Challenges, problems, and triumphs
-- from a manufacturer's perspective.
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IT WASN'T ALWAYS THIS WAY...
but why does that matter?
by "Vinny Da Vendor" (July, 2003)
[Note: "Vinny" is a top exec at one of the
industry's best known companies. For obvious reasons, he insists on
anonyminity.)
Question: What fool would put significant resources into designing,
testing, marketing, and procuring the initial goods to manufacture a
new widget ... doing so only to get 35 cents on the retail dollar,
after all marketing incentives, to cover all expenses ... knowing
full well that he may bear partial financial responsibility if the
widget does not knock the socks off consumers?
Answer: A Craft Manufacturer.
Regularly, I compare notes with many manufacturers who serve the
craft industry; all find the above to be the case. Let's face it,
folks: America is now predominantly a service/marketing industry and
those providing the service/marketing to the end consumers are
reaping the rewards. Manufacturers, who put their necks on the line
to invent, procure, produce, and distribute product to customers'
increasingly more agonizing specifications, are the stepchildren in
the food chain of the craft industry.
Today, the vast majority of craft sales in the U.S. are conducted by
prominent Big Box retailers -- four of which are nationwide. But ...
it wasn't always this way.
Today we serve on our knees at the whim of four buyers whose support
is crucial to our continued existence. But ... it wasn't always this
way.
Today supply in virtually every craft-related category outpaces
demand by a very wide margin, providing even greater power to Big
Box retailers to request whatever incentives they can dream up ... and can they ever dream! But
... it wasn't always this way.
Today we have reached the point where product presentation, quality,
and reward take a distant back seat to price point and margin. Today
crafts that arrive on Big Box retailer's shelves are not always
about design and consumer experience. But ... it wasn't always this
way.
Let me take you back to a time where manufacturers were regarded as
equal partners -- the lifeblood of crafts. Manufacturers provided
unique items that kept consumers coming back for more.
I recently interviewed the retired CEO of a medium_sized craft
manufacturer who turned his business over to the third generation,
and meets for lunch regularly with the fourth generation, whom I am
sure he is grooming for the business some years down the road. Let's
call him Manny the Manufacturer.
Vinny: Manny, when you ran XYZ Crafts back in the 80's, what was
the climate like? Who were the major accounts, what percentage of
sales did they comprise, and what were the discount structures and
terms, etc.?
Manny: Seventy percent of our sales came from 2,500 "Mom
& Pop" stores throughout the country. Back then Michael
Dupey [founder of the Michaels chain] had three or four stores and
the heart of a lion; he would march into your booth with his
entourage and place an order with real teeth in it.
The same goes for Franks Nursery & Crafts. Bob Gatti and his
buyers would haggle prices for awhile, retreat to the aisle for a
whispered conference, then place an order for a truck load.
There were no slotting fees, no mark-down guarantees, no special
discounts or rebate allowances; a sale was a sale. We also sold
Craft Showcase, Woolworths, and Toys R Us. They were a little more
business_like than the Mom & Pop's, but very simple compared to
what a manufacturer has to deal with today. Our terms were net 30 on
virtually all accounts.
Vinny: Well, there had to be some set of problems to deal with
then. It could not have been all roses and no thorns.
Manny: Yes, there were some problems then that really are
small potatoes today. However, these problems were the growing pains
of a purposefully fragmented industry. Of course we had some credit
and collections issues with many of the Mom & Pop's. Certainly
it was a lot of work hand-holding small customers through our
product line, but once they were comfortable with you, ordering was
a breeze.
Vinny: Tell me about the trade shows like HIA back then. What did
they mean to your business?
Manny: In those days trade shows really meant something.
You sweated blood getting ready for the thing, because it was your
only source to show your products to the thousands who all mattered
to you. [Note: trade magazines would no doubt argue with
that.]
Today I am told trade shows are really done only to have a presence
and to have a focal point in time to launch your new lines and get
some press. Heck, half the buyers don't even attend ACCI. I'm even
told that some Wal_Mart buyers did not attend HIA, because they rely
on vendors showing them their new products in Bentonville. [Note:
trade associations would no doubt argue with that.]
This change happened when the focus of the customer base changed to
where now more than 70% of the company's sales are to the top five
craft retailers -- and we visit them quarterly or even more often.
Vinny: Now that you have changed out of your business shoes, give
me your assessment of the craft industry from your docksiders.
Manny: Look, with the majors today, my kid has to sell three
times as much in volume to generate the same as I did. Even then,
there is the potential that a major puts a gun to his head regarding
taking markdowns, and he will be forced to negotiate something to
keep the account, even if it kills the entire profitability of the
account for a year.
Never before were craft manufacturers so reliant on the business of
so few players. If any one of our top three customers were to drop
us, it certainly may put us out of business -- that is how heavy the
reliance is on the five Big Box retailers. It's a complete reversal;
they are now over 70% of our sales where they used to be under 30%.
Vinny: Uncle Vito would call that a G&D report: "Gloom
and Doom." Manny, where do you envision this playing out in the
long run? Will the control remain in the hands of the big box
retailers?
Manny: I read the responses to your last column and enjoyed
all the viewpoints. While many see it as gloom and doom, there was
one responder whose viewpoint I share:
You are where you find yourself to be -- so deal with it. While it
is all well and good to reminisce, it is a fruitless endeavor so far
as business in our current industry is concerned. One must pick
oneself up by the bootstraps and devise ways in which to move and
shake in today's business climate.
There is one thing that I did not do as well as I wished I had; that
is, to change and change quickly. A manufacturer typically has
absolutely no say over the direction a major retailer will take in
terms of selling his goods, so what a manufacturer needs to assess
is one thing: What is the buyer looking for and how can I best
achieve that and also make an appropriate, albeit small, profit?
Vinny: Thanks for your time and your comments, Manny. Your wisdom
is much appreciated. Craft Manufacturers: I hope you had great
success with your meetings with the chains at ACCI. I was at Booth #VINNY!
Note: Have any reactions to Vinny and Manny's
conversation? Any topics you'd like Vinny to address in future
issues? Call Mike Hartnett at 309-925-5593 or email mike@clnonline.com
and they will be passed along to Vinny.
xxx
