As many of you probably know, Sew Mama Sew used to be an online fabric shop as well as a blog. About a year and a half ago we liquidated our inventory and began to focus exclusively on growing the blog. I was motivated to close the fabric store for many reasons, but I won’t lie–if I had been earning a good living with money left to invest in growth, I would have stayed open forever. I’m not going to blame anyone but myself for my mistakes and my decisions. I don’t have a background in business and there are many shop owners who are far more skilled at marketing than I ever was. I will, however, say that it used to be easier when I was one of only a handful of online shops (#duh).  Even though there is great demand for sewing supplies ($3.76 billion annually in the quilting industry alone according to some research) there is incredible competition for those dollars. In addition to excellent brick & mortar stores and well-run, unique online shops, there are many non-traditional sellers jumping into the market all the time. Unfortunately, many of these sellers are diverting business from the shops with solid business models, making it very difficult to compete and maintain healthy profit margins. Some of these non-traditional models of selling fabric are:

  • fabric co-ops: A group of people get together to buy fabric by the bolt at a wholesale price, then split the bolt. Usually one person is the administrator and is responsible for ordering, cutting, and shipping, so they take a fee from the other members.
  • shops with prices that are significantly below MSRP*: The platform isn’t as important as the pricing strategy. (edited for clarification)
  • Facebook groups: See this post by Abby Glassenberg. In it she takes a look at two models for Facebook fabric selling groups. One is printing knit fabric based on demand (a unique business model), but the other is simply undercutting prices on quilt-weight cotton.
  • group buying clubs: Massdrop, for example

(*MSRP in the sewing and quilting industry is typically keystone, or 100% markup {except for high-end items like sewing machines.} Keystone is considered the standard for maintaining healthy profit margins.)

My personal belief is that because this is a sector in which so many people are very passionate about their hobby, a few people (certainly not most) are willing to take great risks without great business plans in order to follow their dreams. This is especially true of shops with prices well below MSRP for fabric and patterns. When profit margins are very slim, that business is not in a position to grow or contribute to the industry or the economy, yet they are a significant threat to the livelihood of shops with passion as well strong, sustainable business models. (And by sustainable, I mean that they are in it for the long-haul, not Green.)

Whether or not there are more non-traditional (some would say “gray market”) sellers than there used to be I can not prove, but my perception is that there are. (How could there not be with so many new channels through which to sell?) I’m lucky to have many fabric shop owners as sponsors, partners, and friends and one thing I can say with certainty is that many of them feel that some manufacturers and distributors have become complacent about their wholesale terms, and are dismissive when confronted with complaints about co-ops, predatory pricing, or buying clubs. In some cases all it takes is a Tax ID to open a wholesale account–beyond that many manufacturers don’t care how a seller does business.

Obviously, the supply side isn’t the only problem. Clearly, consumers are setting up co-ops, joining fabric groups, and participating in club buys. Most of these shoppers are simply after a great deal–who can blame them? And really, why should we care whether or not a seller is financially solvent or operating legally and responsibly? I do understand these points of view but I’d like to take a look at why they are short-sighted. I think the best way to do that is to look at all the ways the economy, the industry, and consumers benefit from shops with strong, sustainable business models:

A Strong, Sustainable Business is Legal, Protected, and Financially Responsible

  • they hold a tax ID
  • they are licensed by city and state
  • they carry liability insurance, property insurance, and workers comp insurance
  • they keep accurate books
  • they file quarterly and yearly forms with the state and federal government
  • they have a written business plan

Of course you can’t verify most of these things as a consumer, but if you see a site with it’s own domain, a carefully considered and organized website, a phone number, a mailing address, and realistic prices, you should feel better about giving them your money than paying a Paypal invoice from someone who could be here today and gone tomorrow. A business is a commitment and I’d personally much rather patronize shops that appear to understand what needs to be done and how to make it work. For suppliers, it is a huge risk to take orders from people that may not even be in business when their products are ready to ship three to six month down the road, and who may or may not be able to pay their invoice.

A Strong, Sustainable Business Contributes to a Healthy Economy

  • they pay taxes
  • they hire employees
  • they participate in events that promote and advance the local economy and other small businesses

Businesses that rock are bringing the economy back! They’re out there participating in First Friday events, they’re taking part in Shop Hops, they’re sponsoring bloggers, promoting designers, setting up booths at trade shows, and partnering with charities. It takes a healthy profit margin to do all of these things, so we may have to pay a bit more as consumers but we get so much in return!

A Strong, Sustainable Business Pays a Living Wage

  • to the owners
  • to employees
  • to service providers (graphic designers, contract sewists, carpenters, IT professionals, painters, sign makers, printers, accountants, lawyers, etc.)

When a business maintains healthy margins and becomes profitable, the owners get paid, they hire more employees, and they outsource other tasks they can’t or don’t have time to do themselves. All of this leads to happier humans and a healthier economy. Low-margin sellers are squeaking out a tiny profit for themselves and making do when it comes to the dozens of things business owners with higher margins can hire or contract someone else to do.

Edited to clarify: I completely understand that not all businesses start off this way. Of course many people don’t have employees for years. It often takes a while before the business can even pay the owner. The question though is whether or not the business model can support growth that will get it to the point of actually supporting people.

A Strong, Sustainable Business Takes Care of Customers

  • they are easy to reach via phone, email, mail, or in person
  • they ship products in a timely manner
  • they protect customers’ information
  • they use sophisticated software to receive, process, and track orders

The truth is, good customer service costs money. Once you get beyond a few orders per day, it takes qualified people and sophisticated software to maintain efficiency and keep track of products and orders. When businesses with low margins get busy, customer service tanks, orders are delayed, and mistakes are made.

A Strong, Sustainable Business Contributes to a Robust Industry

  • they promote products and create demand
  • they advance sewing as a craft and hobby
  • they sponsor blogs, contests, organizations, and trade events
  • they educate and train consumers

To me, this is the most compelling reason why wholesalers and manufacturers should be supporting shops with healthy business models–THEY ARE GROWING THE INDUSTRY! Great fabric stores have blogs, classrooms, and You Tube  channels. They’re working every day to CREATE DEMAND! That isn’t cheap, so the business needs to be profitable. When dozens of short-sighted sellers without good business plans come in, create competition and drive prices way down, smart, passionate, creative entrepreneurs  go out of business. We’ve seen that with multiple innovative shop and studio closures in the past few years. The industry is worse off without them.

Distributors, fabric manufacturers, notions companies, pattern designers, please hear this as a call to action. The industry needs you to take a stand and implement policies that support businesses that are doing the right thing. They need you to refuse to sell wholesale products to sellers without a solid business model. How you do this is obviously up to you, but some suggestions would be:

  • require tax IDs and state business licenses in order to open accounts
  • explicitly ask if the business is a co-op
  • enforce a minimum retail price restriction (I’ve heard the arguments. I’m not a lawyer. There is this.)
  • require a stand-alone domain or brick & mortar location (Todd Gibson of Oliver + S shared their policy with me, which has been in place since 2009. He states, “Our policy is really very simple. To receive wholesale pricing, an individual must have a bricks-and-mortar store or a proprietary e-commerce site.”)
  • sell only to businesses that carry inventory (thus weeding out co-ops and businesses who make no investment in products and can therefore significantly under-cut prices)
  • make sure both in-house and contracted reps understand and enforce the policies

(Edited to clarify: I don’t necessarily think all wholesalers need to do all these things, and I can’t say which will work best for each one. I’m just suggesting a few requirements that some manufacturers have put in place before someone can qualify for a wholesale account. Often fabric suppliers have different applications for retail accounts and manufacturing accounts.

Also, I’m not saying I don’t support Etsy shops, because I do. I’m just using the Oliver + S model as one example. I do, however, think that if a shop has their own domain with a blog, an “About” page, and a redirect to an Etsy shop, it demonstrates more of a commitment to long-term growth than a site without their own domain. This could be one way to think about the requirement of a stand-alone domain.)

Consumers, please hear this as a call to action.  As tempting as it may be to shop for fabric at a really great price, try to look at the big picture. By supporting shops, co-ops, clubs and private buying groups that significantly undercut prices, you are taking business away from shops that have so much to give–to the economy, to the industry, to their employees, and to their customers.

Finally, please understand that I use the term “non-traditional” seller because I think “gray market” doesn’t always apply, mainly because many of them are sanctioned by the manufacturers. I do, however, recognize that not that long ago online shops would have been considered “non-traditional.” I am sure we’ll see great new ways to buy and sell in the future, so manufacturers as well as consumers will have to be flexible. I just hope we can all buy and sell with a critical eye toward whether or not the business can contribute in positive ways to the industry and the economy while serving customers effectively.

What do you think? Is it all about supply and demand? Do you have any experience with non-traditional sellers? Do you have any experience opening a wholesale account? If so, was it easier or harder than you thought? Many small-scale manufacturers use co-ops to keep their costs low. Is there another way to accommodate their needs?