Factory Direct Selling
Joe Fulmer was the first to run a factory-direct-to-consumer (FDC) warehouse sale in the sewing machine industry. After seeing the success of one of Fulmer’s event, Tony Cironi committed Cironi’s Sewing Center to doing an FDC with Viking-White Sewing. However, after performing a post-sale evaluation, Cironi learned that he made very little profit ($5,750) compared to his total sales of $91,000. Cironi was disappointed by profits and had begun to develop concerns about the ethics of FDCS and their long-term effects on independent sewing machine dealers. Cironi had not participated in another FDC thus far.
Singer Sewing Machine Company has proposed a FDC with Cironi’s Sewing Center. Cironi is questionable of running another FDC because of his prior disappointment with Viking-White Sewing. However, Cironi agreed to meet with a Singer representative to discuss the terms and arrangements of this sale. Problem Statement Should Cironi’s Sewing Center put on an FDC for Singer Sewing Machine Company?
Competitive Analysis The Akron market has been considered to be highly price-competitive and overstored for sewing machines. This is evident in the fact that Cironi carries brands such as Bernina, Pfaff, or Elna that allow Cironi to have a higher gross margin (40%) than his competitors. Cironi’s Sewing Center faces direct competition because the Swinger brand is carried by four Jo Ann Fabrics stores, Sears, Montgomery Wards, Zayre, and Best Products. The Independent Sewing Machine Dealers Association (ISMDA) is seeking dealer support for a legal fund to pursue trial cases against those who use FDC practices because they represent an unfair method of competition and they rely on practices that are deceptive to the consumer.
Cironi’s Sewing Center could face scrutiny and legal action because FDC practices are continually controversial and are seen as predatory practices by many in the sewing machine industry. Local competitors struggle for gross margins between 30 and 35 percent. There is a high threat for a local competitor to run a FDC in Cironi’s territory which could have a potentially large negative impact on Cironi’s Sewing Center (Example – Although Cironi’s share of Viking-White area sales was only 15%, if another dealer runs a FDC with Viking-White, it could wipe out Cironi’s sales and possibly make Cironi lose his franchise.)The risks and costs for associated with choosing Alternative #1 (Cironi’s Sewing Center prepares and executes a FDC for Singer Sewing Machine Company) are too overwhelming and are not worth it for the little profit that would most likely be earned. In addition, Alternative #3 (Cironi’s Sewing Center diversifies into new merchandise areas including small appliances, ceiling fans, electronics, and stereo equipment) would be far too expensive for Cironi to implement at this stage in his business. I do not think that Cironi has enough capital invested to venture out into a whole new line(s) of business.
Therefore, I recommend that Cironi chooses Alternative #2: Cironi rejects Singer’s proposal and continues to do business as usual. At this point, I think this is the safest option for Cironi’s Sewing Center. For one, because the Viking-White FDC had undesirable effects on overall sales and profits and because Singer has a smaller margin, it is only expected that the Singer FDC will do just as well as the Viking-White FDC or worse. In addition, Cironi does not want to have a successful Singer FDC that could devastate future sales of other brands that give Cironi higher profit margins. Cironi also has to think about the ethics involved with FDC’s and evaluate whether or not it is worth being scrutinized by the Independent Sewing Machine Dealers Association and possibly having a tarnished reputation in the industry. In my opinion, Cironi should stabilize volume and concentrate on improving profitability and cash flow with ALL the brands that he carries.