintain a wide range of choices on colours and sizes.

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Suggested women’s underwear “shop-in-shop” interior

show table cashier underwear garment ( show models in different sizes ) shelves for displaying boxed underwear garments ( well organized in size and color) 5. fitting room 6. advertising, posting etc. 1. 2. 3. 4.

5.6

Position

An important aspect to determine Tommy Hilfiger women’s underwear position in the Chinese market is how similar or different the brand is in comparison with other brands who are selling the same product category. Positioning is the attempt to control the public's perception of a product or service as it relates to competitive products.28 Brand positioning is the brand’s benefit for consumer, an opportunity for which is the best suited in the target audience, and who its main competitors are. To achieve the benefit of Tommy Hilfiger women’s underwear positioning, it is necessary to research further its market position by comparing the results with competitive brands. A successful position is both different and important to consumers. After researching in several famous shopping malls where there is big potential for Tommy Hilfiger women’s underwear to develop its shop in shop concept, there are a couple of women’s underwear brands who have being successfully existing in the market for a longer 28

Learn That, “Free Definitions : Define Positioning. What is Positioning?”, From: http://www.learnthat.com/define/view.asp?id=57 [retrieved May 2011]

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duration and are nowadays very popular among the Chinese consumers by their customer oriented design, fitting and competitive selling prices. And that means once Tommy Hilfiger has set up its women’s underwear counter in these shopping area, it will be surrounded by its competitors. These competitive brands are in rank of the Top 10 lingerie retailers in local market as well. In the past most Chinese consumers had a strong preference for foreign brand over local brands. They believed that the exclusive prices for imported foreign goods are justified because of better quality and nicer styling. However following the rapid improvement on technology and wise marketing investments, the local brands improved enhanced their image among the local consumers. It is important to note that Tommy Hilfiger will not be only facing competitors from western European brands but also Asian brands and even more from local brands. Triumph (Germany) and Wacoal (Japan) are 2 international brands at the leading position in Chinese lingerie market. Following the lead are the local brands Aimer, Ordifen and Maniform. These local brands have well established their brand images among the consumers and have developed wide distribution network in the local market. Triumph The brand has a long history of 125 years. In 1886, Triumph was founded in Germany in the early 20th century. Although originally founded in Germany, the company has moved its headquarters to Switzerland. In 1960, Triumph opened its offices in Hong Kong and began its expansion into the Asian market. This ground breaking decision was accompanied with a new business approach that was considered unique at that time: a decentralized corporate structure. This business strategy enabled customers in each country to be served by locally based designers and business partners with particularly strong commitments to regional fashion trends and cultural conditions. As Triumph's international business presence developed, the company's significance for the world of fashion increased at the same pace. Triumph Japan grew so powerfully that it was soon among the top three lingerie & underwear producers. In keeping with the corporate philosophy of adapting to local conditions, the brand was among the first fashion companies to produce designs specifically for Asian sizing. Triumph currently owns 10 stand-alone stores and 1400 counters all over China. The brand is popular in the Chinese market for its design, exquisite workmanship, comfort and high quality material. Triumph has its shop-in-shop in almost all big department stores. With a positive double-digit profit figures motivating the brand, Triumph is planning to open 300 more outlets in major cities in the next 5 years. The average price of a bra in local market is about 34 euros per piece The average price of a bottom in local market is about 10 euros per piece Aimer Founded in 1993 in Beijing, Aimer has won many Chinese modern women’s heart by its exquisite, high quality and elegant lingerie. Aimer is China's top high class ladies lingerie company in terms of production, sales and consumer awareness. It strives to provide high class underwear to urban ladies between 25 to 35 years old with high incomes.

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Having being active for 15 years, Aimer has established a complete design and marketing network. It has over 300 franchised stores located in shopping malls and department stores in China. Moreover, the sales of Aimer ranks top in the lingerie industry in China. It is the only local luxurious brand in the Chinese lingerie market. The brand has professional production bases and subsidiary fabric factories in Beijing and Suzhou, with a capacity over 10 million pieces per year. It has established the Aimer Ergonomics Laboratory together with Beijing Institute of Clothing Technology. The research results from the laboratory have been applied into underwear design and model production. Aimer has obtained numerous honors, such as Beijing Name Brand Product, Beijing Famous Trademark, Beijing Top Ten Fashion Brands, Chinese Resounding Brand Yearly Creativity Award and the resounding Trademark of China. It also has had the highest market share and the largest sales volume for several years according to the records from the Chinese General Chamber of Commerce. The average price of a bra in local market is about 40 euros per piece The average price of a bottom in local market is about 16 euros per piece Wacoal Japan based Wacoal brand, which entered into Chinese market in 1986, is famous for its sleek emergence. Wacoal is a company with a deep understanding and concern for women, a company dedicated to providing beautiful, well fitting, high-quality intimate apparel for the women. All bras, panties, shape-wear and coordinating daywear are designed to enhance a woman's beauty and self-image. Wacoal products are featured in the finest department and specialty stores across the United States. Wacoal America is part of multinational company headquartered in Japan. Wacoal's superior technology and quality have roots in its Japanese heritage. The designs are created with European fashion elegance and superbly comfortable American fits. After nearly 50 years of hard work and determination by a young Japanese entrepreneur, Wacoal has become a leader in intimate apparel manufacturing in the United States, Japan, Asia, and Europe. Known for the best fitting, highest quality bras in the world, Wacoal opened its doors in the United States nearly 15 years ago. Wacoal brought the American consumer what was sorely missing in the marketplace: luxurious intimate apparel made from exquisite laces, embroideries, and the finest fabrications, tailored to create “The Perfect Fit”. In May of year 1997, the company increased its investment in a joint venture in China to strengthen manufacturing and sales there, starting a manufacturing operation in Guandong, China. Currently, its Chinese offices are based in Beijing, Shanghai, Dalian, Guangzhou and Chengdu. However Wacoal will concentrate planning, selling and marketing functions into Shanghai. The reason is the current concentration of many sales in Shanghai. Wacoal is going to intensify the planning and development of products in linkage with its research & development base. Head office functions such as finance and personnel will remain in Beijing. Wacoal’s women’s underwear focus on helping Chinese women to realise and highlight their beautiful female body shape. In order to assist its female consumers to achieve their ideal body image, Wacoal frequently conduct researches on female bodies of different ages to provide the most fitting designs. It has founded its own Human Science institute and is active for more than 30 years. The institute has measured more than 1000 Chinese female bodies using advanced 3D measuring equipments. Based on these data the three-dimensional models have been made to develop the proper fitting of its bras and bottoms.

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The average price in local market is about 36 euros per piece The average price in local market is about 13 euros piece Maniform Maniform is a local women’s underwear brand based in Canton province and is now selling its underwear products in China over 40 cities. The brand was established in April 1996 and owns its independent import and export right. After more than ten years rapid, sustainable and stable development, it has become a lingerie group specialized in lingerie Research & Development, promotion, techniques research, marketing and processing with supplied materials. Maniform is the only company awarded both China Top Brand and China Well-known Trademark in China lingerie industry. In year 2001, Maniform was voted as the best women’s underwear brand in Canton province. The brand has its own production plant with 60000 square meters of space and 2000 employees including 100 senior technicians. The year production capacity of its factory is 20,000,000 pieces. Maniform has 33 offices, 1500 “shopin-shop” counters,120 self-owned retail stores in China. Thanks to the influence of fashion trends, Chinese ladies nowadays have become more and more fashion-sensitive and demands high quality lingerie to please themselves. Maniform designs comfortable bra cups by using high quality fabrics and cutting edge technology. The average price of a bra in local market is 30 about euros per piece The average price of a bottom in local market is 8 about euros per piece Ordifen Ordifen is a women’s underwear brand from Taiwan. Since its first “shop-in-shop” in Beijing, it has been operated in the Chinese underwear market for 12 years. Starting from year 2001, Ordifen had set up its own offices and factories in Beijing and Shanghai including the whole supply chain of design, production. Currently, the brand has 20 branches in major Chinese cities. There are now 700 Ordifen sales outlets, 200 shop-in-shop counters in major department stores and 100 franchise stores. Despite fierce competition, Ordifen maintains an annual growth rate of 50 percent and is China’s leading underwear manufacturer. Ordifen products is specialized in the combination of feminine, healthy and functional. The underwear market in China is dominated by a dozen brand names. Ordifen’s distinctive designs make it stand out among them and its acute market sense keeps it in the lead. Ordifen introduced its new lingerie in late 1990s when Chinese women still only had a limited choice of clothes. This introduction has given the Chinese women a taste of the latest fashion found in Europe and America. In cooperation with the French company Peclers, Ordifen employed top designers to ensure its products are consistently in the latest style. In order to emphasis the Chinese oriented feminine and beauty of its women’s underwear, Ordifen looked to Chinese culture and created its Chinese Red line. This collection line emphasise on the colour red which is popular by culture in China and was a great success in the local market. The brand also frequently takes part in different social activities to expand its brand reputation. For instance, Ordifen sponsors lectures regarding underwear technology in more than ten universities and its “995 Saving the Breast” social welfare activity has been on-going for five years. The average price of a bra in local market is about 30 euros per piece

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The average price of a bottom in local market is about 10 euros per piece 5.7

Price

Price setting is related closely to the figures of turnover (sales revenues) and rate of return on investment. Both figures are the keys to certain prospects to consolidate the current economic situation for the company. It is important for Tommy Hilfiger to make sure the price/product proportion for its women’s underwear products is proper. If the prices are set up too high, the potential consumers can easily choose its competitors who offer similar quality but lower priced. On the other hand if the brand charges too low on the price, it may degrade the product’s image and it might not cover the costs. Therefore the price decision has to be made in full consideration of all possible aspects. Firstly, prices are required to be representable, reasonable and stable for the external surroundings which are represented by: - Potential clients behaviour - Competitors - Local purchase power. They are also required to be coverable, valuable and profitable for the internal factors which are represented by: Cost of the products Productivity Company financial aims. 5.7.1 Cost and Price in Europe Before making the price decision for Tommy Hilfiger women’s underwear at the Chinese market, it is always useful to first review the data at Europe side as references. Currently Tommy Hilfiger women’s underwear has been selling in more than 15 countries in Europe at famous department stores, Tommy retail stores and small boutiques. The retail price for the product is finalized first between Tommy Hilfiger and its wholesale clients. Between different European countries, the retail prices can be different but the differences never too big. From a fixed retail price, the whole sale price is calculated by Retail price / mark up. The average mark up used by Tommy Hilfiger in Europe is 2.49. Majority of the bulk production are transported to Europe by sea. The freight term FOB Hong Kong is used, which means the price that Tommy Hilfiger is paying to the factory covers until goods are handed at the forwarder. Afterwards, the transportation cost, duty charges, taxes and loading at port cost will be on Tommy Hilfiger’s account. Therefore landed price is used internally which refer to the actual cost price of the goods when they are loaded at the port of Rotterdam. The average ratio is 1,3 if the shipment is from far east, that means the landed price is equal to FOB x 1,3.

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Average prices ( calculated base on usd ; euro = 1:1 ) USD EURO Style FOB Landed price Wholesale Bras Lace Brazilian Brief Shorty

6,68 3,30 2,92 3,01

8,68 4,29 3,79 3,91

17,4 11,65 9,62 10,8

Retail 42,5 27,95 22,7 26,8

Gross Margin 48,3% 61,2% 58% 60%

5.7.2 Price strategies at Chinese market Very few Tommy Hilfiger women’s underwear from past seasons is selling well in the Chinese market. The reason for this is mainly because the retail prices there are simply too high. Most are even higher than in Europe. Bottoms are sold around 32 euros; bras are even up to 58 euros. Comparing with its competitors such as Triumph and Wacoal who are also famous brands with quality, the retail prices from Tommy Hilfiger are too high to attract its target consumers. Very few Tommy Hilfiger women’s underwear were at Chinese market The retail prices from previews seasons in Chinese Yuan

In order to improve its situation, it might be worthwhile for Tommy Hilfiger to revise their price settings for the local market. There are 3 pricing strategies suggested for Tommy Hilfiger women’s underwear: -

Premium pricing. Tommy Hilfiger women’s underwear applies high-level prices that are affordable according to the purchase power of its target consumer and are competitive to other lingerie brands of the same level. However, Tommy Hilfiger must offer higher quality product/service in exchange.

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-

Penetration pricing. For some of its simpler products like the solid cotton basic group, the retail prices can be offered slightly lower to gain more market share and also to match its casual and preppy image. In the meantime increasing the retail prices smoothly for the luxury groups such as prints and laces groups.

-

Value pricing. The target consumers can be stimulated to spend more money by adding value instead of cutting prices directly. For instance offering packs of bundled bottoms (per two or three), lingerie sets containing a top with a matching bottom, etc. These sets or combination will be very appealing to customers especially when buying the individual items separately is more expensive.

-

‘Increase’ prices without increasing price. By using the efficient way of distribution, factory will quote the prices in local currency RMB under FCA term instead of FOB HK in USD. Goods will be directly distributed from Shenzhen to the domestic markets from which the additional charges caused by the transportation and currency exchange are prevented.

Expected Gross Margin In order to cover the costs from wages, products, equipment and transportation but also gaining profit, the target gross margin per style needs to be reached. - Bras demand premium techniques and workmanship; therefore the target margin is expected to be 50%. - Bottoms are less complicated on workmanship and fewer sequences are demanded if comparing with bras. Therefore the margin is expected to be 55%. - Value packs, gift packs are targeting at minimum margin of 48%. By the end of each season, weighted margin of 50% is expected to be achieved. Weighted margin is the consolidation all the product groups and calculated by: (Revenue - Cost of goods sold) / Revenue. The ratio The ratio for calculating the actual cost price after including transportation, taxes and insurance costs is averagely estimated as 1,18 for domestic market. Cost price Although for Chinese markets the women’s underwear is offered in smaller sizes as a fitting aspect concern, however it is evaluated that the manufacturing price for the domestic market will be very similar to the offering for European purchase order. As for Chinese purchase order, extra sequences and fillings need to be quoted for the bras. 10% handling cost for the pick and pack service should be taken into account. The average cost prices are estimated as; Product

Delivery term

Ratio

Free carrier Free carrier

Handling cost 10% 10%

Bras Lace Brazilian Brief Shorty

1.18 1.18

Manufacturing price Yuan 43.4 21.4

Final Cost price Yuan 58.8 27.7

Free carrier Free carrier

10% 10%

1.18 1.18

18.9 19.5

24.5 25

Wholesale price To achieve the target margin, the wholesale prices will be estimated as; - Bras; 117,4 yuan - Lace brazilian; 64,5 yuan - Brief; 56,9Yuan Amsterdam Fashion Institute – Final Thesis

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-

Shorty; 51,1Yuan

Retail price Based on above wholesale prices, the final retail price is expected to be from 300~400 Yuan for bras and 100~150 Yuan for bottoms. Retail price E-commerce Prices for E-shopping can be offered with a 10~30% discount based on the market retail price.

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Chapter 6

Swot Analysis / Matrix

This chapter will present the swot analysis matrix in which the internal and external factors will be listed in the form of “bullet points”.

Swot Analysis / Matrix Swot analysis is an effective way of identifying the brands strengths and weaknesses (internal factors) and of examining the opportunities and threats (external factors) that the brand is facing. Matrix Internal analysis Strength - Famous brand name from its apparel business - Strong design and comprehensive group stories - Shorter lead time - Casual and preppy styling different from its domestic competitors - Lower operational costs Weakness - Women’s underwear garments are still new to the market - Chinese fitting and grading system are still under constructing - More sequence for tailoring the product to local market - Casual styling are less attractive to local consumers compared with sophisticated lace styling - Lack of qualified and specialized personnel -

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External analysis Opportunities - Efficient distribution route and lower logistic cost - Emerging local purchase power - Huge potential in second tier cities - Wide space for growing the business - On-line retailing are highly demanded

Threats - Complicated operation for pick and pack service - Increasing labour cost - Investment on marketing and advertising - Additional budget for human resources at local office - Might encounter many returns for unfitted garments from E-commerce, as lingerie is more exclusive at fitting

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Chapter 7

Conclusion and Recommendations

This chapter will draw conclusions on Tommy Hilfiger’s women’s underwear business in China. Recommendations will be made at the end of the chapter.

Currently Chinese garment manufacturers are facing the challenges of increasing cost price which is caused by two major factors; firstly the increased cotton price, secondly the rise in the minimum wage. Cotton prices began to climb about a year ago. At the beginning, the Chinese manufacturers tried to hold consumer prices flat. But now that cotton is 80% more expensive than it was at the start of the year, the manufacturers have no choice but to pass on the higher cost. In 2010 to 2011 more than 22 provinces in China have increased their minimum wages above GDP growth. This places pressure on labour-intensive apparel manufacturers. Raising the income tax threshold and increasing wages are two of the main ways the government hopes to meet its target of seeing disposable income growth exceed GDP growth.

Average spot price in US cents per Pound for Upland cotton (color 41, leaf 4, staple 34) As of: Friday, May 06, 2011 Source: USDA Market News

Like many other well known brands, the majority of Tommy Hilfiger garments are manufactured in China. Therefore the wholesale and retail markets back in Europe are under pressure from the climbing costs and falling clothing prices due to the fact that Europe has not yet recovered from the economic crisis in the past two years. The fall 2011 collection is coming soon on the market. In this collection Tommy Hilfiger women’s underwear have to raise prices by 14% at both wholesale and retail prices in European market. The fact that Tommy Hilfiger has taken full ownership of its Chinese market distribution offers its women’s underwear a good opportunity to hit the local market of China. A lot of profit can be made in this region and its potential is yet to be unlocked. The pressure from material cost rise can be compensated by the distribution cost, which is relatively lower following the shorter distance in the local supply chain. The increasing wages on the other hand positively accelerates the local economy. Consumers from many regions in China are nowadays having the same or even higher purchase power than the consumer in European countries. The takeover of Chinese market distribution channels is expected to transform the Chinese lingerie activities soon from a European tag-on order to an independent business that will

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bring profit and enhancement of its brand image in Asia. This is the long term goal of Tommy Hilfiger for its women’s underwear business in the Chinese market. One major issue that has arisen recently is that of garment safety. Chinese consumers are sensitive to this topic and are paying more attention to the health impact of what they are wearing. In July 2010, the Beijing Administration for Industry and Commerce revealed results of quality inspection on apparel: 65 types of apparel failed the checks, which include products of famous domestic and international brands. The Shanghai Administration for Industry and Commerce Guangzhou Bureau of Quality and Technical Supervision recently conducted random sample checks of the sportswear, swimwear, lingerie and casual wear sold in Shanghai and Guangzhou markets and they found that 30% of products failed the checks. Brands failing the tests included the famous and luxurious domestic lingerie brand Aimer. Underwear has high direct contact with the skin, more than normal apparel garment. Failures of the underwear fabric will release methanol, aromatic phenol and other harmful substances. Poor quality underwear can become an invisible killer causing skin allergies, blood spots or even cancer. Although Tommy Hilfiger underwear has never encountered any safety complaints so far, extra inputs from its local office for quality assurance are needed in order to prevent these issues from happening in the future. In conclusion, apart from spending huge resources on brand advertising and store expansion in China (like how other brands are currently operating their business), it is most important for Tommy Hilfiger to have its women’s underwear products tailored to the tastes of its target consumers and to meet the standards maintained in local regulations. Therefore it is essential for Tommy Hilfiger to support its business in the Chinese market by allocating budget for a body wear development team in the China. The recommendations can be summarized as the following. Firstly it is advised to prioritize the constructing of a professional body wear team in Tommy Hilfiger China. Though close cooperation with the European head office, this team is expected to be able to handle the local market independently in 2~3 years by creating design, product development, advertising and sales completely customized to the local market. Secondly, though exploring the direct distribution routes to the local customers and utilizing the advantages offered by a local carrier will minimize logistics costs and lead-times. Thirdly, adjusting the styling, fitting packaging and price of the existing garments to the local market can lead to a positive brand perception. Moreover, the business of Tommy Hilfiger women’s underwear will discover more opportunities at the second tier cities in China once it finds solution to a few problems in these regions. Last but not least, presenting unique “shop-in-shop” concepts and offering high quality customer service will make the Tommy Hilfiger women’s underwear collection more competitive in the Chinese mid-high level lingerie market.

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References Articles: 53meirong.com, 2010, “What are the most suitable bra cups for the Chinese females”. From: http://www.53meirong.com/zatan/2010-2/83257.html [retrieved May 2011] nzw.cn, 2010, “Is there a difference between 75A and 75B?”. From: http://www.nzw.cn/2007/0514/13423.html [retrieved May 2011] Synovate, 2010, Consumers in upper and lower tier cities have more in common than marketers think, reveals latest Synovate Media Atlas China research. From: http://www.synovate.com/news/article/2010/09/consumers-in-upper-and-lower-tier-cities-havemore-in-common-than-marketers-think-reveals-latest-synovate-media-atlas-china-research.html [retrieved May 2011] Fibre2fashion.com, 2008, Lingerie and lingerie's only–A global report (Part II – China). From: http://www.fibre2fashion.com/industry-article/15/1418/lingerie-and-lingeries-only-part-ii1.asp [Retrieved 11 may 2010]. Liu Xianguang,”Foreign brands lead China's underwear market”. From: http://info.hktdc.com/imn/01062802/lingerie01.htm [retrieved May 2011] Sam Amico, 2010 “Job Description for a Supervisor or Manager”, From http://www.ehow.co.uk/about_6326904_job-description-supervisor-manager.html [retrieved May 2011] Trudat, Investing in China’s Second Tier Cities”, From http://trudat.info/2010/04/investing-in-chinas-second-tier-cities/ [retrieved May 2011] Pramit Das, “Effectiveness of store layout strategy in maximizing the operational efficiency of a Retail Store”, From http://www.indianmba.com/Faculty_Column/FC913/fc913.html [retrieved May 2011] Learn That, “Free Definitions : Define Positioning. What is Positioning?”, From: http://www.learnthat.com/define/view.asp?id=57 [retrieved May 2011] Books: Michel Chevalier,Pierre Xiao Lu, 2010 Luxury China: Market Opportunities and Potential, Sidney Toledano Charles T. Horngren, Srikant M. Datar, George Foster, Madhav Rajan, Christofer Ittner, 2010, Cost Accounting - Managerial Emphasis, 13th Edition (Current Edition), Journals: China Research & Intelligence, December 2010,”Research Report on China's Underwear Industry, 2011-2012” Logistix Partners Oy,1996, Helsinki, FI

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