One thing that was very clear at market and something that I have been talking about a lot lately is that competition is fiercer than ever. Everyone, including me, is fighting for customer dollars in order to be one of the survivors. This is our livelihood and why wouldn’t we fight the fight to be king of the mountain or at least be on the mountain and not in the swamp below. With that, I have come to recognize that we are in a race to the bottom that is not healthy for our industry or any industry for that matter. Do you know what I mean by the race to the bottom?
As the overhead of the business equation goes up because that is what it probably does every year (higher rent, higher wages, inflation, insurance and the list goes on), the profit margin side of the equation goes down due to decisions being made to compete.
For example, a simple race to the bottom is that the yardage on a bolt in lots of cases is getting smaller or requests are being made for them to be smaller. The majority of fabric re-sellers want smaller bolts so they can turn the fabric faster, make smaller investments, take less risk, have more variety and so on. Some vendors are doing this and competing in the race to the bottom. Others are holding strong whereby they will only go as low as a 10 or 12 yard bolt.
All things being equal, the shorter bolts wouldn’t be the end of the world, but for these facts. Shorter bolts mean less efficient cutting due to the constant changing of the board for the next piece, it means more boards, it means fewer bolts fit in a box due to the fact that more boards take more space and it takes up more real estate on warehouse shelves. Guess what this all means folks? Yes, there are increased costs associated with the shorter bolts. So now, not only are you selling fewer yards, but the costs to make that smaller bolt are increased too. So this is at a minimum a double whammy if not triple or quadruple whammy. Lower margin-ville here we come. Oh, stop the sarcasm Scott! You are winning the race to the bottom. I said stop the sarcasm Scott! Not a race I want to be winning nor should you want it either. Please resist because once you do this, there is no going back to how it used to be.
Another example is how buyers are always pushing for lower pricing. Of course, it is their job to get the best prices possible, so why not try? Anyway, I inevitably hear the buyer say that other vendors are lower priced than I am. Obviously, that is sucky and no one ever wants to hear that. The thing is that I never know if they are telling the truth or just pushing my buttons. But they are saying it and getting in my head, so I have to deal with it anyway, otherwise someone else is going to keep eating my lunch so to speak. Assuming they are telling the truth and being that I have a pretty good handle on my fabric costs, I know where I need to draw the line. At some point it just doesn’t work for me and my business. I sell fabric to make a profit, not a loss. Why would someone do that? Because they want to be the winner of the race to the bottom. I know, I am sorry, I have to tone down the sarcasm and be happy boring Scott. I am smiling though. I digress.
I am sure that you can come up with many more examples of the race to the bottom unfortunately. But, in short, the winners of the race to the bottom will probably go out of business sometime soon because they are selling too cheaply and that is no way to be successful. Be careful folks. Use discipline and make sure you know what margins you need to make to add to your bottom line and not detract. Don’t say I didn’t warn you.
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