In the fashion sector, department stores normally act with suppliers of national brands under discount contracts, while they develop trademarks with cooperating designers through a profit-benefit contract. Motivated by this true industrial practice, we are studying a two-tier single-vendor-retailer fashion supply chain that sells a short-lived fashion product from either a national brand or a private label. The supplier refers to the owner of the national brand/designer and the retailer refers to the department store. We study the issue of supply chain coordination and examine the performance of supply chain agents under the two contracts mentioned above. We find analytical evidence that there is a similar relative performance in terms of risks, but different absolute performance between the national brand and the trademark. For riskier department stores, this finding has a great implication in the strategic interaction in the product range and in the management of the brand. In addition, we look at the impact of selling expenses on the supply chain system and find that the supply chain is only able to achieve coordination if the supplier (i.e.: The national brand or trademark) is willing to share the cost of selling. Consumers like to buy fashion-related products in department stores because of their decent environment and a variety of product lines. Some well-known department stores are Selfridage.co and Harrods in the UK, Macy`s, J.C, Penney and Saks Fifth Avenue in the US and Lane Crawford in Hong Kong. It is common for these fashion stores to sell national brands. For example, all of New York`s department fashion stores trade with national brands like Tommy Hilfiger through the Markdown (MD) contract . As part of the MD contract, the department store pays a wholesale price to the national brand for the purchase. In the middle of the sales season, the national brand will grant a certain amount of money to support the department store for the discount.
We call this support money as a discount price. On the other hand, department stores also cooperate with established designers to develop own brands through the profit-benefit contract (PS) . Under the PS contract, the designer is responsible for the design of the trademark`s products, while the department store is responsible for both production and sales in the supply chain. The gross margin is split between the two parties, which is agreed before the start of the sales season. In other words, the production costs are collected and the proceeds of the sale are recovered by the same party, while at the end of the sales season, the gross profit is distributed to both parties as agreed . A well-known illustration in the fashion industry is the story of the best short stories about Liz Claiborne, sold exclusively by J.C. Penney, which dates back to 2010, comes under a ten-year licensing agreement. In particular, Liz Claiborne is responsible for design, while J.C. Penney organizes purchasing, production, marketing and distribution. In return, Liz Claiborne shares a portion of the gross margin as design service charges and royalties . Free Trade Agreements (SAAs) are agreements between two or more countries under which they agree to eliminate tariffs and non-tariff barriers (NTBs) between them (Cooper, 2014). In theory, firms would be anxious to increase imports from FTA regions due to duty-free treatment (i.e.
the trade creation effect). In particular, non-payment of import duties can be a significant cost advantage for companies in the textile and apparel (T&A) sector, given that the average U.S. import tariff rate in 2016 was still 8% for textiles and 11.6% for apparel (WTO, 2017). . .