You Never Know From Where The Punch Will Come

This posting is about a company that tried to control its own destiny and failed, but there is a lesson here for every catalog, especially those jumping on the Amazon bandwagon.

In 1999, I was contacted by a lingerie manufacturer in East Los Angeles that wanted to start a catalog. He had been manufacturing underwear for more than 15 years. He got a big bump in business about 10 years earlier when Victoria’s Secret started buying some of his products. They liked working with him so much, they contracted with him for more and more products. In the year prior to his call to me, VS represented 80% of his sales.

Then it happened. Victoria’s Secret informed him that they had established their own manufacturing plant in China, and would be scaling back their purchases from him dramatically. He never thought that VS would throw him a punch like that. He thought they were his partner. He thought his own catalog would be his route to survival, because he wanted to control his own destiny.

I was doing a ton of traveling at that point, and as luck would have it, I was going to be on the west coast in two weeks, so I arranged to meet him. I won’t retell the whole meeting, but there was one memorable moment. After we had met for a few hours in his office, he asked if I would like to see where the products were made. We walked down a short hall, and he opened a set of double doors, and there was row after row of “work stations”, with hundreds of women of every possible ethnicity, each hunched over a sewing machine, with piles of bras and panties all around them.  When you see a company in human terms like that, it gives you a very different perspective on what the owner was attempting to do. He was not only trying to save his company, but save a few hundred manufacturing jobs as well.

I gave the business owner a very sobering estimate of what was involved in a catalog launch, and 18 years ago, it was still fairly easy and lucrative to do. But still, I pointed out all the issues, not the least of which was that he would probably not be profitable for 3 to 5 years. But, he thought he had two massive advantages – he was the manufacturer, so he had great gross margins, and he knew the business, and knew what sold.

He decided to do the launch on his own, with no additional help from any catalog consultants, including me. I did find him a former copy writer from Brookstone who apparently had been waiting her whole career to use the word décolletage in product copy.

Instead of doing an in-studio photo shoot as I recommended, the owner spent a modest fortune on a photo shoot in Mexico with some very expensive lingerie models (apparently models that look good wearing a piece of cloth that can just barely be called a garment are very pricey). The book mailed once and that was it. I never heard from the guy again and don’t know whether he survived as a manufacturer.

So, what’s the lesson to today? Simply this: Thousands of companies are now flocking to Amazon. They know the dangers involved, but also realize that if they can’t beat them, they might as well join them.  A reader the other day told me that two years ago Amazon was 15% of their business, and soon it would be 40% of their overall business. For many of you, Amazon is becoming your number one sales channel.

You see your use of Amazon as a way to control your own destiny. For some of you, the future looks rosy as those Amazon sales keep climbing. But what happens when Amazon becomes 70% or 85% of your sales? What happens is that you have lost control of your destiny, because that punch that knocks you out of business could come at any time.

Amazon is ruthless. They know that once they have the majority of your sales, they can start to squeeze you. Maybe they’ll increase the fee they collect as a commission on your sales. Maybe they will charge some “Amazon access” fee. I expect that in many cases, they will become the manufacturer, and simply drop your line completely.

Amazon is not your friend. It is a sales channel that eliminates dependence on others – especially sellers like you. They want to control every aspect of the transaction, and are well on their way toward that goal.

What is the alternative? Don’t walk away from Amazon, regard it as you would any other channel. But just remember, as it becomes a bigger piece of your sale pie, it could also turn around and punch your headlights out. Be careful.  And continue to build a diversified portfolio of sales techniques, beyond your current catalog. That is what we will focus on at the Datamann Catalog Seminar in April.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235

blapierre@datamann.com