Challenges, problems, and triumphs
-- from a manufacturer's perspective.
You Want Junk? You Got It
Pricing pressures are ruining good categories.
by "Vinny" (January 17, 2005)
So Hartnett's got predictions for 2005 in this issue. Well, I've
got one of my own, although maybe it's a wish instead of a
prediction. Here goes:
I think/hope this is the year when retailers begin to realize
that their constant pressure to lower prices is hurting sales, not
helping. Once the manufacturing and distributing systems are as
efficient as possible, then the only way to lower prices is to lower
If we're not careful, we'll lower the quality to the point where
the consumer doesn't want to buy what we're selling. Examples:
1. An industry friend recently wanted to sew a pair of pants
for herself. Went to a number of fabric stores and couldn't find any
fabric she wanted. "All they had was cheap cotton," she
said. She gave up and bought readymade pants instead.
2. A company with one of the strongest brand names in the
industry, whose primary product has been drastically discounted, has
been getting letters from consumers asking if the company has
cheapened the product because the price is now so low.
3. Remember when acrylic paint was a dynamite category? It
was successful in part because manufacturers paid enough profit to
fund traveling teachers, pay for consumer advertising and all sorts
of goodies that encouraged consumers to paint.
Then the retailers get price happy, vendors lose their margins
and cut way down on promotions and ... you know the rest of the
story. Does anybody really think sales would drop off if the
industry increased the price a nickel a bottle – then used that
nickel to promote painting?
4. Years ago one of the industry's strongest categories was
plastic canvas. Now you don't hear much about it. What happened?
Well, a price war broke out – every retailer wanted to sell it
cheaper than his competitor. So they busted the vendors' chops. Then
they cut their margins to keep up with the other guy.
Guess what? Pretty soon sales were great, but nobody was making
any money. Not the retailer, not the distributor, not the
manufacturer. So everybody stopped pushing the category and
concentrated on products that let them put a few bucks in their
wallet. Publishers switched to other categories and published fewer
plastic canvas books, vendors didn't create as many new products and
stopped promoting the category to consumers, retailers used endcaps
and other prime spots for more profitable lines, and designers
produced fewer projects because no one would pay for them.
So the consumer who loved plastic canvas from day one now hears
less about it, sees fewer new projects that inspire her, and doesn't
have as wide a choice of products to choose from. It's not as easy
to find it in the store any more, either. So she turned to other
Time went by and eventually someone said, "Hey, whatever
happened to plastic canvas?
So here's the moral of the story: retailers, insisting on lower
and lower prices, will eventually result in me producing junk. You
want junk? I'll give ya junk. That's easy.
I'm just not sure either of us will have a job in five years.
Note from a Small Vendor.
We're starting to re-think the whole show thing; for a small
company like us, it's an enormous expense, and aside from some
exposure, we're not sure that it really is proving to be worth what
we have to spend to be there. I say this having worked to get the
most out of every show that we can – pre- and post-show mailings
and calls, offering and publicizing our show specials, etc.
To put it in perspective, we spent - for booth components,
shipping, drayage, booth space, travel, and so on – nearly $15,000
on a [show last year]. This netted us only 27 new customers and the
orders we wrote from them and from returning customers didn't even
cover our expenses.
I've spoken to several of my show friends (other small
manufacturers) who are similarly reviewing their 2005 budgets and
concluding that doing all three of the major shows is probably not
in the cards. – Name Withheld
(To read previous columns by "Vinny," click on the
titles in the right-hand column. Like to comment on Vinny's ideas
here, or any other industry topic, for that matter? Email your
thoughts – on or off the record – to firstname.lastname@example.org.)