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

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Retail, E-tail, and "Unfair" Competition

Expensive advertising, false promises, and little education.

by Catherine Bracken (April, 2004)

Note: "Vinny" has graciously agreed to give up his column this month for the following article. A recent CLN issue reported on a group of scrapbook storeowners encouraging vendors to avoid selling to home retailers and e-tail sites, claiming home and cyber stores have an unfair advantage over brick-and-mortar operations. That inspired e-tailer Catherine Bracken of the Cottage Discount Needlework to write the following:

About five years ago, we moved our needlework store online because we lost money every year trying to make it as an independent needlework shop. Needlework inventory is notoriously hard to liquidate, so we tried closing it out online. Ultimately, selling online allowed us to continue in business. We closed the store when the lease expired, but continued to build our Internet business. I changed my business model because the shop just wasnít working for us in our location, despite our best efforts.

I did not go to all my vendors and tell them if they would just stop selling to Wal-Mart or Michaelís, I might make it. Thatís not the American entrepreneurial model.

Our Internet customers are rarely in a city with a strong needlework shop. I can count on one hand the number of orders we get in a month from a city I even recognize by name. Instead, our customers live in the country or are home-bound and couldnít drive to a shop if they wanted to. Nonetheless, we find shops are still threatened by us, even after five years. When I attend a regional market, I hear people talking about our business in hushed tones just out of earshot. Iím careful to use our store name instead of the URL on our name badges to avoid getting accosted in elevators (although it still happens).

Over the years, several vendors made up some really stupid reasons not to sell to us, under pressure from shops. One said they didnít like people who discount (but the vendor had product in a Hobby Lobby at a discounted price). I had a sales rep tell me that several stores had complained about finding the same products on our site that he sold to them. He cooled them off, partly by explaining there was no way one Internet business would make a dent in any one shopís sales.

I contacted a lawyer specializing in restraint-of-trade issues, who told me that unless I could specifically prove that the vendor refused to sell to us due to shop pressure, the FTC would conclude that the vendor made a reasonable decision as to the channels it wished to sell in. Of course, short of someone taping a meeting of vendors at a trade show, or such a group getting really stupid and writing a joint letter on the subject, that kind of proof is just about impossible to get.

I gave up, and found substitute products where I could. But it still irritated me that I was being restrained from selling goods to willing customers. It appears many of the yarn vendors are now going this direction as well. I was told by a rep at the Dallas needlework market last month that someone came through market with an Internet concept for yarn but nobody would sell to him because the manufacturers wanted to "support the stores." A noble goal, on its own, and one I selfishly wish had benefitted my store more when we were open.

Brick-and-mortar e-tail sites.

Recently, I asked a manufacturer exactly how the home-bound and rural customers were supposed to purchase goods if the Internet was off-limits. This particular vendor said as long as a brick-and-mortar store was in the picture, that store could sell through the Internet as well. This vendor claimed to be opposed to strictly Internet businesses. I find this to be a very short sighted position, as selling online and selling in store involve two very different skill sets, even when you remove pricing from the picture. The customer shopping at the website of a neighborhood shop does not have the same experience as the customer IN the shop, or the customer at a sophisticated website. Instead, the customer gets the worst of both worlds. Let me use my business as an example.

Our shop uses a very expensive software packages to handle Internet sales, along with a high-priced Pro Package for web hosting and secure ordering. It can handle limitless numbers of users at the same time and a huge database of products, including products that come in more than 400 colors each. The average store uses a simple Access-driven database (if any) that caps out at about 20 concurrent users. Many of them donít have secure online processing, although plenty do.

Some stores donít know how to optimize images to speed loading time to improve the customerís online experience, while we use (again) expensive software for image management. I use GoogleAdwords (at several hundred dollars/month) to introduce targeted customers to our site so they donít have to plow through tons of irrelevant search results.

We write interesting and informative articles about some of the products we sell (and competing products) to make up for the loss of personal contact in the store. (Visit our site at www.discountneedlework.com and look for the lamps comparison article signup on the home page, the needles article on the tips page, or the 10 pages about using a needlework frame found on the supplies/frames page). Each of these articles takes about 40 hours to research, test, illustrate, and set up for distribution.

To provide additional personal involvement, we have audio segments on selected portions of the site explaining how to use our thread color-converter or the benefits of the Daylight UltraSlim lamp. Recently, I took digital video of Kay (of Kís Creations) demonstrating her perfect-tension side bars which I will use as streaming video to further educate customers. We use automated email handling to distribute an informative email newsletter, as well as to offer coupons and tips to subscribers.

Some stores think Iím just skimming cream off the top by selling online, leaving them with the costly side of the business. These people should look at my advertising and technical expenses to see that I am not without expense Ė they are just different expenses.

Consider these Internet-related costs that the average shop doesnít have: online advertising, hosting fees, payment gateway fees, a higher discount rate on charge cards, higher labor costs for packing and shipping, higher inventory costs (you typically need more inventory to sell online), programming fees, 800 calls, extra phone line costs, warehouse rental, packing supplies, and more.

My software costs include online point of sale and shopping cart, image management, database editor, automated email processing, an html editor such as Front Page, search engine optimization software, and for every software package, annual updates.

My capital expenditures include both digital still and video cameras, a flat-bed scanner, two fax machines, and two late-model computers to name a few, none of which I needed to sell needlework in my store.

The ability to sell in this channel is not something the average shop owner can easily handle well. A good local shop should be focusing on building local business through trunk shows, classes, stitch-ins, and local advertising, rather than trying to learn the arcane issues of optimization and streaming video. If storeowners are doing their jobs well, maintaining a quality website would take more time than is really available.

If I were a vendor, I would be somewhat concerned about the poor showing my product was getting in some of the slap-dash websites that shops put up, instead of worrying about "Internet only" businesses.

Of course, thatís just me. The vendors who have wholeheartedly supported us in our online effort have been rewarded with outstanding sales levels from us due to the emphasis we put on selling their products.

When you strip away all the "made up" reasons for not selling to a quality Internet business, all thatís left is this: "The shops donít like it and asked that we not sell to you, so we wonít."

Kudos, therefore, to the brave manufacturers and distributors who are trying out this new retail channel over the Internet by supporting a program that will teach people how to do it right. And shame on those short-sighted stores who think that competition is a bad word.

Note: Have any comments on Catherine's thoughts? Email them Ė on or off the record Ė to mike@clnonline.com. Visit Catherine's site at www.discountneedlework.com. To read previous "Vinny Da Vendor" articles, click on the titles in the right-hand column.



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