On January 18, 2012, our long awaited Dragons' Den episode debuted, and wow, did it set the pace for a stellar 2012. One year later we wanted to give you some insight into how things have evolved since that exposure for our little Canadian company, and to give you an idea of what's involved in keeping manufacturing local.
If you have not yet viewed our Dragons' Den episode, please watch here (Canadians only, sadly, as the version that was kindly placed on YouTube by a fan has been removed by the CBC). As well, so that we don't end up repeating ourselves too much, please read these this blog post as it explains our decisions to keep our manufacturing local.
One Year Ago
2012 started out with a bang. It was our first year representing at the Toronto Kid Show, just three days before our episode aired, and the timing couldn't have been better. I think that most people who were following our progress had an idea that our episode would air us in positive light as though we were sworn to secrecy regarding the final outcome, the fact that we were publicizing the date so widely probably tipped them off. And, as such, we were able to attract some fantastic new Canadian retailers who were excited to know that AppleCheeks would shortly be a household Canadian name. The fact is, as many brands have realized, when the Dragons' recognize the potential of a product, it can very easily take off, and we weren't above leveraging our episode to deliver our product into the hands of many new and expecting parents! After all, we do produce the best cloth diapers and accessories on the market and we weren't going to let lack of awareness serve as any sort of impediment for new parents!
It's hard to say if it was simply the exposure alone or the fact that we were solidly into our fourth year, which, research shows, often represents a tipping point for brands, but after our airing, brand awareness hit an all-time high. We both got recognized on the street more than once. Direct sales increased, but retailer demand EXPLODED. In fact, it exploded so intensely that we were left with a highly desirable, but intensely painful problem - we couldn't supply demand. As of March 2012 we had to stop taking on new retailers, and we were not able to take them on again until September 2012.
Now here's where we want to raise a bit of awareness about how dealing with a company who manufactures in Canada is so different from dealing with a company that manufactures offshore and imports. This post is as much for you, the end consumer, as it is for our incredible retailer family, who has been so, so patient and has stuck with us through this huge learning curve. We have both learned SO much this last year about business practices and supply and demand and 2012 represented a bit of a breakthrough in our understanding of the manufacturing process and how to maintain a steady supply. And this is the main goal for 2013 - making sure that your local retailer can always stock the full line of AppleCheeks products for you.
Keep in mind that Amy and I have no formal business training. My degree is in the graphic arts and Amy's is in international development. Our understanding of the baby market comes from our own experiences as consumers, and from the fact that we jumped head-first into retail when we opened our boutique in 2007. We have made some mistakes along the way, but more importantly, we've learned how to recover, how to move on and how not to make these mistakes again. And we've learned what we do best and how to do it all properly! And this has been so incredibly rewarding, especially given how our vision for our brand has been recognized.
So what do you, the consumer, need to know about local manufacturing versus outsourcing? The most important thing to know, of course, deals with profit margins. If you have no prior business experience it's easy to assume the word "profit" implies that we want to be rolling in money. Although we are quite sure that most people would love this outcome, profit margins for us simply mean that we can pay our dedicated employees fairly, and that we can help pay our mortgages and feed our families.
Ultimately, margins are one of the key factors in determining whether a company is sustainable or not. And there are two levels of margins for most companies, one being the difference between the cost to produce the product and the price at which they need to sell the product to their distributors, also known as wholesale or bulk pricing, and the second level is for the retailer, being the difference between the wholesale cost and retail cost. Factor into that the cost of international distributors and sales reps and at the end of the day there isn't much left for the manufacturer’s overhead costs, unless the product has been properly priced.
The biggest challenge with a locally manufactured product is that every market has a cap, and it is not particularly desirable to be at the top end of that cap. Somehow, in North America, we have allowed that cap to be largely determined by companies importing goods from overseas, usually from China. Being at the top end does not allow much room for covering inflation, rising commodity prices and increasing labour costs. In order to assure that everyone along the chain of manufacturing and distribution can stay in business, we have had to set our pricing higher than some competitors. Every business must price their products or services properly to stay in business, but brands manufactured in other countries cost much, much less to produce off the bat, so market values can fall somewhere in the mid- to low-range. However, as our brand has proven many times over, you get what you pay for and with AppleCheeks you get exceptional quality and support! We are so pleased to be able to offer this all to you (and your adorable babies. We love babies – in case you didn’t know).
As former retailers ourselves, we understand the need to allow our retailers to earn a living, and we have committed to offering the best margins in the industry for our retailers because we have been where they are and understand how much it costs them to run their businesses, plain and simple. Without our retailers on the ground the word would never have gotten out there about the amazingness that is AppleCheeks, and we want to see each and every one succeed. We believe in small and we believe in local, and it's the hard working moms and dads just like us who really deserve as much advantage as they can get over their big box competitors. That’s not to say that they are getting rich off of their hard work. Their overhead costs are high, same as ours. Like us, we hope that they are able to help sustain their families with their hard work. Also like ours, theirs is a labour of love.
We know that some customers have been discouraged by the cost of our products as compared to cheaper imports, but in the long run AppleCheeks are an investment. Compared to throwaways they will still save you a small fortune, and compared to other brands they hold their value to an exceptional degree. As we've seen time and time again, our line barely devalues, and often even increases in value when a colour gets discontinued, and parents have been able to recoup the bulk of their initial investment long after their babies are out of diapers. In other words, many AppleCheeks parents find they are able to diaper their babies for free! This is because we have worked so hard to maintain our reputation for quality and service, and also because the diapers tend to be in great shape even after having graced many a baby bum!
So Why Stay Local?
Companies outsource because labour is cheap overseas. In Canada we pay not only a pretty generous minimum wage compared to the US, but we also pay social benefits on behalf of our employees. Income tax rates are high to account for our social programs, and we are more than happy to contribute to the economy we have chosen to support and to the paradigm that is the makeup of our social fabric. However, labour is the major cost of most of our products, and as we have chosen the Canadian paradigm, we end up right away at a disadvantage compared to companies who have chosen to go the cheap offshore labour route. Off the bat our product is anywhere from 15 - 50% more expensive to produce than a similar imported product, or even compared to a product made in an US market.
As well, the balance of the materials that go into our products are produced in North America as quality is not something on which we are willing to compromise. The quality of both our materials and the care that goes into assembly is evident, and these are two of the myriad factors that keep customers coming back to us
By choosing to manufacture locally we are able to have a say about the conditions of the people who work for us. They are paid fairly, get vacation time, get social benefits, are entitled to employment insurance and they are treated as human beings should. Conditions at their place of employment are bright and airy and clean. We work with many stay-at-home moms as well and the work they do for us allows them to choose to stay at home with their children and reduce their expenses, while at the same time contributing to the family income.
Just In Time
The model that we have chosen for our manufacturing is called "just in time". This means that we have a steady flow of inventory arriving at our warehouse on a weekly basis, which reduces storage costs and also means that cash is not tied up in a huge volume of stock. This means that our contractors have steady work for their employees, and our team of contractors can work regular hours in order to be able to maintain balance in their family lives. It also means that we can very quickly run out of a product should demand suddenly increase, and, as we learned between March and September 2012, production cannot be upped overnight.
This paradigm is far preferable to us over the import model as, should the same thing have occured while importing, we would have been left without stock for months while we waited for the next boat to arrive. So while we were maxed out every single week until production could be increased, we were still able to send a regular supply of diapers to our valued retailers.
It seems quite the contradiction that despite the fact that we count on weekly production, we could not suddenly up production by 30% to meet the increased demand. And this is where we see how badly our economy has been hit by the exodus of manufacturing to offshore companies. We have a serious labour shortage in the manufacturing sector here in Canada. Skilled labourers are hard to find, and it took a good three months to find and train seamstresses who had the ability to sew to the level that we required for the high quality of our product. As well, our standing orders for goods had to be increased and the new volumes had to be cut, sewn and snapped, meaning the hiring of more snappers, and then sewn. All these things take time and optimally companies see growth of 5 - 10% a year, which would have been entirely manageable for us. But we were blessed with an overnight demand of more than 30%, which required a steep increase in resources of all sorts.
But we did it! We feel confident that with regular standing orders in place with all our suppliers that allow for a modest growth and accumulation of inventory, that with our team of snappers and reliable seamstresses we will be able to supply the ever increasing demand for our little Canadian-made diaper line. Our current challenge is to figure out how to make sure that with any new release, be it a new product or a limited edition, we have enough inventory PRIOR to the release to supply the initial demand. Because we do such a bang up job of getting our customers excited about our releases (if we do say so ourselves) each release brings a higher than anticipated demand, and this last Limited Edition release was no exception. But Orange You Glad is now shipping again to your local retailer and will continue to do so until April!
But What About the Products You DO Outsource?
After the airing of our Dragons' Den episode, during which we indicated an interest in producing a second line overseas, and to which we subsequently replied that we had no intention of outsourcing, we got quite a few concerned emails about the two products we do have manufactured overseas: our Stay-Dry Microterry Inserts and our Flushable Diaper liners. For both products we spent a full year searching for options on the North American, South American and European markets, but unfortunately demand for these materials is too low for us to be able to have them made here. So we will continue to have the vast majority of our products made in Canada and try to figure out a way to bring these two items to our Canadian production.
What Are Your Plans for 2013?
In 2013 we plan to release two limited editions, two new prints (one was already revealed the ABC show in Kentucky to wide acclaim and will be available in just 8 short weeks), we will officially introduce you to our new and improved line of Storage Sacs, and we have one mystery product we are working hard to bring to market as soon as possible. We plan to bring you many more entertaining videos, and we will be co-hosting a ton of exciting giveaways. We will continue to work closely with our ever growing retailer family in both Canada and the US and continue to explore our connections with our distribution channels in Europe. And we plan to continue to have fun with you on Facebook, Instagram, Twitter, through email and direct chat.
Our goal is to always remain the most approachable and friendly manufacturer on the market, and to continue to deliver the quality of product and support services you have come to expect from AppleCheeks. We've added to our customer care team and are always working on new ways to help you easily trouble shoot with your AppleCheeks products. Feel free to reach out to us however you like with any comments, questions or concerns, or just to say hi! We love to chat with you and Amy MIGHT even let us all know at some point how she manages to have such awesome hair EVERY.SINGLE.DAY. Maybe.