Franchising contracts in fashion supply chains

Abstract

The fashion industry is one of the most prosperous and dynamic industries with huge market value and rapid development. Fashion supply chains, regarded as the channel containing all the relevant functions to design, produce, transport and sell the fashion products, are complex and dynamic systems, require accuracy, efficiency, and flexibility to create the value for all the channel members and customers in an increasingly competitive market. In the fashion industry, franchising operations have also been advocated by many brands as the premier strategy for business expansion. Regarding the complexity of fashion supply chains and the different interests of various supply chain members, the application of franchise contracts, which is defined as a kind of contractual relationships that authorize the franchisees to use the franchisor's commercial assets or sell the franchisor's products under certain conditions, is crucial for franchising operations in the fashion industry. In the extant literature, however, the franchising contracts still have not been adequately explored yet, especially in the context of the fashion industry. With the intensively rising consciousness of sustainability in practice, many sustainable fashion brands keep devoting to enhancing the sustainable operations during the process of expanding the franchising business, where the payment of the fixed royalty from the franchisee to the franchisor greatly influences the channel efficiency. In the fashion franchising supply chain, the practice of final product assembly (FPA) can be widely observed, which leads to the practical and timely problem on deciding whether and when this step should be conducted by the upstream franchisor or the downstream franchisee. As fashion retailing has stepped into the omni-channel retailing era, channel conflicts are inevitably induced within online-offline operations when the same products are sold through online and offline channels, respectively. Motivated by the boosting application of franchising operations in the fashion industry and the lack of related study in the implementation of franchising contracts in fashion supply chains, this thesis aims to address the main research objectives as to (i) analyze the impact of upfront or later payments of fixed royalties with the franchising contract package, (ii) examine the effect of the decision on who should implement the final product assembly for the channel coordination achieved by the application of different contracts, (iii) explore the situation when channel conflicts are avoided as the product is sold online and offline in different seasons considering the options on ordering times and franchising contracts, and (iv) investigate how the fashion brand owner utilizes franchising contracts in practice regarding three dimensions including the channel structure, channel operations, and channel interaction. In this thesis, the analytical (i.e., mathematical) modeling approach is adopted with the integration of case study for the observations from the industrial practice of franchising operations in the fashion industry. We first conduct a comprehensive literature review on franchising contracts, analytical approaches and franchising operations. Then mathematical modeling including newsvendor model, Pareto-improving and mean-variance theory, is applied to derive the analytical results for the research questions. Afterward, an in-depth case study has been conducted on the specific fashion brand owner based in China market to examine the practical franchising operation and the various functions of franchising contracts and demonstrates the significant functions of franchising contracts in real-world practice and help to validate the findings integrated from the literature review and the industrial practice. The findings derived from both the analytical and empirical research verify the significant functions carried by franchising contracts in the fashion industry. Different crucial influencing factors related to implementing the franchising contracts under the diverse dimensions within the fashion franchising operations are identified and analysed in this thesis. The insights generated in our research not only contribute to advancing the literature in franchising operations in fashion supply chain management but also are beneficial for the franchisors, franchisees, and whole industry.