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

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Vendors Respond To Independent's Plight

Why vendors have minimums and what retailers can do about it.

by Various Industry Vendors (September 6,2004)

(Note: Inspired and worried by an email from an independent scrapbook retailer, CLN sent emails to various industry people. The original email is in the 9/6/04 edition of CLN. What follows are replies from vendors. Retailers' responses are in Memory, Paper & Stamps; the original CLN email and a response from a scrapbook industry veteran are in Business-Wise.)

David Wilke, Paper Adventures.

David informed CLN that Paper Adventures will introduce new papers at this month's MemoryTrends show (booth #528) in Las Vegas in packs of 25s instead of 50s. It was already in the works, David told CLN, because he had heard similar complaints from other retailers.

Sandra Joseph, Reminders of Faith.

(Note. Sandra is the former executive director of the Memories Community. Reminders of Faith sells a variety of scrapbook supplies and books with religious themes.)

I have always (and will always) insist that the small retailers have to understand how to market to women. Recently in The July issue of CNA magazine there was an interview with Brenda Lugannani who just left Michaels' management. I thought her comments were excellent and represented what is missing in so many small stores:

"We have to embrace and understand the craft customer who yearns to be successful. We can capture her for a short time with great price or interesting items, but to capture her heart, we have to embrace her. We have to care for her. We have to build her a community made up of real people who identify with her and we have to invite her to join it."

I love the fact that Brenda said that we have to care for her; that is crucial and something the bigger stores will not be able to do. Also, understanding the niche markets will bring the smaller retailer their core customers. All of this is relational marketing which the smaller retailer must have an understanding of.

I know that Reminders of Faith is willing to work with our retailers to accommodate their ordering needs; it is extra work for us, but we need and want these stores to succeed. Very often stores do not tell us of their needs when they cannot meet the ordering requirements.

(Just the other day, we found out that a store within a 30-mile radius of our warehouse jointly ordered with another store in NY; in other words, we shipped an order to NY which that store owner split and then sent back down to western PA to this store. Another thing to consider here is that the western PA store is not on our Internet listing of stores which could be a great marketing tool for them. We would have been more than glad to accommodate this store by filling a smaller order and figuring out a cheap way to get it to her.

Now we are doing a major program for a Pittsburgh radio station and since we had no idea this store had our products, we were not promoting her.)

Tell the stores to ask vendors for what will work for them. 

Kathy Brundage, Reminders of Faith.

1. Develop a relationship with the smaller manufacturer (such as Reminders of Faith) who will accept smaller orders and listen to the store's needs.

2. Have an in-store designer who can work with the new products to show how to use them simply.

3. Find a new niche in your area that hasn't been emphasized the home school market, the teenage market teens who have money and love to be creative, etc.

4. Learn how to creatively cross-market, papers and books that compliment in a unique display instead of on the same racks. Have a store showcase that gets rotated to show off a new item(s) every month, then a bulletin board with pictures of the past "showcases": More ideas to stimulate the buyer.

Anonymous. (Major manufacturer).

For us it's a very timely topic as we continue to push the envelope on new product ideas and techniques that could help some of the independent scrapbook retailers. I have no particular order to our collective thoughts. Use them however you see fit.

1. The key for any business is maximizing the cash return on cash investment, not necessarily having the most inventory or best price. The Hallmark card story is an excellent example and helps explain why cards cost so much. Hallmark figured it out with their emotion-based

marketing. Minimums are a tough challenge for all of us. A majority of the products don't turn, but a variety is mandatory for consumers. It's very difficult for manufacturers, whether domestic or overseas, to affordably make minimum production quantities or ship ideal retail minimums and not pass the handling costs of this along to the consumer.

The cost comes in the form of higher unit cost when dealing in volumes that are less than optimal (for producing or handling) or higher cash inventory investment with low unit cost when buying at volumes that are optimal (from a production or handling cost). The chains have the same problem as independents. In spite of their size, they don't always reach the optimal minimums to enable a lower unit cost.

2. Knowing the consumer base is critical to making the bet on how you go about expending cash available to make purchases. Each store has to develop and continually re-develop its sources of cash generation. This enables the business to dabble in other ideas. Although it seems that the scrapbook consumer is always looking for new, the retailer must figure out what the basic supplies for their consumer base are and exploit this to the max and don't stop there; keep looking for other niches to exploit.

3. Don't fall in love with a hot trend for too long. Look for the signs of slowing and de-emphasize and move on. Inherent in all this is willingness to experiment with a variety of offerings. Independents can do it much quicker than any chain can!

4. A lot of independent scrapbook stores do not appear to know how to "buy smart" and calculate retail sell-through and inventory turn. Unlike many industries, distributors are available. This can really assist retailers in their inventory investments.

5. There are many affordable computer solutions to accurately track movement of inventory and profitable vs. unprofitable items. Independents should challenge themselves to maintain this for their business. It doesn't have to be a complex system, but it has to be a disciplined approach.

6. Independents should use their in store classes to learn rather than teach. The consumer invariably "figures things out" that makes something more achievable or easier to do. Pay great attention to what's going on there.

Don Guidi, Paper House Productions.

I have seen the similar thing happen over the years in the gift industry as well. The card/gift industry has been flat to declining during the past ten years. I think there are a few ways to improve the business of small retailers (and it's in our best interest as manufacturers to have strong retailers!). Inventory is the number one area that needs improvement.

Managing inventory is the biggest challenge for all of us (small independent retailer as well as a small independent manufacturer like Paper House). In that area we share the same concerns as our retail friends, yet there is also a paradox (small manufacturers have the same issue in reverse because of retailer buying habits).

As a small manufacturer, often we have to do larger runs than we want to in order to compete with larger paper companies who print themselves (they own printing equipment) or in print China (we print in USA with high quality paper stocks).

Often, retailers and consumers don't want to pay a premium price for our quality (who does anymore?) but we won't sacrifice quality for price; it's our competitive advantage when we get in front of our customers and consumers. So we do larger runs to get the cost down to what they will pay.

We also sell in paper in 50's to move our inventory faster so we can introduce more new items for the next show which the market demands! If we sell in 25's, the small store usually orders once and moves on to something new, so I'm left with extra stock of the line just introduced and find myself in the same boat as your complaining independents.

The answer to this problem is balance in inventory and in expectations.

Small retailers need to work with all companies to keep in stock the basic, good selling items; about 70% of their inventory should be in these products, and they should keep them in stock for at least as long as they sell well by the turn standards of the particular store. Ironically, Michaels is famous for this approach and you see how well they have performed.

The independents also can experiment with new items, but only about 30% of their inventory to keep the assortments fresh and on trend. If they could do this, manufacturers could keep most SKU's active longer to amortize the cost of development and help deplete their inventory faster. The trendy new stuff can be managed by a lower, 25-count putup's and smaller initial runs by manufacturers (which I would be happy to do since I'm making money on basic good sellers). Thus, all parties achieve a balance in their inventory that lets all of us make money while keeping new things in the pipeline.

Expectations need to be balanced by the store to the consumer that we don't need the entire store to be new every three months. We are a world of ADD shoppers where what was introduced last month is "old" and something needs to follow up right away. No one can make money if this continues.

Paper House has been in business for 21 years by not falling into the trendy trap, yet staying fresh by selectively offering new products during the year. Many of our best greeting cads have been in the line for more than 10 years. A sunflower or a daisy is timeless, isn't it! We are trying to achieve the same timelessness in scrapbooking with Oz, florals, pets, travel, and sports as our main focus. These themes are always needed and if we keep them fresh, we will do well for years to come in scrapbooking.

Retailers should also be loyal to companies who have always performed well for them and keep open-to-buy for these companies always ready. It's easy to go to a show and get caught up in new and forget that new doesn't mean a guaranteed sale! In fact, SKU's with a good run rate over time tend to sell well for many years (as seen is chains like Michaels). Support your existing companies with reorders on good selling items and your good companies will reward you with more innovative products from the profits they made on the last products they produced and sold repeatedly.

(Note: To read previous Vendor columns, click on the titles in the right-hand column.)



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