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

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Why Independents Are Declining and the Industry Is Soft

We can't improve the situation until we understand the causes.

by Name Withheld (September 5, 2005)

(Note: This was written in response to CLN's call, "What's going on out there?" The author is the owner of a small to medium-sized manufacturing company.)

Our company has been doing business for decades years in the gift and craft market. We have shown in HIA/CHA for about 15 or 20 years. For the first time, we will not be showing in 2006 because our limited category failed to be appealing enough to the limited independents to make it worthwhile.

I feel that a combination of factors have contributed to the slowdown of the consumer gift/craft markets. We just keep saying "Yes, but there is still some for us." But when all factors hit at once, there is a huge fallout such as happening in independent retail stores of all kinds.

1. Internet and TV sales are eating into storefront business dollars; look at the list of TV purchasing options; it's easier and easier to buy 24 hours a day. They are not running all those 30-minute infomercials for nothing; it has slowly slipped up on us.

Yesterday I heard about a company that was highlighted on a major cable news program. The calls they reportedly received would have resulted in $4.7 million in sales if you compute it at an average of $30. It is sleepware for hot-flashing women made of special fabric that wicks the moisture away or something like that. So we Americans will react to a whim like this and depend on DIFFERENT sources to keep us informed of trends. We no longer trust the small independents to bring the cutting edge stuff to us.)

2. Yes, gas prices are taking a portion of the available funds to spend on non-essentials. It is such a psychological thing. The news shouting from the newstands "Gas Prices Soar" doesn't help.

We in the U.S. are so aware of price fluctuations because we have such a low tax on our fuel as compared to Europe where the taxes stay the same, so Europeans don't notice the price in the fuel cost because it is such a tiny share. Heaven knows, we don't want that.

Yet we just have to grow up about the fuel. No one said anything when our cell phones went from one phone for $15 a month for emergencies to a whole collection of them for the family with $150 monthly bills and $100 text messages, although I realize the fuel touches everyone.

3. All the gadgets of a modern lifestyle: cell phones, dvds, flat screen tvs, computers, cable or satellite, etc., for the entire family take money away from this pot of disposable money for soft goods in our industry.

4. Recreation, sports like NASCAR are using more and more of that money. A sports event on satellite TV is sometimes $49.95 instead of $2.95 like a movie.

5. Big Box stores are located in the very smallest of towns a Lowe's in my town of 18,000 people for instance. The country once has vacant spots where the independents took care of a small share of consumers who didn't drive into the city. A hot trend will show up immediately in almost every city at the same time again, removing the leg up the small stores had once.

6. Aging independent store owners due to the baby boom; they're looking to retire and have no one to take over the store. Kids don't want to work that hard, no one is willing to buy out the assets in a store with even a $100,000 inventory, and fewer still are the number of bankers willing to finance them. Liquidation is the next step. Same for rep groups who have trouble selling out businesses. Look at the age of the store owners as they shop at our shows.

7. The cross section of immigrants is making an impact on consumer product needs due to differing cultures. The gift industry had primarily been selling European-styled giftware aimed at a Caucasian market. Walking through the halls of the gift shows and craft shows, the buyers are not diverse; therefore they may not offer product for the emerging multi-cultured populace.

The big-box stores do a very good job of appealing to the masses. Here in the Southwest, JC Penney's offers Spanish signs in the clothing department. It will not be surprising that when the second-generation immigrant reaches maturity and assimilation, he/she will not be going to cute, little retail stores because he has no family history of visiting those stores. A divide continues....

8. The search for cheaper and cheaper has enlivened the mad rush to "Made in China" so we can compete. Our "hand-made in the USA" is not meaningful; we can no longer offer jobs to make products to market here. We, too, have exported a handful of jobs, leaving some of our employees with the option of working at Wal-Mart or the prison system. This leaves the independents with fewer unique products and they have to compete with the large chains by buying products which are similar.

By my estimation, this is a major shift, not just a ripple. I have never seen such swings in our industries. But we can liken it to the shift away from family farming when everyone went to the cities for jobs. I daresay, some tractor salesmen and feed processors sat around and pondered these same issues 60-70 years ago.

On a bigger scale, it took 25 years for the Industrial Revolution to reach the mainstream masses from about 1860's. It has taken the Computer Revolution about the same time to change every segment of our culture. And we can't keep doing what we've always done. (Although, we keep repeating this same silly statement.)

Back to the small picture: selling products to independents (our business is mostly independents) is our aim. My small company tries to meet the next trend and offer it in a unique way. The American culture is exciting visiting stores while traveling, asking for special services from your local retailer, community events supported mainly by independents, and the people-to-people contact offered are just some of the reasons these stores continue.

We manufacturers must do what we can to continue this tradition because it will continue in some form. Shopping is still one of the most popular recreational activities and it's not all at the super box store.

(Note: This is a pretty gloomy picture painted here. Is it accurate? If so, where does the industry go from here? Email your comments to CLN on or off the record to mike@clnonline.com. To read previous "Vinny" columns, click on the titles in the right-hand column.)



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