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The trends, the issues, and productive business strategies.

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Problems in Scrapbooking ...

... Will only be solved by cooperation.

by Lisa Fedele, Managing Director, Cherished Scrapbooks, and Trish Hansen, IConnect (January 21, 2008)

(Note: Lisa's comments are in response to the CLN commentary asking subscribers what happened to their business in 2007. Cherished Scrapbooks has stores in Mississauga and Thornhill in Canada.)

Yes, my revenues are down; my average sale is still the healthiest Iíve ever heard of, at $48, for most of the year (now declined to around $40), so something is going on. I still have the same number of VIPís (which means a lot of elite customers), but my new customer is down 50%. So few new customers in 2007 will make every month worse in 2008. Agh! How to get the new customers without going broke?!?

Itís very odd that the industry has a group of well trained, successful business people expressing what most people outside the industry feel are sound business assumptions, yet within the industry most donít listen. Well for what itís worth, here I go again:

(Before I do however, I feel it is necessary to confirm that the projections I am making, while I am saying them in my own words, were brought forward by Dennis Conforto of the SMART Group with input from various members of the SMART Group.)

Let me start by saying that even understanding the challenges the industry faces did not help me insulate my business from their effects. This is primarily because it is an industry problem that must be solved through widespread co-operation to fix what got us where we are. So, "where are we?" you ask.

Problem #1: Not Enough New Customers

In 2001 Creating Keepsakesí research found that 34% of scrapbookers considered themselves beginners; today only 8% call themselves beginners. The industry started as an archival-safe method to preserve photographic memories, the stories behind the pictures, and other mementos. That was what we sold the public, and I would argue we didnít do the selling. For the most part Creative Memories' consultants conducting home parties nightly throughout North America introduced women to scrapbooking and they soon flocked to our stores.

I did little marketing. Every day I had a handful or two of new customers who would say, "I was just at a home party last night and I sought you out today." That is not the reality today. Virtually no new customers come from Creative Memories any more, and while word of mouth is always the largest contributor, it is contributing a lot less these days.

Problem #2: Not Enough Money to Advertise

Advertising to get new customers is imperative. Most industries spend too much money chasing new customers and not enough on current customers. Our industry is the opposite. We spend almost all our money on current customers and virtually nothing on new customers. But you say, "I have a listing in the magazine so new customers can find me." The circulation of the magazines we advertise in is largely comprised of current customers. Manufacturers are doing the same. In an effort to be the brand demanded by scrapbookers, they spend most of their ad dollars on brand advertising or new product advertising in magazines that, yes, are viewed by the converted.

So nobody is out there trying to get new customers. It is very expensive, but as an industry we must solve this; actually, we should have started two years ago.

Problem #3: Co-op Advertising

It really is so simple. Why hasnít it happened? Manufacturers must help develop co-op programs. While many progressive manufacturers want to, they donít know how. Then others see it as just another discount that retailers are asking for. But if something isn't done, manufacturers will soon not have a large enough base of independent retailers to sell to.

Co-op advertising means to attract new customers at the store level, and if reducing ads in Creating Keepsakes is what must happen, then do it. I would guarantee manufacturers will not lose any ground if they stopped all magazine ads altogether. Their retailer network is already talking to the current customer; manufacturers need only develop effective email ad campaigns with the retailers.

Problem #4: Undercapitalized And Over Inventoried

Independent retailers are typically undercapitalized. It only takes a few really bad months, or one bad year, to topple an independent. When we all opened our stores, Michaels was a joke in the scrapbooking department. We were all a little naive to believe we could take on the giant. Sure we did, for a while, but as the new customer dries up for us and we find ourselves selling to the elite scrapbooker who already has everything and shops online because she knows exactly what she wants, we find ourselves between a rock and a hard place Ė and Michaels knows where we are. The big-box stores know that because weíre undercapitalized, we may collapse.

So what can we do? One, we should operate more efficiently so we can achieve six turns a year. Then capitalization will not be an issue. And why canít we turn six times a year? Even a retailer who knew how to accomplish that would find it difficult because our supply chain is ineffective.

Problem #5: Who Will Fix It?

So we donít have enough new customers. Our old customers are, well, old. Getting new customers is expensive. Manufacturers and retailers keep advertising to our current customers because itís too expensive to advertise to newcomers. To advertise to potential newcomers, we need to co-operate Ė both manufacturers and retailers. We are undercapitalized so a hiccup can result in our demise. Our operations are ineffective because our supply chain is. Higher turns can reduce working capital which would free up money for advertising.

So there are a few things that are broken that are inter-related. Thatís why no one retailer can solve the problem even when she understands it. Ideally, there would be a mechanism to fix our inefficiencies, but unfortunately the free market fixes inefficiencies by putting the weak players out of business. In this case it is most of the independents. Without proactive efforts to solve this "chain of events," the writing is on the wall.

Why? Because most industries develop this way and as an industry evolves, there are consolidations, mergers, and alliances. The players become more sophisticated (fewer basement operations) and typically the Mom and Pop dies because chains are more efficient and have better buying power.

What we are seeing in our industry is nothing new. One thing is I believe another industry may have listened to these messages and responded. Those of us who fought for change feel the manufacturers do not care about the survival of the independents. Perhaps they believe they will keep their creative product development capability when they serve only one or two large chains.

History shows that a manufacturer who loses the independents or who only serves one master eventually loses. And letís not forget, some of our manufacturers are really only design houses. In a world without independents, if I was a chain I would take over the manufacturing and only ask the "design houses" to design. I remember one vendor whom Michaels made demands of. When Michaels could not get what it wanted, it just cancelled the contract and commissioned its own line.

If I were a manufacturer I would want my independents to succeed. I would want to find a way to avoid the free-market mechanism that will force the failure of the independents. I would want to solve the industry's problems. I would want someone, or some group of progressive business people, to help us all come together.

Some Random Thoughts (by Mike Hartnett)

1. Lisa's point about concentrating on current customers rather than attracting newcomers is well taken. I suspect people who are already scrapping buy magazines such as Creating Keepsakes, so advertising there may be preaching to the choir. But I also suspect consumers who are thinking about starting a scrapbook will buy Simple Scrapbooks, simply because of the title.

Because of the title, Simple Scrapbooks may be the most important national magazine in the category for attracting new consumers.

2. But is it possible that the decline in the number of scrapbook newcomers is due to the fact that now just about every consumer in North America knows what scrapbooking is (or thinks she does). Those who are interested are scrapping; the rest just don't care.

If that is the case, then the industry would receive a better return on its marketing/advertising investment by enticing current scrappers to do Ė and buy Ė more.

What's the answer? I dunno.

3. There are some low-cost ways to reach potential newcomers:

A. Many hospital maternity wards give a goody bag to mothers when they leave the hospital with their new baby. The birth of a child is often when someone starts a scrapbook. Retailers could see if the ward would include a store coupon in the goody bag.

B. Retailers should create a scrapbook presentation on a lap top (and keep it simple). Then call every area civic and church group that has speakers at its meetings. Volunteer to speak and say you'd be willing to be a last-minute substitute if a scheduled speaker has to cancel.

A Program for Vendors (by Trish Hansen)

It seems I've written reams over the years on the pitfalls of neglecting our independent retailers. I'm certainly not alone, many voices with greater experience than I have voiced their concerns as well.

In her article, store owner Lisa Fedele makes some good points about retailer-vendor relationships and the need to find new crafters. It is important for vendors to support their retailers, on the other side of the coin, who is supporting the vendor?

Just as we need independent retailers to educate and enthuse our consumers, we need small, innovative vendors if we are to maintain a vital and creative industry. Like the independent retailer, small vendors are truly struggling. Many of them lack the resources to remain competitive and are finding it increasingly difficult to maintain, much less grow, their market share.

Most vendors would love to improve retailer support, but simply don't have the ability to do so. Like their independent retail store counterparts, too often vendor owners find themselves stretched too thin, wearing too many hats and with limited financial resources.

During my time as Director of Sales & Marketing for a Retailers Association, I chaired a meeting with a number of vendors and asked the question, "What if you could work together?" The overwhelming response was positive and although nothing came of it at the time, the idea has always stuck in my mind.

What if a venue was created wherein vendors could pool their financial resources to purchase advertising, strengthen their relationships with retailers, create class and workshop projects, and product promotions?

What if, with the security of stringent confidentiality agreements, they could work together to create new product lines?

What if they were enabled to explore new markets, and by doing so create new crafters?

This year, along with my partner, Barb Steffan, former owner of Scrapbooks and More (an independent papercraft store), we are transforming all of those 'what ifs?' into reality with IConnect.

Loosely based on the Retailers Association concept, IConnect will be a Vendors' Membership Marketing Group. Members will pay monthly dues which will then be pooled to purchase advertising and pursue other effective marketing strategies, including retailer programs, product education and, we hope (pending approval of trade associations), trade show programs which will make it more affordable for small vendors to participate. Ultimately our goal is to look outside the craft industry with the hopes of attracting non-crafters, especially young people who have not been exposed to crafting.

In the end, these activities will benefit the craft retailer by providing support programs as well as assisting to drive new customers to their stores.

One thing is certain; operating in the same old same old mode is not working. Our industry and our business environment have changed dramatically in recent years. It is apparent that new and creative solutions are needed to address those changes and to prosper in the markets of the 21st century.

(Note: CLN will be reporting on IConnect as details become available. Anything you'd like to add to the discussion? Email them to CLN at mike@clnonline.com. To read previous entries in Memory, Paper & Stamps, click on the titles in the right-hand column.)



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