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Email: mike@clnonline.com



What's new in various product categories; monthly update.

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Forced To Sell Direct

Blacklisting by shops is self defeating.

by Name Withheld, Publisher (May 15, 2006)

Yes, these are strange times in which we all live. The retail cross stitch shops are dropping like flies. When we first entered the business 15 years ago, there were about 15,000 shops by all estimates. Today, there are less than 1,500 with fewer than 200 "real" ones. What was once an excellent business model (e.g., selling through distribution on consignment), today no longer makes good business sense at all.

What we are witnessing is a fundamental power shift in within our industry away from the shops.

Like hundreds of other designers, we added a shopping cart to our web site to better serve our customers who are no longer able to obtain our designs locally. As can be expected, the shop owners are up in arms with all of us designers now and are circulating a so-called "blacklist."

Unfortunately, this has its consequences:

1. The shops are now driving their own suppliers out of business.

2. Those designers who survive quickly realize that by selling direct to the consumer, they only have to sell a mere fraction as much at the retail price as they used to have to sell through distribution on consignment, and that as turnover drops, net profits rise, cash flow improves dramatically, and you don't have to work as hard. It doesn't take a Harvard economist to figure this one out.

3. Consumers have less reason to shop at brick-and-mortar shops and the shops continue to decrease in numbers.

4. Pretty soon you will see designers abandoning wholesale channels entirely and adopting direct-to-consumer sales models.

5. It used to be that people cared abut what was good for their industry. Now it's all about survival.

In my day job as a sales manager for an international company, I see thousands of companies making their products available direct to consumers at full retail price as a service. We sell to end users at the retail price and certain products at wholesale, as do many other companies, without problems. A classic example is the Sony Store on the web. I don't see the likes of Best Buy and Circuit City boycotting Sony.

The thing that really annoys me most is that the while the shops are all out blacklisting the individual designers, not a one will be found boycotting the big manufactures who sell direct, to the chains, etc. That is what I would call hypocrisy, at its finest. It all has to do with power. When there were 15,000 shops, a boycott would have spelled the death of a designer. Today, it just means that you have to use alternate channels.

Speaking of chains, Hobby Lobby pulled nearly all independently published cross stitch charts off the shelves recently and placed them in sale bins right at the front of the stores at 68% off! I looked at our sales to Hobby Lobby once and it was all volume, with very little profit. So, the loss of the Hobby Lobby account was, in actuality, not that great of a loss after all.

As for us, we have seen overall sales drop by abut 40%, while actual profits have declined far less. Cross stitch is in the toilet; we are seeing quite a bit of activity with punch needle, and machine embroidery is slowly growing as the word gets out. So, it looks like we will continue to hang in there and evolve/adapt, which is really what it is all about.

(Note: Agree with the publisher? Disagree? Send your comments to CLN to mike@clnonline.com. To read previous Category Reports, click on the titles in the right-hand column.)



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