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Optimal Guaranteed Profit Margins for Both Vendors and Retailers in the Fashion Apparel Industry

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  • Lee, Chang Hwan
  • Rhee, Byong-Duk

Abstract

Guaranteed profit margin (GPM) is one of the chargebacks that retailers frequently employ in the fashion industry. With this stipulation, the store demands a vendor's guarantee of its target mark-up rate, even in a markdown operation. This makes the retailer order too much and later liquidate a greater amount of leftovers. We propose a new GPM scheme for supply chain coordination. Specifically, if the retailer compensates the vendor for the same fraction of the joint costs as the guaranteed mark-up rate, the retailer's quantity choice results in profit maximization for the entire supply chain. Thus, the supply chain becomes fully coordinated and provides win–win outcomes for both retailer and vendor.

Suggested Citation

  • Lee, Chang Hwan & Rhee, Byong-Duk, 2008. "Optimal Guaranteed Profit Margins for Both Vendors and Retailers in the Fashion Apparel Industry," Journal of Retailing, Elsevier, vol. 84(3), pages 325-333.
    • Handle: RePEc:eee:jouret:v:84:y:2008:i:3:p:325-333
    DOI: 10.1016/j.jretai.2008.07.002
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    References listed on IDEAS

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    1. Murali Mantrala & Suman Basuroy & Shailendra Gajanan, 2005. "Do Style-Goods Retailers’ Demands for Guaranteed Profit Margins Unfairly Exploit Vendors?," Marketing Letters, Springer, vol. 16(1), pages 53-66, January.
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    Cited by:

    1. Adhikari, Arnab & Bisi, Arnab, 2020. "Collaboration, bargaining, and fairness concern for a green apparel supply chain: An emerging economy perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    2. Kamaladevi B, 2009. "Customer Experience Management in Retailing," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 12(34), pages 31-60, (4).
    3. Bin Shen & Tsan-Ming Choi & Chris Kwan-Yu Lo, 2015. "Enhancing Economic Sustainability by Markdown Money Supply Contracts in the Fashion Industry: China vs U.S.A," Sustainability, MDPI, vol. 8(1), pages 1-14, December.
    4. Bin Shen & Qingying Li, 2015. "Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis," Sustainability, MDPI, vol. 7(2), pages 1-14, January.
    5. Matsui, Kenji, 2019. "A supply chain member should set its margin later if another member's cost is highly uncertain," European Journal of Operational Research, Elsevier, vol. 275(1), pages 127-138.
    6. Lee, Chang Hwan & Rhee, Byong-Duk, 2021. "Retailer-run resale market and supply chain coordination," International Journal of Production Economics, Elsevier, vol. 235(C).
    7. Adhikari, Arnab & Bisi, Arnab & Avittathur, Balram, 2020. "Coordination mechanism, risk sharing, and risk aversion in a five-level textile supply chain under demand and supply uncertainty," European Journal of Operational Research, Elsevier, vol. 282(1), pages 93-107.
    8. Matsui, Kenji, 2022. "Should a retailer bargain over a wholesale price with a manufacturer using a dual-channel supply chain?," European Journal of Operational Research, Elsevier, vol. 300(3), pages 1050-1066.
    9. Lee, Chang Hwan & Rhee, Byong-Duk & Cheng, T.C.E., 2013. "Quality uncertainty and quality-compensation contract for supply chain coordination," European Journal of Operational Research, Elsevier, vol. 228(3), pages 582-591.
    10. Dant, Rajiv P. & Brown, James R., 2008. "Bridging the B2C and B2B Research Divide: The Domain of Retailing Literature," Journal of Retailing, Elsevier, vol. 84(4), pages 371-397.
    11. Grewal, Dhruv & Levy, Michael & Kumar, V., 2009. "Customer Experience Management in Retailing: An Organizing Framework," Journal of Retailing, Elsevier, vol. 85(1), pages 1-14.
    12. Hong Zheng & Lin Tian & Guo Li, 2023. "A bane or a boon? Profit‐margin‐guarantee contract in a channel with downstream competition," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2087-2100, July.
    13. Banerjee, Mohua & Mishra, Manit, 2017. "Retail supply chain management practices in India: A business intelligence perspective," Journal of Retailing and Consumer Services, Elsevier, vol. 34(C), pages 248-259.
    14. Brown, James R. & Dant, Rajiv P., 2009. "The Theoretical Domains of Retailing Research: A Retrospective," Journal of Retailing, Elsevier, vol. 85(2), pages 113-128.

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