Industry Forecast

These are particularly challenging times for the giftware industry, as it endures pressures from a variety of sources. In search of some answers, G&DA asked 14 business leaders what they see as the biggest challenges and opportunities facing the industry. We also asked if their projected 2006 sales will be up, down, or the same as 2005. These leaders represent gift, home, and garden vendors; collectibles manufacturers; stationery and greeting card resources; sales rep firms; and a technology provider. All agree that the industry has changed drastically in just the last few years, and that it's not likely to return to the glory days of the late 1990s. Still, most see opportunities in our new world, opportunities for those who change the way they do business, and re-discover themselves. The plight of the independent retailer is one of their greatest concerns. But they see hope for the retailer who is creative with store promotions and unbending in providing the very best in customer service. As for sales, many see a relatively flat year in 2006, others project increases. However, being the salespeople they are, optimism reigns.

Andy Niemeyer

Principal, Crazy Mountain Imports

Imlay City, MI

>> Challenges

“The dynamics of the gift industry are certainly different than they were six or eight years ago, but those that are left standing are going to find themselves in a much healthier industry overall.

“As an importer, we face challenges doing business in China. Raw material and labor costs are going up, but that's typical of consumer products across the board.

“It's been an interesting time for the independent retailer, our core customer. We want to support them in any way we can, and make sure we're partnering with the folks who are going to be here for the long haul.”

>> Opportunities

“There are tremendous opportunities, in part to do with the shake-out over the last couple of years, leaving a stronger industry.

“Consumer tastes have changed; outlets where gift product is sold have changed. It's the responsibility of everyone in the industry to change the way they do business. Those that are fluid and creative and proactive are going to see some tremendous opportunities.”

>> Projected 2006 Sales

“Our sales will be up. 2005 has been a very good year, and we're optimistic that we can do even better next year.”

Alan Silverstone

Alan B. Silverstone Collection, New York

>> Challenges

“Coming up with high-end, high-quality products at reasonable prices is more of a challenge today because of skyrocketing costs. Also, our buyers' seasonal budgets don't seem to be as big as they once were, so we have to diversify into other lines.”

>> Opportunities

“While there's been a significant drop off of independent retailers, the accounts that have remained seem to be doing more volume, and have good business. The survivors are companies that have been around for a while; they're not start-ups. They've weathered the storm, and are coming back strong.

“Our customers want unique products that can't be found in other stores, like the custom made resin figurine we've done for Henri Bendel. It's a Statue of Liberty holding a Bendel shopping bag.”

>> Projected 2006 Sales

“We expect sales to be up in 2006 because we're going to develop more product for year-round sales.”

Alan Ceppos

Principal, The Sarut Group, Brooklyn, NY

>> Challenges

“The main challenge is to find product that nobody else has. It was the same 20 years ago, but it's even harder now. Everyone can go to Asia now, so we're no longer as needed as before. Even the show organizers are organizing shows where the Asians come here, and the Asians are lowering their minimums so it's easier for smaller customers to order.

“You have to look in more unusual places, like countries that don't speak English very well, but where you can communicate because you have the language accessibility. If I were 25 again and wanted to go into this business, I would learn Chinese.

“Americans have always shopped for price. But in the past, there was less price difference between a product made in France and one made in Italy. It's so different now with China. Many of our products come from France, but because of the higher cost people are less interested.”

>> Opportunities

“I don't really see a way out. We have to re-educate everyone that if you carry product you can't buy in Wal-Mart, even if it's more expensive, there are people who will buy it — but there don't seem to be that many.”

>> Projected 2006 Sales

“We're going to be up because we are opening large accounts in the mid market. If I was only looking at our mom-and-pop stores, our business would be down drastically.”

Cyndee Pollock

President, Greenbrier Home & Garden, Wichita, KS

>> Challenges

“The biggest challenge for everyone is that the mom-and-pop retailer is struggling.”

>> Opportunities

“We do a huge amount of business with key accounts, and we've opened our own product sourcing showroom in Hong Kong strictly for them. About 90 percent of it is private label. The items we offer are totally different from what we offer mom-and-pop stores. We feel that's going to be really helpful for the independents because they're not going to be competing with the big boxes.

“We also watch closely what the mom-and-pops are selling. We've gone back to our bread and butter for next year — just the stuff that really sells — and our price points are going to be very sharp. And we'll have a lot more product introductions.”

>> Projected 2006 Sales

“I think my sales are going to be up. We'll have repeat and new key accounts, and a strong product line for mom-and-pops. I see nothing but good things.”

Barry Moore

V.P. Sales & Marketing

San Francisco Music Box Company

Austin, TX

>> Challenges

“As we talk to our reps and customers, there's a lot of people who I don't think are going to be around next year. Gas prices and the loss of thousands and thousands of jobs from the hurricanes are going to have an impact. However, the good independent retailers will survive, and be better.”

>> Opportunities

“We're an anomaly, coming back after Chapter 11 bankruptcy. We're now owned by Barnes & Noble and Calendar Club. Three years ago, we had 225 retail stores, now we have two. We've taken the company to the wholesale side, but don't sell to the mass market.

“We have about 2,500 accounts in the U.S., up from 800 last year. Hallmarks are doing well with our product, as is mail order. We have an inordinate number of customers who are doing $20,000 to $60,000 a year — and that's talking about one door.

“I'm very fortunate. We have a well known brand, and we're going to pursue that value through our independent retailers.”

>> Projected 2006 Sales

“I am being very aggressive. I think we're going to be up 20 or 25 percent over a very, very strong 2005.”

Ken King

Executive Vice President, Van Group, Ontario, CA

>> Challenges

“We have to work harder to get a piece of the shrinking independent retailer pie. Another challenge is the rising cost of doing business, the cost of our reps driving around to our customers, and getting buyers to the gift shows. Also the price increases going on in China. We manufacture a lot of resin products, and the cost of resin is going up.”

>> Opportunities

“We are really pushing to diversify. Jewelry, accessories, and women-to-women products are very big, and we're moving in that direction. We also see a nice trend in inspirational products and in personal care. It's a question of learning what consumers are buying, and then getting into that area.

“I've been in this business 20-something years, and I remember the days of card and gift shops. It's not that anymore. Now those shops are selling the whole gamut of everything and anything.”

>> Projected 2006 Sales

“We're projecting our 2006 sales to be slightly down from 2005.”

Joe Walsmith

CEO & Chairman, Willitts Designs

Petaluma, CA

>> Challenges

“Recovering from the collapse of the collectibles market is the single biggest hurdle people are trying to get over. Our retail community had such an investment in the sales of collectibles, they came to rely on it almost as an annuity. The collapse was caused by a confluence of two events: the bursting of the Beanie Baby bubble and the arrival of eBay.

“The burst Beanie bubble — that was a Ponzi scheme from the beginning — psychologically devastated young people who got burned and said they didn't want to collect anything.

“EBay brought buyers and sellers together where the law of supply and demand determined price. A lot of the excesses that collectibles companies indulged in created an artificial secondary market, and eBay exposed that. Real values were established again.”

>> Opportunities

“Collecting is never going to go away. It's an ingrained, inherent characteristic of the human personality. The challenge for the collectibles industry is to re-discover itself. Create unique, distinctive product that people can connect to that represents value. If you can do that, there is a collectibles customer out there.”

>> Projected 2006 Sales

“We believe we have products that give us the potential to increase sales next year, but we are planning our profit model to be able to absorb a fall in sales.”

Gina Bugee

Owner, Gina B Designs

Plymouth, MN

>> Challenges

“The number one challenge is the time-pressed consumer. They are looking for convenience, which is what the big box stores play into. Our grocery store business — we sell to an upscale chain in our area — is good, but the independent retailer is seeing less foot traffic. Email has really cut into the greeting card business; people just aren't sending as many cards.

“Our reps are having challenges too, what with rising gas prices and retailers who don't have the time to spend with reps. We're seeing more direct orders. To help make ends meet, reps are carrying more lines, which makes it even harder for the retailer to spend time with them.”

>> Opportunities

“Challenges usually bring opportunities. It's a matter of figuring out what that opportunity is. The creative retailer will do more in-store promotions and provide service, service, service. Manufacturers need to get into more of those stores.”

>> Projected 2006 Sales

“Our projection for sales in 2006 is that they will be about the same as 2005.”

Trip VanRoden

President, Wellspring, York, PA

>> Challenges

“There are more manufacturers, reps, and retailers going out of the industry than are coming in. It's a trend that will accelerate over the next couple of years.

“It's extremely hard to pass along increased costs — retailers require more margin, reps want commission increases, and manufacturers are squeezed. The trade show circuit requires an enormous amount of time and money, especially for small businesses with limited resources, people, and samples.

“We wait for great products to come along to float all our boats. But it's not product, it's processes that ensure a company's survival.

“It's very hard to create uniqueness today. The problem is that all information is available to everyone all the time. You can go to Google, put in whatever you want, and get lots of alternatives.”

>> Opportunities

“Our biggest opportunity is that we are in a creative and artistic industry making lots of fun products. But we need to create an image of the industry. We're probably the only industry of this size in the world that doesn't have a trade association. We're moving toward that with the Gift and Home Trade Association (GHTA) where manufacturers, reps, and retailers come together to discuss and solve problems.

“By collecting and sharing industry data, people can begin to make good business decisions. All the finger pointing that goes on in our industry doesn't help either; we all have to take responsibility for what we can do to improve.”

>> Projected 2006 Sales

“We project sales to be up a minimum 10 percent, because we'll be introducing several new products.”

Karen Alweil

Karen Alweil Studio, Los Angeles

>> Challenges

“The shows have been affected over the last few years. Attendance has been off. A lot of veteran store owners feel they can talk about how poor business is. I feel that the impact of 9/11 put a sense of honesty in people.

“I seem to always have new and wonderful things, but the challenge is people not being able to run a small business. You used to be able to get into this industry without a lot of capital, but not now. It's so expensive. I'm much quicker to turn over my manufacturers when I find out they're not running their business well.

“The length of time it takes a large company to knock you off doesn't give you the luxury of being able to ride a wave with a good new product.”

>> Opportunities

“Incredible opportunities are very limited because our industry has changed so much and it hasn't found its way. You have to be focused.”

>> Projected 2006 Sales

“I think they are going to be up. I am concerned, but we are more organized than we've ever been. We're learning to be lean and mean.”

Andy Bjork

President, BrassSmith House

Worcester, MA

>> Challenges

“The independent retailer is struggling. Some of it is real estate; lease costs have gone up and they're not selling that much more. The population in most areas hasn't grown to make up for it, and sometimes the margins in our industry are stuck at keystone.

“There's also a need for retailer training. Twenty years ago, we had a lot more professional retailers. People used to come out of department stores where they learned about the seasonality of the gift business, what an open-to-buy is, how to merchandise. People today come into it for the fun, or as a second career; they don't have the experience. They're learning from people like me, but I'm also selling to them.”

>> Opportunities

“Our association [the Northeast Gift and Decorative Accessories Association] wants to start training seminars for new retailers on subjects like where to borrow money, how to structure open-to-buy, and where to find extra margin. We're trying to do it at the national level, too, through the Gift and Home Trade Association (GHTA).

“Our industry is creative. People are always looking for new ideas, new products, and there are opportunities for those who take advantage of what's new.”

>> Projected 2006 Sales

“It's going to be a flat year.”

Ted Teele

CEO, OneCoast

>> Challenges

“There are four major changes in our society: the Internet, the rise of mass merchants, the high percentage of products made in the Orient, and the rising cost of energy.

“In the music industry, major change came with digital music. Music stores were big losers, but Apple is making billions of dollars because they are delivering music to consumers the way consumers want it, by downloading to their iPods. My job is to think how OneCoast can adapt to become the Apple of our industry.”

>> Opportunities

“There are four things independents need to do: find creative ways to get consumers off the Internet and into their stores; make it fun for consumers once they're in the store; offer unique products; and come up with an Internet strategy where their website promotes their store and their store promotes their website.

“Reps have to add value by helping retailers make the transition during this time of change. It's not just selling to retailers, it's educating them with seminars on Internet retailing, product trends, and competing with the big boxes. And everyone has to get better at technology.”

>> Projected 2006 Sales

“We are projecting that our sales will be up in 2006.”

Patti White

Patti White & Co. Inc., Chicago

>> Challenges

“The economy is the biggest challenge today. Consumers are preoccupied with disasters, the war, and rising costs.”

>> Opportunities

“There was a big drop off of stores in 2001 and 2002, but since then for every store that's closed its doors, there's a new one coming in. Americans still want that shopping experience, and they are not going to buy a gift that comes in a Wal-Mart bag.

“A lot of our retailers are doing special events — girls' night out parties, special shopping nights, staying open a little bit later. They're extremely creative in getting customers into their shops. With good displays and a good merchandise mix, those customers will walk away with something. That sets the independents apart from the big boxes.

“Stores are changing their mix. Buyers were telling us to get into fashion accessories, and we've added them. Handbags, jewelry, scarves, and personal care are doing extremely well, across the board. Card shops and home decor shops are opening small sections of fashion accents. But retailers have to keep it fresh, because they're seeing repeat customers.

“It's all about price, quality, selection, and service.”

>> Projected 2006 Sales

“I see our sales being up in 2006 — not greatly, but slightly.”

Eric Dean

President, Whereoware, McLean, VA

>> Challenges

“This long supply chain that we've had for years of factory, importer, rep, retailer, and consumer is being challenged. The pressure to squeeze the middle — the link between factory and retailer — is a major challenge for someone who has all their eggs in the key account basket.

“Overseas manufacturers want to come direct. It doesn't matter much to UPS whether a box is packed in China or Kansas City. Going from three or four months lead time to just-in-time shipping takes the costs out of warehousing and inventory.”

>> Opportunities

“You still need to present product and share information, and there are a lot of things going on that are helping the Internet channel share that information — broadband, better photography, better imaging capability.

“There are more gift suppliers coming into the market; they just don't look like the Main Street gift shop. Car washes are selling stuffed animals, beauty salons are bringing in health care products, dog groomers have a rack or two of pet gifts. They might sell $25,000 or $50,000 a year of these high mark-up, impulse items.

“But where do they find the product? Reps aren't going to call on them, and they're not going to spend two days at a gift show. More and more are going to the Internet to Google “dog gift.” We work with our customers to make sure their names come up in the search. Companies that can reach those channels will do well.”

>> Projected 2006 Sales

“We'll be up strongly over 2005. The technology industry is starting to stabilize. Companies are ready to spend money on Internet-based systems that can grow their business.”