What did I say, huh? Video games and crafts!

In a previous post, I predicted that video games and inexpensive craft items would fare very well in the coming recession. Here’s the pudding in the proof from tomorrow’s New York Times;

Craft stores, from giant chains like Michaels Stores to small scrapbook supply shops, are reporting that sales are higher compared with the last holiday season, and online marketplaces for handmade goods, like Etsy, are seeing a boom in listings and transactions.

But don’t expect miracles. The folks who are doing well are the discounters, Jo-Ann’s and Michaels. Higher end boutique craft stores are hurting. To quote my previous article, value is determined in terms of producing the highest number of diversionary hours per dollar.

Looking at a value chain analysis provides a indispensible lesson in identifying opportunities in the craft “surge.” But you’ll have to click that nasty continued-after-the-break link below . . .

Crafters bear two “costs”: the monetary cost of the craft materials and the “time” cost spent converting craft materials into a final product. Time cost, of course, is measured in the “use” cost of the time spent. Some crafts, like knitting and quilting, allow for other activities, such as watching television, so the “time cost” is functionally low.

Because people’s incomes are going down (or people feel their incomes are threatened), the recession is going to increase the relative monetary cost of crafting materials (the actual cost may stay the same, but the cost relative to income may increase) and decrease the relative “time cost” of the crafting project (the actual time may stay the same, but the relative value of the time decreases because more people will have more free time). The goal, as I formulated in my previous post, is to maximize diversionary hours per dollar spent. Of course, with crafting, you do end up with an object of value at the end, unlike kicking the final boss monster’s butt in a computer game.

If you do a value chain analysis, crafting, unlike most other consumer products, puts the consumer inside the value chain, rather than on the receiving end of the value chain.

Let me illustrate with a sweater. Considered as a final consumer product, the sweater has a value chain that includes raising the animal (we’re assuming a natural fiber sweater), fleecing the animal, preparing the wool, spinning the wool, dying the wool, and knitting the wool into a sweater. Yeah, smart ass, we can make it more complex by including artificial fibers, but that’s neither here nor there. When I boogie down to Pendleton and grab me a sweater, a chain of companies has done all these value-adding activities.

Now let’s look at the same value chain from the knitter’s point of view. The value chain ends with the same product, of course: a sweater. However, when a knitter boogies down to Michaels and buys a cartful of yarn, a chain of companies does all the value-adding activities of raising the animal, fleecing the animal, preparing the wool, spinning the wool, and dying the wool. But the consumer does the value-adding activity of actually knitting the wool into a sweater.

That’s the magic of crafting, which makes it a very different kettle of fish from video games, DVDs, blogging, social networking, or other “time wasters.” Time waster products, like video games, are just like any other consumer product. The consumer does not participate in any of the value-adding activities (sometimes, yeah, like the Sims or Doom where players actually create game add-ons). What makes crafting special in terms of business opportunities is that the crafter is actually part of the value chain in producing a final product.

If you know how value chains work, then you have probably just said “Aha!” as the opportunities have come into crystal-clear focus.

If not, put the equation together.

A. Crafting is about diversion, about spending time, so the time cost isn’t important. Crafters can easily spend hours, days, or even weeks producing a final product that they can purchase for ten or twenty dollars. As the recession worsens and people find themselves with more free time, the already low relative cost of the time spent on crafts goes down.
B. However, as the recession worsens, the relative cost of the monetary outlay increases.
C. But, since crafting is about the consumer actually participating in the value chain, there’s no reason why the crafter can’t participate in other parts of the value chain. A knitter buys yarn, but a knitter could also spin and dye yarn. Prepare the wool and then spin and dye yarn.

So the opportunity, then, is opening up other, earlier parts of the value chain to the crafter.

In our sweater example, for instance, the value chain includes spinning and dying. It is not a coincidence that spinning and dying wool is a rapidly growing segment of the knitting community. There has been exponential growth (in an admittedly very, very tiny market to begin with) in the fiber spinning and dying crafts market. There are businesses doing very well thank you in this segment that didn’t exist a year ago.

Spinning and dying, however, is expensive not only in time but in money, as well. Figure out a way to allow knitters to get inexpensive tools to spin and dye with (as well as inexpensive materials), and you’ve got a market. Right now, the folks who cater to this market are cottage industries, folks who work out of their house. If those folks can ratchet their operations up a bit and substantially reduce the cost of their product, they will not only weather the recession, but end up living in pretty nice houses, indeed.

You will see the same thing happening across the board in the crafts market. While other people are laying off employees and blanching at their balance sheets, you see businesses all up and down the craft “value chain” suddenly picking up.

The key is to open up the value chain at a lower monetary cost to the crafter.

One final takeaway: the craft community is very tightly knit (sorry) and exceedingly well-networked. It is the one area where word-of-mouth marketing and social networking is a truly potent force.

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  1. [...] Wall Street Journal, December 26) Actually, as good as Shoestring Venture was, it was the Wii (see, what I said, video games and crafts, right?), the iPod Touch, and the Acer even-an-abacus-has-more-processing-power Aspire One elf-sized [...]


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