In the wake of the recession, and most notably in the past few weeks, Economists and small yarn store owners have been bewailing the hike in wool, cotton, and silk prices. It seems that in the past two years, while many of us where silently freaking out (or, if you’re like me, running around like a headless chicken) over the media-reported state of the economy, many sheep farmers and wool harvesters converted to the more lucrative dairy farm industry (see the Financial Times article on this). Flocks of yarn-yielders are now considerably smaller than they were a few years ago, and, as such, supply is low. In addition, according to the previously mentioned article, during the recession many fiber farmers burned through their inventory (read: sold it off at discount prices) in attempts to cut their losses.
For silk and cotton, synthetic fibers have all but replaced them as they are cheaper to create and sell. Big brands like Lion Brand Yarn and Red Heart, which produce acrylic blends and ship to craft store chains like Michael’s and lower-priced department stores like Walmart, estimated a doubling or tripling in their sales as knitting has historically been a recession-proof hobby (read about it here). Synthetic fiber yarns, it seems, tend to do well despite economic dips because they cater not only to the frugal crafter but also to a range of skill levels. Even the pricier brands of yarn were expected to sell in larger numbers than before (here and here); knitting was the perfect stress-alleviating hobby in troubled times – it felt cost-effective, it is meditative, and it harkened back to simpler, recession-free times. But this huge payout for yarn venders never came. The sad fact is, during the recession, the amount of crafting that occurred was not enough to stabilize the wool, cotton, and silk industries and now they’re skyrocketing in price.
Here, you can see Australian wool has more than doubled in price since last year:
Even if you track five years back, to before the recession, wool prices are still at their highest today (and about two and half times more expensive than they were in 2006):
There was a momentary drop in prices in late 2008 and early 2009, when the above articles were written, but they didn’t stay down. In Economics, this is what is called “Future Expectations” – the expected price or amount of sales influenced what was then the present pricing. Directly after those happy eight months, prices went up again.
Looking at American upland cotton with the same parameters yields similar results (with the same drop in late 2008). Though cotton pricing is on its way down from its peak this past year, it’s still very much more expensive now than it was five years ago:
In the store we carry Pima cotton. Pima has hit $3/lb. on the world market.
What does all this mean for us? Our suppliers can no longer afford to stay at the prices that they have been offering us as the mills that supply them can no longer get the wool and cotton at the original low prices.
What does this mean for you? You’ve probably seen quite a few of your favorite yarns going up in price. Right now we’re considering alternative yarns, so stay tuned for yarn-tasting announcements and supply updates!
- Nadya the Intern
September 7th, 2011
In August 2010, we got a call from Groupon letting me know that Nine Rubies Knitting had been “selected” to be featured on Groupon. I thought this was a great sales tactic (who doesn’t like to be selected?) and felt flattered at the same time. I ran a few spreadsheets and had a great time analyzing what Groupon could do for us. At the surface, this is how Groupon works:
- They advertise a super-great deal – 50% off at….. In our case, I decided to do “Get $20 worth of merchandise at Nine Rubies if you pay $10 now.” In short a $10 for $20 deal as it has now come to be called.
- This deal is available for 24 hours on the Groupon website and they send it out to their subscribers (also known as a mailing list). They kept referring to our area as Peninsula and I was not sure how that worked, as you could not really sign up for a Peninsula list on their website. There was San Jose or San Francisco. Either way, I have no idea how many people my Groupon Deal went out to.
- The deal ran on September 15th and once purchased was valid for one year. Yes, if you have a Groupon it’s still valid until September 15th 2011. Our data is until May 30th, 2011.
- On September 15th 2010, people could go to the Groupon website, pay Groupon $10 and buy up to 4 coupons for our store per person. Nine Rubies sold 468 Groupons in that 24 hour period. Which means that Groupon collected $4680 for our deal on Day 1. Yes, it’s a good business for Groupon.
- They split this 50-50 with us, which means that Nine Rubies was to get $2340 in 3 installments. The first installment was sent to me 5 days after the Run Date, the second installment after 30 days, and the third installment after 60 days. Note: Groupon can also charge a credit card fee but in our case this was clearly 0% in the contract. We got 3 checks of $780 on time.
So, for every Groupon sold, I was on the hook for $20 worth of merchandise/services and was getting about $5.00 for it from Groupon. For those of you that don’t know, most retail works on a 50% margin – which means 50% of everything we sell is cost that we have to pay the supplier. This means that for every $20 sale, I would have $10 of pure cost. I was going to lose $5 per Groupon sold.So, why did I choose to run with this?
- I started out looking at our average sale – which was around $40 at that time. I figured that it was quite difficult to buy something for only $20 in our store. (Turns out I was wrong about that.) I figured that to break even, I would need an average sale of about $32. Even if the average Groupon customer was more price-conscious and their average sale was $35, I would more than break even.
- I also thought that this was a marketing campaign and would bring new customers into the store – as advised by the Groupon sales people. I made a conscious effort not to advertize this deal to our regular customers through mailing list, blogs etc. (sorry folks!) I wanted to see how many new customers this would attract to the store.
- One more thing to keep in mind are Redemption Rates – what are Redemption Rates? This refers to the idea that people often forget to redeem their coupons even though they might have paid for it. Groupon, Living Social etc. use a 85% redemption rate metric when asked specifically. This means that only 85% of the people will end up redeeming their Groupons.
So, mostly on the strength of #1, I decided to go run with Groupon. If you want to check out the Nine Rubies Groupon page, just click here.
How did we do? I get asked this all the time so, I will do my very best to answer your questions.
Current Redemption Rate
Yes, the Groupon page says we sold 472 Groupons but our Groupon Merchant Center says that we sold 468 – probably some people realized later that it was a yarn store, not a jewelry store. So, I am sticking with 468 at this time.
As of May 30th 2011, 247 Groupons have been redeemed, which makes it a 53% redemption rate. This is 8.5 months later and granted that we have until September 15th, 2011 – another 3.5 months to go. Redemption rates look even lower than predicted at the 85%.
So, what was our average sale? As the data stands today, my average sale is $33.43. Lower than I expected. Moreover, there were a few big spenders and plenty of just a little over $20 spenders. The distribution looks something like this:
The big cluster is the bottom left-hand corner indicates a lot of sales around $20 and right at the start. The X-axis is merely a matter of dates they were redeemed at. The single line in the middle indicates that the average sale went up as time passed, probably because people who came later had more time to make a better decision.
Out of the Groupons redeemed, only 15 of them are customers that were regulars i.e. they bought on a regular basis from our store. The other 232 were new customers. Out of these new customers, we have seen returns, people join the store loyalty program. I also counted the people who had not visited the store in more than a 2 years as new customers – it seemed as if people who had not visited our store for a while were somewhat reminded into coming to our store again. It worked just like good advertising. I think this is all good news. For what I would call minimal amount of work, Nine Rubies got a lot of new customers.
All in all, we would run this campaign again but with a few caveats. And of course, more analysis. I did a little focus group at the store and that generated more ideas and questions. We did run a campaign with a more local version of Groupon called ” Juice in the City” and we have to still analyze that data. So, this is not the last you will be hearing from me on the topic. Send in your questions and requests and stay tuned!
June 6th, 2011