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Challenges, problems, and triumphs -- from a manufacturer's perspective.

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IT WASN'T ALWAYS THIS WAY...

but why does that matter?

by "Vinny Da Vendor" (July, 2003)

[Note: "Vinny" is a top exec at one of the industry's best known companies. For obvious reasons, he insists on anonyminity.)

Question: What fool would put significant resources into designing, testing, marketing, and procuring the initial goods to manufacture a new widget ... doing so only to get 35 cents on the retail dollar, after all marketing incentives, to cover all expenses ... knowing full well that he may bear partial financial responsibility if the widget does not knock the socks off consumers?

Answer: A Craft Manufacturer.

Regularly, I compare notes with many manufacturers who serve the craft industry; all find the above to be the case. Let's face it, folks: America is now predominantly a service/marketing industry and those providing the service/marketing to the end consumers are reaping the rewards. Manufacturers, who put their necks on the line to invent, procure, produce, and distribute product to customers' increasingly more agonizing specifications, are the stepchildren in the food chain of the craft industry.

Today, the vast majority of craft sales in the U.S. are conducted by prominent Big Box retailers -- four of which are nationwide. But ... it wasn't always this way.

Today we serve on our knees at the whim of four buyers whose support is crucial to our continued existence. But ... it wasn't always this way.

Today supply in virtually every craft-related category outpaces demand by a very wide margin, providing even greater power to Big Box retailers to request whatever incentives they can dream up ... and can they ever dream! But ... it wasn't always this way.

Today we have reached the point where product presentation, quality, and reward take a distant back seat to price point and margin. Today crafts that arrive on Big Box retailer's shelves are not always about design and consumer experience. But ... it wasn't always this way.

Let me take you back to a time where manufacturers were regarded as equal partners -- the lifeblood of crafts. Manufacturers provided unique items that kept consumers coming back for more.

I recently interviewed the retired CEO of a medium_sized craft manufacturer who turned his business over to the third generation, and meets for lunch regularly with the fourth generation, whom I am sure he is grooming for the business some years down the road. Let's call him Manny the Manufacturer.

Vinny: Manny, when you ran XYZ Crafts back in the 80's, what was the climate like? Who were the major accounts, what percentage of sales did they comprise, and what were the discount structures and terms, etc.?

Manny: Seventy percent of our sales came from 2,500 "Mom & Pop" stores throughout the country. Back then Michael Dupey [founder of the Michaels chain] had three or four stores and the heart of a lion; he would march into your booth with his entourage and place an order with real teeth in it.

The same goes for Franks Nursery & Crafts. Bob Gatti and his buyers would haggle prices for awhile, retreat to the aisle for a whispered conference, then place an order for a truck load.

There were no slotting fees, no mark-down guarantees, no special discounts or rebate allowances; a sale was a sale. We also sold Craft Showcase, Woolworths, and Toys R Us. They were a little more business_like than the Mom & Pop's, but very simple compared to what a manufacturer has to deal with today. Our terms were net 30 on virtually all accounts.

Vinny: Well, there had to be some set of problems to deal with then. It could not have been all roses and no thorns.

Manny: Yes, there were some problems then that really are small potatoes today. However, these problems were the growing pains of a purposefully fragmented industry. Of course we had some credit and collections issues with many of the Mom & Pop's. Certainly it was a lot of work hand-holding small customers through our product line, but once they were comfortable with you, ordering was a breeze.

Vinny: Tell me about the trade shows like HIA back then. What did they mean to your business?

Manny: In those days trade shows really meant something. You sweated blood getting ready for the thing, because it was your only source to show your products to the thousands who all mattered to you. [Note: trade magazines would no doubt argue with that.]

Today I am told trade shows are really done only to have a presence and to have a focal point in time to launch your new lines and get some press. Heck, half the buyers don't even attend ACCI. I'm even told that some Wal_Mart buyers did not attend HIA, because they rely on vendors showing them their new products in Bentonville. [Note: trade associations would no doubt argue with that.]

This change happened when the focus of the customer base changed to where now more than 70% of the company's sales are to the top five craft retailers -- and we visit them quarterly or even more often.

Vinny: Now that you have changed out of your business shoes, give me your assessment of the craft industry from your docksiders.

Manny: Look, with the majors today, my kid has to sell three times as much in volume to generate the same as I did. Even then, there is the potential that a major puts a gun to his head regarding taking markdowns, and he will be forced to negotiate something to keep the account, even if it kills the entire profitability of the account for a year.

Never before were craft manufacturers so reliant on the business of so few players. If any one of our top three customers were to drop us, it certainly may put us out of business -- that is how heavy the reliance is on the five Big Box retailers. It's a complete reversal; they are now over 70% of our sales where they used to be under 30%.

Vinny: Uncle Vito would call that a G&D report: "Gloom and Doom." Manny, where do you envision this playing out in the long run? Will the control remain in the hands of the big box retailers?

Manny: I read the responses to your last column and enjoyed all the viewpoints. While many see it as gloom and doom, there was one responder whose viewpoint I share:

You are where you find yourself to be -- so deal with it. While it is all well and good to reminisce, it is a fruitless endeavor so far as business in our current industry is concerned. One must pick oneself up by the bootstraps and devise ways in which to move and shake in today's business climate.

There is one thing that I did not do as well as I wished I had; that is, to change and change quickly. A manufacturer typically has absolutely no say over the direction a major retailer will take in terms of selling his goods, so what a manufacturer needs to assess is one thing: What is the buyer looking for and how can I best achieve that and also make an appropriate, albeit small, profit?

Vinny: Thanks for your time and your comments, Manny. Your wisdom is much appreciated. Craft Manufacturers: I hope you had great success with your meetings with the chains at ACCI. I was at Booth #VINNY!

Note: Have any reactions to Vinny and Manny's conversation? Any topics you'd like Vinny to address in future issues? Call Mike Hartnett at 309-925-5593 or email mike@clnonline.com and they will be passed along to Vinny.

xxx

 

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Vinny's Recent Columns...
ADVICE ON EXPORTING TO THE UK AND EUROPE; An interview with the former CEO of HobbyCraft.

THE HISTORY OF WALNUT HOLLOW; One of the genuine pioneers of the modern craft industry.

HOW MICHIGAN SCRAPBOOKER WAS LAUNCHED; Substantial growth in 3+ years.

THE HISTORY OF PLAID ENTERPRISES, INC.; It's come a long way in 36 years.

"FLASH" SALES COME TO THE INDUSTRY; Q. & A. about the newest way to introduce new products or dispose of overstocks.

SITTING ON A BULLS EYE; What to do if competitors want your market share, or customers want to cut costs.

IS YOUR COMPANY ON THE VERGE OF BANKRUPTCY? 5 SURVIVAL TIPS; Time for a reality check.

FIVE COMMON AFFLICTIONS OF SALES TEAMS; The result: Bad morale and lower sales.

BEYOND MARKET MULTIPLES: INCREASING THE VALUE OF YOUR COMPANY BEFORE THE SALE; How to create a company with greater appeal to buyers.

CHA SHOW NEW PRODUCT REPORT; Hundreds (thousands?) of products, many from new exhibitors.

THE SOLUTION TO MEXICAN DRUG CARTELS; A sure fire way to inspire them to quilt.

ATTRACTING YOUNGER CUSTOMERS; Yes, we aren't our mothers' knitters.

NEW PRODUCTS TO BE UNVEILED AT THE CHAS SHOW; Two parts: new exhibitors and veterans.

WHAT SCRAPPERS ARE SAYING ABOUT MANUFACTURERS AND PUBLISHERS; Scrapbook Updates' readers analyze the problems.

ANALYZING THE CHA ATTITUDE & USAGE STUDY; The rationale and the science behind the number.

REST IN PEACE: JEAN HOWARD BARR; JHB International's Founder and CEO.

POSITIVE NEWS ABOUT THE INDUSTRY; What they want/need from the industry.

COMMENTS FROM INDIE CRAFTERS; What they want/need from the industry.

UNDERSTANDING INDIE CRAFTERS (BY AN INDIE CRAFTER); What they want, what they buy, and how to reach them.

CHA EVENTS FOR MANUFACTURERS; How to get more out of a trade show besides selling your products.

CREATIVE INDUSTRY TURNS TO EDUCATION TO BEAT RECESSION; Simple solutions for vendors and retailers to create online video classes.

WHAT HAPPENED TO CREATIVE MEMORIES? Not adjusting to the times.

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HOW A VENDOR SCAMMED A SCAMMER; A sharp eye, a sense of humor - and be wary.

HOW A SMALL VENDOR WAS ALMOST SCAMMED; A savvy, suspicious mind averted a serious financial loss.

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EXHIBITORS: YOU'RE WASTING YOUR MONEY! Check your customer list before pre-show mailings.

PLAID CONSERVES TO PRESERVE; Simple changes can mean big savings.

SUGGESTIONS FOR THE CHA SHOW; How to attract more buyers and exhibitors.

CHANGES AT A.C. MOORE; They may not be what they seem.

THE TERRI O SHOW IS COMING; Building industry sales by empowering consumers' creativity.

SOME THOUGHTS ON BANKRUPTCY; It's unfair, but...

BOTTLES OF HOPE; A polymer clay grassroots movement.

SEWING SMILES FOR KIDS; Pillowcases and quilts for kids in hospitals.

HELPING THE WORLD IN MORE WAYS THAN ONE; Mrs. Grossman's, C&T Publishing, and Tara Materials.

HELP PEOPLE -- AND THE WORLD; How one company contributes to charities and to Mother Nature.

TAKING CARE OF BUSINESS AND HELPING THE WORLD; Plaid employees' long list of charitable activities.

A SAVVY WAY TO INTRODUCE A NEW LINE; Put it in the hands of consumers and teachers.

CHA AND PMA: SHOULD IT BE EITHER/OR? Why not take the best of both worlds?

A VENDOR'S RESPONSE TO THE PROVO/CRICUT ISSUEE; It's not easy to take sides.

RESPONSES TO CLN'S CODE OF ETHICS...from chain store execs, vendors, and reps.

PROVO RESPONDS TO CRICUT CRITICS; Unexpected demand caused problems.

ADVICE TO VENDORS; Common sense, please!

HOW TO HAVE A GREAT TRADE SHOW; It takes more than great products.

KEY CHALLENGES/OPPORTUNITIES FOR THE CRAFT INDUSTRY IN 2006; Office supply, private label, and direct import.

IS MIKE DUPEY RIGHT? The industry's retail pioneer's criticism of chain stores elicits strong reactions.

RETAILERS: CREATE A "PLACE," NOT A STORE; Customers return if they feel a sense of community.

"HOW AND WHY WE CHANGED OUR BUSINESS"; Sometimes necessity forces gutsy businesses into new, scary areas.

WHY INDEPENDENTS ARE DECLINING AND THE INDUSTRY IS SOFT; We can't improve the situation until we understand the causes.

HOW TO MAKE THE SCRAPBOOK PIE LARGER; "Keep it simple and non-threatening."

INDEPENDENTS: SUPPORT VENDORS WHO SUPPORT YOU; "Support goes both ways. It is a relationship of trust and consistency."

WHAT MAKES A GREAT SALES REP? Colleagues and customers remember the late Bob Watikins.

TRADE SHOW PRESS POINTERS; Maximize your publicity for a minimal cost.

HOW CAN A SCRAPBOOK START-UP SUCCEED? The answer may be a "Group" away.

DO TRADE SHOWS REFLECT THE STATE OF THE INDUSTRY? If we're like other industries, trade shows may be in trouble.

DO TRADE SHOWS REFLECT THE STATE OF THE INDUSTRY? And if so, are we in trouble?

THE STATE OF THE FLORAL MARKET; A blunt interview with Aldik's Larry Gold.

YOU WANT JUNK? YOU GOT IT; Pricing pressures are ruining good categories.

PLANNING THE PERFECT TRADE SHOW; Ten tips for CHA Winter Show exhibitors.

MORE VENDORS RESPOND...; A dialog between vendors and a savvy but unhappy independent.

VENDORS RESPOND TO INDEPENDENT'S PLIGHT; Why vendors have minimums and what retailers can do about it.

RETAIL, E-TAIL, AND "UNFAIR COMPETITION"; Expensive advertising, false promises, and little education.

THE TRIALS OF A SMALL COMPANY, PT. II; Expensive advertising, false promises, and little education.

THE TRIALS OF A SMALL COMPANY; Talent, drive, and product -- but no money.

GETTING READY FOR A TRADE SHOW; Go MAD at HIA.

THE THREE L's: YOU CAN'T SELL WITHOUT THEM; How to look, listen, and learn.

IT WASN'T ALWAYS THIS WAY...; but why does that matter?

WHATEVER HAPPENED TO STRAWBERRY?; Does every new product have to be cheap?