This is the final installment of a competitive analysis series that outlines the needlepoint business from the perspective of a prospective needlepoint store owner.
In Part II of this series, I took a look at the effect of the enormous downward pressure on thread prices exerted by Big Box outfits as well as Arts & Crafts (A&C) chain retailers that provide basic needlepoint threads and embroidery floss. I suggested that the prospective LNS owner needed to devise a shrewd strategy that combined a highly targeted thread inventory that supported opportunities to upsell higher margin, higher dollar value needlepoint canvas merchandise.
As with thread, however, the competition in the domain of needlepoint canvas is fierce and determined.
Apart from local or regional competition from other B&Ms, the startup LNS owner is faced with a barrage of channels that sell needlepoint canvases online.
Given the vast inventory overhang that characterizes the needlepoint business, the incipient LNS is faced with the daunting prospect of competing literally against a veritable ocean of needlepoint canvases already available in the marketplace.
The quality of the product carried by these channels is uneven — certain online retailers in particular carry grossly inferior needlepoint canvas products, as well as knockoffs copied from the work of original artists — but it remains a fact of life that needlepoint customers have many options for obtaining product, some, if not many, priced well below the carrying cost for an LNS.
The situation is exacerbated by the reality that many B&M needlepoint shops also sell online, some at equally profit-destroying discounts, as do certain needlepoint artists, who augment their revenue streams via online channels for slow-moving designs.
All of this exerts a relentless downward push on handpainted canvas prices, even as the wholesale cost for new handpainted canvas designs from reputable vendors and artists remains lofty — despite the efforts of many designers to reduce costs by outsourcing the production of their handpainted canvases to foreign locales where cheap, skilled artisanal labor is more plentiful.
In this regard, the startup LNS must also contend with the reality that the needlepoint business has been reluctant to adopt a shared risk model. In other words, it is atypical, for example, for a needlepoint canvas vendor or artist to accept unsold canvases as returns. Thus it is expected that the store owner shall pay up front (or on a net 30/60/90 basis) the cost of his or her inventory, sink of swim. If the canvases do not sell, it is not the vendor or the artist’s problem.
Given the high cost of such inventory, and the need by the store owner to invest in a large selection of canvases in order to compete against the ever metastasizing online world, an LNS can easily fail — should the store owner unluckily end up carrying enough canvas inventory that does not sell.
Moreover, the long lead times for custom ordering limit the upside in risk displacement.
That is to say, many store owners will advertize a given design in their online catalog but not have the item in stock. The custom of having the customer wait several months, after paying the retail cost of a given item upfront, is a hindrance.
While it is true that trunk shows (which usually carry minimum floors that vary considerably from vendor to vendor) help mitigate the store owner’s outlay, owning a needlepoint store still demands an appetite for risk that may not be justified by any rigorous, comparative opportunity cost analysis.
Writing a realistic business plan is therefore incumbent upon any needlepoint store startup, as is achieving a solid understanding of the breakeven point for the venture.
Unless the prospective store owner is investing in an LNS on a non-profit or tax write-off basis, it may not initially make economic sense to take the plunge.
Looking at the situation from a strategic industry perspective, it has now become increasingly urgent for needlepoint canvas vendors and artists to be willing to experiment with, if not embrace, more creative and flexible revenue models that entail a participatory shared risk element.
Absent this willingness, it is possible we are witnessing the onset of a time when B&M stores will soon become a thing of the past.
© Erin McGrath and Needlepointland.com, 2012 – 2016
B/E Slide used with permission.