Athabasca University
APRJ-699
Hand Knitting Yarn Industry with Reference to Unique
Sources of Supply from Canada.
Prepared By: Igor Pustylnick
Coach: Lucien Cortis
Date: 04/08/2006
Word Count: 15520
Executive Summary ..............................................................................................4
Introduction ...........................................................................................................7
Goals of Research ................................................................................................8
Industry Composition ............................................................................................9
Sources of Fiber ..............................................................................................10
Industrial Fiber Growers...............................................................................10
Small Fiber Growers ....................................................................................12
Artificial Fiber Manufacturers .......................................................................12
Commodity Traders.........................................................................................13
Yarn Mills.........................................................................................................13
Cottage Mills ................................................................................................13
Yarn Designers................................................................................................14
Yarn Distributors..............................................................................................14
Knitting Pattern Designers...............................................................................14
Yarn Retail.......................................................................................................15
Knitting Pattern Retail ..................................................................................16
Trade Shows ...................................................................................................16
Individual Consumer........................................................................................16
Value Chain Analysis ..........................................................................................17
Yarn Mill Value Chain......................................................................................17
Inbound Logistics.........................................................................................18
Operations ...................................................................................................18
Outbound Logistics ......................................................................................18
Sales and Marketing ....................................................................................19
Service.........................................................................................................19
Secondary Operations .................................................................................19
Distributor Value Chain ...................................................................................19
Inbound Logistics.........................................................................................20
Operations ...................................................................................................20
Outbound Logistics ......................................................................................20
Sales and Marketing ....................................................................................20
Service.........................................................................................................21
Secondary Activities ....................................................................................21
Relationship between Chains..........................................................................21
Five Forces Analysis...........................................................................................22
Internal Rivalry ................................................................................................22
Threat of Entry.................................................................................................25
Presence of Substitutes ..................................................................................27
Power of Suppliers ..........................................................................................29
Power of Buyers ..............................................................................................30
Conclusion.......................................................................................................32
Industry Issues....................................................................................................33
Child Labor......................................................................................................33
Knowledge Gap...............................................................................................34
Vertical Integration ..........................................................................................34
Gender Conflict ...............................................................................................34
Conclusion.......................................................................................................35
Organizational Concepts.....................................................................................35
Descriptive Elements.......................................................................................35
Competitive Strategies.................................................................................36
Types of Stategies .......................................................................................36
Environmental Uncertainties ........................................................................36
Population Ecology ......................................................................................37
Internal Framework ......................................................................................38
Internal structure..........................................................................................39
Organizational Lifecycle ..................................................................................39
Organizational Culture.....................................................................................39
Conclusion ..........................................................................................................41
Industry Outlook Predictions............................................................................42
Executive Summary
Yarn craft is one of the very old crafts. First use of flax yarns was dated
sometimes around 3000 B.C. Other natural fibers are also in use for at least
4000 years for the yarn creation. During the industrial revolution yarn industry
has obtain its first mechanical spinning tools, making creation of wool and cotton
yarns into another successful industry.
In the second part of the 20th century yarns from the artificial fibers have become
very popular. Their use in hand and machine knitting reshaped the outlook of the
industry and involved different participants, such as artificial fiber manufactures.
The ease of the machine knitting and inexpensiveness of the finished garments
have turned people away from hand knitting. The craft has become stagnant
with no new advancements and models.
Beginning of the 21st century constitutes the latest surge in knitting. Being
preceded with the decades of non-development this surge has shown the areas
where North American knitting craft has voids, such as new model creation,
teaching of knitting and even the image of knitter itself.
Yarn industry, described in the research consists of several major building
blocks:
• Sources of fiber include industrial growers, who grow natural fiber
sources animals or plants for profit, artificial filament manufacturers and
small hobby fiber growers
• Yarn mills, which produce yarns from all types of fibers
• Yarn distributors and agents, who work with the mills to produce and
resell yarns
• Creative forces, including yarn and pattern creators
• Yarn retail, including specialized and non-specialized yarn retailers
• Trade shows, which act as retail complement and alternative, creating
convenience for retailers and consumers alike.
Examination of the industry value chain shows that it is presently broken into two
disjointed chains, one for the yarn mill and one for the distributor. The main
reason for this is time and financial separation between a mill and a distributor,
forcing distributor to become a customer of the mill rather than a part of the
outbound logistics.
Five forces analysis of the industry shows that this is at the present time a buyer
industry. It is driven solely by consumer demand and power of buyer is the
strongest. Analysis of distribution component of the industry also showed that
distribution in the present shape is very ineffective for both retail and
manufacture components. It is predicted that larger number of the smaller
dedicated distributors will soon appear. These distributors will be tied to specific
manufacturers and will become part of their value chain.
The industry will also become a two-tier one. Seller analysis shows that value
driven sellers will move their operations into the area of cheap labor in order to
achieve internal economies. Driven by the economic approach larger nonspecialized retailers will be forced to purchase yarn from a lower cost
manufactures. At the same time established European and North American yarn
mills will switch towards production of high-end exquisite yarns.
Yarn industry also has several issues it has to overcome:
• Child labor is very widespread in the cotton production especially in the
African countries. Unlike cocoa industry, cotton industry falls out of control
by UNESCO and other organizations, created to protect children
• Vertical integration in the industry has been both a curse and a blessing
for it. Integration between the mills and the retailers is beneficial for the
industry because it clarifies a value chain and provides savings to
consumers. Vertical integration between distributors and mills causes
raise in price of the yarns with limited added value
• Knowledge gap, created in the 80s and 90s broke continuity in the
knowledge passing between different industry participants. As a result,
people have been setting different goals for knitting other than the ones
accepted for centuries. It may on the long run cause severe deterioration
of the craft values
• Gender conflict is very prominent in the industry. While majority of knitters
and retail outlet owners are women, distribution and agency is practically
100% controlled by men. Two gender groups and subsequently business
units they operate pursue different goals. On the long run it can also lead
industry away from the values it has been cultivating.
Observation of the knitting industry shows that retail component of it has created
a population ecosphere, very similar to the one we can observe in nature. Large
and small retailers can coexist in the same ecological space, but retailers of the
same size tend to protect their habitat and create localized monopolies.
Yarn industry is a routine industry. Both yarn mills and distributors use plenty of
low skilled labor for their monotonous operations both in spinning and
warehousing. At the same time specialized retail is still a craft industry, where
participants must be both salespeople and craftsmen.
The research concludes that industry is still very immature. Recent surge of
interest to knitting will help to speed up maturity of the industry components and
force integration of two disjointed value chains into one. Research also predicts
forming of two-tier industry with the cheap artificial fiber segment moving towards
the areas of cheap labor and natural fiber segment staying in Europe and North
America. This separation will also separate retailers to quality and value driven
groups. Smaller retailers will force to close if they do not switch towards value
driven segment.
Introduction
Textile industry and textile related crafts are as old as the civilization itself. There
exists scientific evidence that the first fabrics were used by Egyptian nobles prior
to 5000 B.C. The first fabrics were woven out of flax fiber and used as draping.
Knitting was introduced also in Egypt around 3000 B.C. Majority of the fabrics
historians are convinced that knitting techniques were mere emulating of the
ones used to create fishnets.
Natural fibers other than flax were introduced in the interval between 2600 and
3000 B.C. Wool, silk and cotton are the most widespread natural fibers. Use of
cotton and wool surpassed flax very soon after knitting was introduced because
both wool and cotton are more suitable for fabric creation by way of knitting.
Creation of the mechanical and later automatic weaving and knitting machines
removed the necessity for hand knitting and weaving as a trade. Vast majority of
garments produced in the 20th century were made using machines. These
machines became so sophisticated that they can easily emulate complicated
knitting patterns such as cable or lace.
Invention of the man-made threads in the 40s and 50s of the last century diverted
the efforts of the yarn manufacturers towards creating acrylic and nylon fibers.
Widespread use of these fibers in the clothing industry of the 50s and 60s have
prompted subsequent introduction of hand-knitting yarns made of acrylic,
polyester and nylon. Creators of these yarns advocated their use based on the
higher durability, longer service and cheaper prices.
As the use of these yarns became more widespread, proponents of these yarns
have found another argument towards the use of man-made fibers – their
hypoallergenic nature as compared to woolen yarns which were used for heavy
outdoor knitted garment production. Use of the low quality cheap wool, shorn
mainly from the meat breeds, has indeed lead to creation of coarse scratchy
yarns, which were very unfavorably compared to their man-made counterparts.
As a result of heavy campaign against the natural wool yarns, majority of baby
and children yarns are produced out of acryl and polyester fibers.
During the last quarter of the 20th century the craft was out of the mainstream
fashion trends. While it had never been completely abandoned, the image of a
knitter was reduced to “yarn twisting granny”, which knits out of habit and rarely
cares about the quality of the outcome. Although young girls of the described
generation still learned how to knit, they haven’t used their skills for garment
creation.
“Knitting exodus” coincided with the surge in globalization of economy. Garment
creation and textile industries were generally moved to the areas with cheap
labor, which in turned cause reduction in prices of finished goods. Ability to buy a
trendy garment for an affordable price constituted the end of necessity to knit for
majority of the middle and lower class consumers.
During the last 5 years the industry has seen the surge in demand of the hand
knitting yarns and crafts. With the increase in demand, yarn mills and spinneries
increased production of the threads, which can be used for hand-knitting and
hand-crochet. Knitting has become an element of high fashion. Knitted garments
are now produced for exclusive use in the TV shows and magazine ads.
Lack of interest to knitting in the 80s and 90s of the 20th century created even
larger gap in knitting fashion. Continuity largely existing in the textile haute
couture is not seen in knitting. The industry still thrives on the models created 3550 years ago. Outdated and generally cumbersome, these models are not
appealing to the younger generation of knitters.
Continuity in any community, whether it is social or industrial, creates prominent
figures, who earned respect by the community members. These communal
celebrities usually have schools of followers, to which they transfer their
knowledge thus creating a basis for the contiguous industry development. Lack
of need for those leaders created a certain “prominence void” in the described
industry.
Present surge in demand for the yarns and appearance of new knitters is
somewhat unexpected. It appears that both yarn and satellite industries were
unprepared for this raise in demand. The fragile state of the industry poses
questions about its stability, viability and status. Present elements of the industry
are not accustomed to this demand. This research will observe the industry and
attempt to make conclusions over potential sustainability of the industry in
general and some of its elements.
Goals of Research
The main goal of this project is to analyze the state of the industry, which caters
to knitters and crocheters. It is important for this project to establish the existence
of the industry trends and shortcomings. Analysis of the general trends of the
mentioned industry must be accompanied by the so-called micro-trends, which
exist in its segments.
On the macro level the main subject of the research is yarn manufacture industry
and yarn retail industry/community. On the micro level the research will observe
trends at the various stages of yarn manufacture and retail as well as such
supplementary activities as pattern design.
Completed research must answer the following questions, which are important to
this particular industry, such as:
• Do opportunities in this industry exist?
• What are the main building blocks of the industry?
•
•
•
Is it viable and can sustain itself beyond the existing knitting frenzy?
What are the main issues in the industry?
What are main organizational and community trends on macro and micro
level?
This research is a rare comprehensive glance into the yarn industry. Main
segments of this industry were for the long period of time considering themselves
as completely independent from each other. Creation of the comprehensive
picture will join these segments together and show the existence of one complete
industrial entity, where all segments is dependent on each other. Connections
between the segments, cultural and economic differences must be explored in
order to create one all-inclusive picture of the industry. This picture can be a first
step towards eliminating these differences and creation of the cohesive industry
outlook, which will benefit all participants.
Another important goal of this research is to apply several existing industry wide
organizational and value models to the elements of the industry described
before. Application of these models will help to separate common elements and
create recommendations based on the proven organizational and operational
concepts. Few participants of the industry, such as large yarn manufacturers,
distributors and large retailers may be applying these models already. Application
of the models throughout the industry will help leveling the competition field and
aid smaller organizations in their competition efforts.
A sad sidebar of this research is discovery of the ineffective elements in the
industry and provision of recommendations for their fix and/or elimination. It is
important to keep in mind that proposed measures will be consistent with the
ones presently accepted in the other industries.
Industry Composition
The following chart represents the full outlook of the yarn industry from the
source of the goods to the consumers. The research is limited to the participants,
which are operating within the boundaries of the industry. Omitted elements
include factories, creating raw materials for creation of the artificial filaments and
their suppliers, for example.
Product creation goes from top to bottom. Raw materials or product ingredients
are shown at the top, whereas individual consumers are presented at the bottom.
Several entities in this diagram are acting in multiple capacities, for example,
pattern creators and yarn distributors may appear to the retailers and individual
consumers as yarn manufacturers because they make an effort to conceal the
origin of the yarn.
Fiber Growers
(Wool, Cotton,
Flax, Silk)
Artificial Filament
Manufacture
Small Fiber
growers
Commodity
Traders
Yarn Designers
Cottage Mills
Dye
Manufacturers
Yarn Mills
Yarn Distributors
Knitting Model/
Pattern Designers
Yarn Retail
Trade Shows/
Marketplaces
Individual
Consumer
Sources of Fiber
Yarn industry utilizes multiple fiber sources. There are two main sources for the
natural fiber: industrial growers, shown as fiber growers on the flowchart and
small fiber growers, shown in the top right corner of the flowchart.
Industrial Fiber Growers
Industrial fiber growers are large operations, growing animals or plants for fiber
production. They are active at the commodity markets and practically inactive in
the other stages of the process, such as yarn production, patterns etc. farmers,
producing natural fibers in the industrial quantities are usually located in the
areas, mostly suitable for this kind of production. Growers of cotton are located in
warm climate countries with the abundance of cheap labor. Among the large
producers of cotton are African countries of Mali, Zimbabwe, Egypt, as well
countries of Southern Asia and former Soviet republic of Uzbekistan.
Growers of wool are located traditionally in dry and warm areas. Majority of wool
production is concentrated in Australia and New Zealand. South American
countries started to play larger role in the fine wool markets, especially countries
with dryer climate, such as Argentina, Uruguay and Chile.
Globalization forced industrial countries to shrink or eliminate wool growing
industries. Countries such as Germany, Great Britain and Italy have very limited
wool production, mainly by the smaller growers. The reason for the decrease of
production in the mentioned countries can be attributed mainly to the
globalization of economy and increased labor costs in these countries.
Growers of silk and flax are presently localized to very small areas of the planet.
Both of these materials are considered exotic when the yarn industry is
concerned. Silk production is local to China and Southern Asia due to the
conditions in which silk worms must grow. Flax production is dependent on the
climate conditions of the area. Majority of silk growers are located in cool and
moist areas, where summer temperatures do not exceed 20-25C. Russia, Ireland
and Scandinavian countries are large producers of flax fabric and flax threads.
Because of the relative scarcity these two products are expensive and are rarely
used to produce a knitting thread containing 100% of them.
With the resurgence of knitting and increased demand for knitting yarns industrial
fiber growers have turned to the other sources of animal fiber. Alpacas and
llamas are very popular among wool growing farmers today because of the
following reasons:
• Lanoline, found on the sheep fleece, is one of the strong allergens.
Alpacas have no lanoline glands therefore the yarn, spun of their hair can
be used by those allergic to wool
• Alpacas yield 8-10lb per animal per shear whereas average sheep yields
close to 5lb.
• Fine fleece sheep breeds such as Merino, Cormo or Leicester have shown
increased coarseness of fleece when bred and kept in the areas of high
humidity. Merino sheep brought up in Ontario increased coarseness from
20mi to 29-31mi. Alpacas produce fleece, compared by quality to a very
fine sheep fleece (20-22mi) in the areas of relatively high humidity, such
as Southern Ontario. Using these animals means expansion of industrial
fleece growing into these areas.
These factors made alpacas very popular fleece source. Population of alpacas in
Canada has doubled in the last 5 years and is close to 200,000 heads
Small Fiber Growers
Small fiber growers are usually enthusiasts of the certain animal breed and/or
crop, who work to better the source of fiber. Main difference between industrial
and small growers is that small growers are usually involved in various stages of
making yarns and have at least partial control over the process. In Canada
majority of the small fiber growers are growing animals, which are a source of
fine animal hair, such as unique breeds of sheep, alpacas, angora goats and
rabbits, and so on.
Canadian small growers have been producing of several new and very innovative
sources of fiber. Maritime Provinces and Nova Scotia in particular was a
producer of Hemp yarns since 1997. Hemp is known particularly to sailors as a
source of strong durable fiber, used for twining ship ropes. Yarn industry has
discovered hemp as an alternative to flax. Hemp is easier to grow, then flax. It
can grow in the regions with cheaper labor sources, thus the cost of the yarns
produced from hemp are generally lower, then the ones for the flax.
Musk Ox yarns are popular at the high north. The connoisseurs of fiber say that
Qiviut or Musk Ox undercoat is about 12mi in diameter, which makes is the finest
source of yarn on the Planet. This yarn is generally used in the garments, which
are in direct contact with the skin, such as mittens, scarves, hats and even
underwear. Musk Oxen are very difficult to grow and they yield only 5-7lb of
Qiviut per animal. When compared to the animals, producing the same quality of
yarns, such as alpaca, musk oxen are harder to keep and to maintain.
Majority of these farmers produce their own yarns, based on the fleece they
collect or shear from their animals. The dotted line on the flowchart shows that
yarn is returned from the spinneries to the small growers for dyeing and reselling.
Artificial Fiber Manufacturers
Artificial or man-made fibers are used in knitting threads from the beginning of
the 20th century first man-made fiber is rayon (viscose), which is produced our of
paper pulp. Return of knitting to the mainstream has opened door to the rayon
manufacturers to enter into the yarn making process. Majority of cotton
manufacturers today make rayon containing blends. Rayon yarn is often used by
those knitters who are allergic to wool as an alternative to cotton. Global
availability of the source has pushed manufacturing of Rayon to Southern Asia
and China because of the cheaper labor costs in the regions.
Acrylic and polyester threads are two other alternatives to natural fibers. They
are produced since the 60s. Acrylic yarns and garments are very popular among
North American consumers because they require less care and are generally
less expensive than the ones made out of natural fibers.
Large chemical and pharmaceutical plants, such as German Bauer now produce
acrylic threads. British company Courtelle specializes on acrylic fibers for all uses
and industries. Large British yarn mills, such as Sirdair or Stylecraft use Courtelle
acrylic in many of their yarn brands.
Commodity Traders
Natural fibers sources such as wool or cotton are considered commodities. They
are traded in the commodity stock exchanges. Wool and cotton traders perform
dual role. They shield the sources from the consumers of raw fibers as well as
control fiber adherence to the local regulations.
European wool traders serve as suppliers to the factories and mills. They
guarantee that wool they supply has passed EU sanitary control successfully.
These traders also channel wool from less expensive sources to Europe. Italian
mills now started to use Uruguayan wool instead the one from New Zealand due
to lower transportation and labor costs.
Yarn Mills
Yarn mills are a cornerstone of the yarn industry. They are a manufacturing
element of the yarn industry chain. Yarn mills can operate in two different modes:
• Process only mills operate with the yarn supplied by an agent or a
distributor. They process yarn and receive payment for the service. These
mills are disconnected from the other elements of the product flow. Italian
yarn industry has several no-name process mills in the northern provinces
of the country. Smaller agents make orders to these mills and act as yarn
manufacturers for the rest of the industry. Very often consumer does not
know which mill produced a certain yarn and treats agents as
manufacturers
• Process and Sell mills are more common in North America and Great
Britain. They purchase the sources of yarn, produce yarns and perform
their own distribution. Already mentioned Sirdair as well as Canadian
Spinrite Ltd are examples of this approach. By bypassing the agencies
these yarns create direct link with the buyers. The tradeoff for this
approach is the necessity to have own distribution centers and deal with
the smaller buyers.
Cottage Mills
Cottage mills are small versions of the yarn mills. They service small fleece
growers and/or produce their own fleece. Cottage mills are very popular in North
America because they give opportunity to artisans to create their own unique
brand of yarns. These mills are often family operated. Small alpaca and sheep
farmers in Canada very often have their own mills (spinneries) and own the
whole process from fleece to consumer.
Unique yarns, such as qiviut and alpaca yarns are processed mostly at the small
cottage mills. The main reason for this is that smaller mills have higher yields of
yarn per pound of fiber (80-85% of original weight), whereas larger mills are often
satisfied with 65-75% yield.
Yarn Designers
The growing demand for the novelty yarns has been attributed to the success of
yarn designers. Many of the European and North American yarn designers
produce multiple yarns each fashion season. European designers try to operate
with natural fibers and blends. Designers such as Katia, Gedifra, BBB and others
are known by their colorful merino wool yarns. North American designers work
more with the artificial fibers.
Canadian Estelle and American Berocco specialize on polyester and acrylic
novelty yarns. The difference in fiber sources is attributed to different
requirements to garment care in Europe and North America. There is also a
difference in perception between the designers in two continents about the use of
the yarn. North American consumers use knitted garments mainly as fashion
elements, often comparing knitted scarf to jewelry. For European knitters
elegance is as important as the pleasure of wearing the garment is also very
important therefore they use yarns with medium to high content of wool or cotton.
Overall yarn designers dictate the trends in the yarn industry. They always work
in cooperation with the mills. Yarn designers are also influential in what colors will
be used in a certain season. They make their recommendations to the mills on
which dye colors will be used and in which quantities. Canadian Spinrite has yarn
designers on staff and it helps factory to facilitate new yarn creation and be
abreast with the new trends.
Yarn Distributors
This group of industry participants is more common in North America. The
members of this group did not produce any yarns until recently. They import the
yarns and sell them to the retail stores. Canadian yarn market has several major
distributors such as SR Kertzer, Diamond Yarns, Coats and Clarke etc. Canadian
distributors work directly with North American and foreign manufacturers. The
main condition for the distribution is exclusivity of distribution rights. Canadian
yarn retailers associate yarn brands with the certain distributor, for example
Stylecraft is distributed exclusively by SR Kertzer, Lana Grossa by Diamond
Yarns, TLC by Coats and Clarke etc.
Quite recently distributors of the yarns started to distribute yarns under their own
labels. This trend is very new and it is unclear whether distributors are benefiting
from it or just exploring the new market opportunities.
Knitting Pattern Designers
Resurgence of knitting industry and influx of new inexperienced knitters into the
craft has increased necessity in new patterns. Knitting patterns or models are
detail descriptions (recipes) of how to produce a certain knitted garment.
Designers are not a uniform group. There are fashion knitted garment designers
such as Kaffe Fasset, Debbie Bliss etc. The other side of the specter represents
simple garment designers, some independent and some affiliated with the yarn
producers.
Lately pattern designers started producing their own yarn labels. Very often these
yarns are just re-labeling of the existing yarns from the large European yarn mills.
Re-labeling allows these designers to concentrate their effort on their own yarns
and act the yarn manufacturers/distributors. The dotted line on the flow chart,
directed from the mills to the pattern designers reflects a production/distribution
option.
Yarn Retail
This is the most volatile and diverse element of the yarn industry. We can roughly
separate several subgroups in this large group:
• Large specialized retailers are a group of yarn stores, which carry 100 or
more yarn articles. This group has a lot of influence on the yarn import and
distribution. The members of this group are largely passive and do not
expand their operation. Majority of these retailers were in business for
over 20 years and have established clientele, which is relatively loyal to
them.
• Middle size specialized retailers, who carry 50-70 articles of different yarn
brands. This group of retailers is active in retail and trade shows.
Members of this group have enough financial resources to look for the
new opportunities and expand. Members of this group are active
participants in the trade shows and various knitting guilds.
• Small size specialized retailers are usually startups attracted to the
business by the recent growth in the yarn demand. Retail outlets of this
group usually carry 10-40 different yarn articles. These retailers specialize
in the exclusive articles and brands which are too exclusive or expensive
to be sold anywhere else. Members of this group participate in the local
specialized shows but have no capacity to expand their participation.
• Large non-specialized retailers such as Wal-Mart, Zellers, Michael’s etc.
now carry a variety of yarns. Because of the large scale of operation these
retailers can only work with the large mills, such as Spinrite or TLC. Their
assortment of yarns is uniform throughout the chain with very few
differences between the chains. These chains benefit from opportunities to
achieve significant economies of scale and pass it to the consumer.
Resulting low prices become a benchmark for the rest of the retailers
which very often leads to discontinuing the sale of these brands by the
smaller retailers.
• Increase of the knitter customer base opened the opportunity for the
retailers of the “adjacent” products to enter yarn retail business. Fabric
and embroidery stores have recently become retailers of yarns. These
stores usually dedicate small amount of the store space to yarns and treat
yarns as a supplementary product offered to their customers, who knit as
well sew and/or cross-stitch.
Knitting Pattern Retail
Every knitting retail outlet carries a variety of patterns. North-American knitting
pattern market is as big as the market of yarns. Many knitters require patterns
describing garment from start to finish, similar to a cooking recipe. Other smaller
group of knitters can be satisfied with just a vague description.
Knitting yarn retailers require distributors to supply yarns and patterns as a
package. As a result both distributors of yarn and yarn agents employ a staff of
designers, producing knitting models and descriptions for every yarn article agent
or distributor sells.
Computerization of the yarn industry has resulted in creation of specialized
software, used to design knitting models. This software is in demand especially
among the younger inexperienced knitters.
Trade Shows
Trade shows is a significant element of the yarn/knitting industry. They create
opportunity for the smaller remote retailers to offer their products outside of their
immediate area of operation. Small fiber growers and cottage mills offer their
product at the specialized trade shows such as spinning and knitting festivals.
Larger companies tend to participate in more established shows, such as
“Stitches” in the US and “Creative Sewing and Needlework Festival” in Canada.
For many retailers these shows are also an opportunity to find new suppliers,
establish business contacts and act in agent/distributor capacity with respect to
the other retailers.
Large trade shows such as CSNF tend to attract customers from the other towns
and provinces. Scarcity of these shows guarantees their success in the chosen
region.
Small growers prefer to sell yarns at the trade shows. Producers of the unique
yarns, such as quivit, hemp or Canadian alpaca do not produce enough yarn to
be affiliated with the large distribution chains. Majority of the growers attend 8-10
shows a year, which lets them sell about 70% of their yarns to the general public.
The rest of the yarns are usually sold through their own stores or on-line if the
farms are located in the really remote areas
Unique yarn designers and fiber growers tend to attend non-specialized shows
as well. Companies, like Philosopher’s Wool from Inverhuron, ON participate in
‘One of a Kind’ shows, where designers can offer unique finished products. Many
products are also offered at the Outdoor Shows, where customers come in
search of products, suitable fro trekking, kayaking and other outdoor activities.
Individual Consumer
Individual consumer is the most important element of the industry chain. Apart
from purchasing yarns and knitting patterns, industry consumers provide a very
important feedback about the quality of the yarn and other supplies. Cultural
differences existing from region to region dictate retail to offer consumers
different yarn color palettes, yarns of different composition (North American
consumers prefer acrylic to wool whereas European consumers prefer natural
fibers) and different knitting patterns.
North American knitters prefer automatic laundry and require the yarns, which
can withstand this process. As a result, majority of woolen yarns sold in North
America today are treated with super wash agent to prevent shrinking during
wash and dry cycles.
Value Chain Analysis
Michael Porter introduced value chain model in the early 80s in order to show
dynamics of the value flows though various parts of the organization. Value
Chain distinguishes two different types of activities in the organization, namely
primary activities and secondary activities.
Primary activities are activities, which has direct input into the value flow and/or
directly benefit from it. These activities are:
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Services
Secondary activities of the organization do not have a value-add component.
They mostly support primary activities in different forms. These activities are:
• Infrastructure activities, including accounting, finance, management, etc.
• Human Resources management
• Technology, Research and Development
• Procurement
In the total scope of the industry we can distinguish two separate value chains,
such as Yarn Mill value chain and Distributor Value chain. Third major
component, retail, can come in many different variations from a single owner
‘corner store’ to large non-specialized retailer. This makes it very difficult to
construct a uniform value chain for a retailer. Construction of this value chain is
out of scope of the research.
Yarn Mill Value Chain
Yarn mill generates value by transforming sources of yarn, both artificial and
natural, into the final products. Major sources of income for yarn mills are sales of
finished products in the form of yarns and/or fleece rovings (product mode) as
well as processing of raw materials, purchased by agents (service mode).
Difference between two modes will be discussed during the description of the
primary activities.
Inbound Logistics
Yarn mills get input through several sources, such as:
• Commodity agents and traders are main source of input for the natural
fibers, such as cotton, wool and so on. Traders make sure that the
products adhere to sanitary and industrial specification of a country or a
region, such as EU. European traders concentrate inflow of fleeces from
different sources and sort them by the quality of the fleece. Sheep fleeces,
for example, are graded based on the length of the hair and thickness of
the hair in microns. 28mi fleece with the length of 3” will be priced equally
throughout the market. Optimization of the inbound delivery process is
often reduced to choice of transportation and date of availability of a
certain grade fleece because all other components are relatively equal.
• Large artificial fiber factories are major suppliers of the artificial filaments.
Inbound logistics must take into consideration price of the fiber, availability
of necessary supply as well as required qualities of the artificial fiber such
as softness, elasticity etc.
• Fleece and artificial fiber purchased by yarn agents and delivered to the
mills for processing. In this case mills inbound logistics must take into
consideration the condition of the natural fiber (presence of hay and burs,
pollution etc.). Different conditions may require longer/shorter processing
time and may be beneficial or detrimental for the mill operations.
Operations
Yarn mill operations are the major component of value creation. Transformation
of raw material into yarn requires multiple steps, which may differ from mill to mill.
It must be noted that although the process of yarn creation is well established
every mill has its own know-how elements it applies throughout the process.
Different equipment creates yarns of different thickness. Several older mills in the
US and Canada are not able to produce thinner yarns. Using different bleaching
agents and dyes also yields different results. Very often dyeing process is one of
the most carefully guarded processes at the mill because it becomes a main
differentiator on which colors and shades of yarn the mill can produce.
Outbound Logistics
Yarn mills try to reduce the importance of the outbound logistics by entering into
the exclusive distribution agreements with distribution firms. These agreements
are very popular in the operations spread across the ocean, such as AustraliaNorth America or Europe-North America.
North American mills, such as Spinrite and Red Heart have their own distribution
centers. They forgo distribution while dealing with the large retailers such as WalMart or Zellers and serve these retailers directly. In this case effectiveness of the
outbound logistics becomes an important component of the overall value chain.
Surge in knitting craft and lack of high quality yarns forced few of the knitting
pattern creators to create their own yarn brands to supply with the patterns.
White label branding has become a part of the outbound activities of the yarn
mills.
Sales and Marketing
Sales and marketing of the large yarn mills work in several ways. Mills always
search for the new channels of yarn distribution. At the same time marketing of
yarns is often done at the large trade shows, where any distributor or retailer can
get acquainted with the latest yarn trends from all major yarn mills. These shows
often serve as a marketplace for wholesale contracts. Major European yarn
producing countries, such as Italy and Germany have several of these shows a
year
Processing component of any mill business also requires sales and marketing of
yarn making services. Smaller mills and cottage operations have 70-80% of their
operation dedicated to services.
Service
As it was mentioned in the previous paragraph, mills offer variety of services.
Depending of the desired outcome mills can perform custom spinning, carding,
dyeing of the yarn and just washing of the raw fleeces. Value added component
of the services is tightly connected to the one of the operations and often shares
the same production lines. Very often mills do not distinguish between own
production and spinning yarn for hire.
Secondary Operations
For yarn mills R&D is the most important secondary operation. R&D develops
new yarns in cooperation with the yarn designers, creates and maintains new
more effective processes for all stages of yarn production. Washing of animal
fleeces for a long time was done manually. New advancements in washing
machine technology made possible to create an apparatus, which did not loose
large percentage of fleece thus making machine-washing the fleeces possible.
Another area of advancement is creation of new yarn dyes and enhancement of
dyeing techniques. Yarns, dyed in the old mills with the outdated equipment are
often hard because they must be extensively bleached. Bleaching used to be
required so that different shades of animal fiber could be dyed in the uniformed
manner. New yarn dyes cover yarn better than older ones, so that it appears to
have a solid uniformed color.
Distributor Value Chain
Distributors are often seen as an extension of the outbound logistics for the
manufacturer, in our case yarn mill. In the yarn industry distributors must be
viewed as a separate entity because they very often distribute products from
several mills. At the same time distributors get into agreement with yarn agents,
who produce their own yarns. In North America it is also common that distributors
are involved in distribution of so called re-branded yarns, which carry brand
names of a famous pattern designer or other non-manufacturing entity.
Inbound Logistics
In the yarn industry distributors can both purchase the products and serve as a
sales channel between the yarn mill and the manufacturer. European yarn mills
and agents prefer to sell the yarn on the spot. ‘Due on receipt’ terms require from
distributors significant initial investments. At the same time these terms allow
distributors to purchase products at much more favorable prices.
Because of the necessity to purchase yarns upfront, distributors often strive to
optimize inbound logistic component. Different modes of transportation (water,
air, highway, etc.) have different transportation costs and levies. At the same
time distributors must take into consideration such parameters as time-to-market,
demand for a delivered products etc. Consideration for these parameters often
dictates the choices made by the inbound logistics component.
Operations
Operations of the distributor are not as complicated as the ones of the yarn mill.
Distribution companies are often warehouse oriented. Majority of the operations
are directed towards more efficient distribution of yarns to the clients (retail
stores). Recently distributors started to design and manufacture their own yarns
and knitting patterns. Purchasing of yarn components, production and labeling
are activities, which are relatively new for yarn distributors.
Outbound Logistics
From all aspects of distributors’ business, outbound logistics is the most
sophisticated and at the same time the most important component. Large
distributors deliver yarns to hundreds of stores in their immediate area of
operations. Large Ontario distributors, SR Kertzer and Diamond Yarns work with
90+ percent of specialized knitting stores in the province. Outbound logistics for
each distributor includes warehouse operations and delivery. On-time delivery is
important especially during peak knitting season. Failure to distribute products on
time as well as logistics errors usually force customers away from a distributor
and have negative effect on distributor’s business.
Sales and Marketing
Distributors have very large commissioned sales force. Distributor’s profit margin
is very small (20-30% as opposed to 80-100% for a retailer) thus majority of
distributor’s sales force is usually commissioned. In order to maximize value of
sales distributors make effort to sign retailers to long term contracts. In this case
they do not require contiguous sales efforts, which helps them to reduce sales
related expenses.
Marketing division of a distributor creates and maintains distributor’s presence in
the market place. Successful branding is often a key to success. New
distributors, using a model, which is similar to the existing ones, cannot penetrate
market quickly because they are unknown to the majority of retailers.
In order to increase visibility distributor’s marketing personnel participates in
wholesale tradeshows for the purpose of obtaining new sales leads. At the same
time marketing representatives of the distributors frequently attend retail trade
shows as observers.
Large distributors often advertise in the yarn and knitting magazines, such as
Easy Knitting, Vogue Knitting etc. These ads feature retail stores, which work
with the advertising distributor. Although these ads incur a lot of extra costs they
pay off because end consumer can trace distributor-retailer-product chain and
shop for distributed yarn at the featured retailer.
Service
Nature of distributor’s business does not leave place for services. There is no
service related value add in the distributor operations
Secondary Activities
Successful yarn distribution business places a lot of emphasis on infrastructure.
Variety of choices at the yarn market and immediate availability of substitutes
make relationships between distributor and retailer very fragile. In this situation
distributor must keep its infrastructure, such as accounting, IT, etc in good shape
and make no operation related mistakes. Close-knit character of knitting retail,
where majority of smaller retailers know each other, maintains or destroys
reputation of any distributor very fast.
Procurement is another important component business for any distributor. Yarn
warehouses must have specific shelving and ventilation in order to maintain
yarns in sellable shape. Distributors often invest into the gadgets, which help
maintaining mentioned conditions in the warehouse. Taking into consideration
limited financial resources of a distributor, procurement must pay a very
important role.
Relationship between Chains
In many other industries these two chains would have been one single value
chain, starting from procurement and delivery of raw sources and ending at
delivery to retail. The main reason for separation of these parts is the character
of their relationship with each other. More often than not distributors purchase
yarns from the mills acting as customers. When branding their own yarns
distributors sometimes purchase their own raw sources and give it to the mills for
processing.
Mills and distributors make effort to create long term relationship. At the same
time distribution failures do not affect mills as much as they affect distributors.
Failure to sell specific yarn at the certain market does not put a strain at overall
relationship. From the other hand distributors have very little input in the process
of the yarn creation especially if yarns and distribution are at the different
continents.
Although both value chains are heavily intertwined they cannot be considered
one chain because of supplier-consumer relationship. This means that industry
does not have a conventional distribution mechanism.
Five Forces Analysis
‘Five Forces Analysis’ is often used to analyze internal and external trends in the
industry as well as entry and exit barriers. All relevant principles, used in the
analysis are drawn from the microeconomics. The forces to be reviewed are:
• Internal Rivalry between the firms of the industry
• Buyer Power
• Supplier Power
• Entry barriers
• Substitutes and complements to the main product
This analysis will be performed for the ‘lower’ portion of the flowchart, from the
yarn mill to the consumer because this portion constitutes the industry segment
of its own with the sellers and buyers clearly defined.
Internal Rivalry
Factor
Degree of
seller
concentration
Rate of
industry
growth
Characterization
Yarn mills are large enterprises
with high degree of
specialization. European yarn
mills attempt to specialize in
high quality high end natural
fiber products. The mills in the
developing countries, including
India and China are producing
lower quality natural fiber yarns
and artificial fiber yarns. Main
differentiator is the price of the
finished goods, which differs
significantly between two
described groups of mills.
Growing demand in yarns did
not warrant the growth of the
yarn producing sectors. At the
same time we see large
number of new yarn
distributors, importing yarns to
North America from previously
untapped sources.
Future Trend
The price gap will continue to
widen. Majority of the acrylic
and polyester yarns will be
produced in the countries of
Southeastern Asia, where
labor costs are much less than
in Europe and North America.
Mills, producing artificial fiber
yarns in Europe and North
America will have to close or
re-profile to produce exclusive
high quality yarns
Competition between
distributors will increase. It will
not be feasible to sustain retail
growth on the long run. If and
when the knitting frenzy
subsides the shrinking of the
market will cause
disappearance of few
Excess
capacity
Presently the mills do not
operate at full capacity. It is
possible to place an order in
the mill in Italy and get the yarn
spun and dyed within a month,
which is a normal timeframe for
yarn creation
Cost structure
and sensitivity
to capacity
utilization
Majority of the large mills must
operate on the large production
scale. Minimum orders in the
European mills exceed the
needs of any individual retailer.
Many small distributors cannot
afford to order full production
batches in multiple yarn colors.
Product
differentiation
At the moment there is a
variety of products on the
market. Any reasonable size
retail outlet carries 50-80
articles of yarn in different
colors. Terms by which
individual customers
sometimes differentiate
products differ from the
intensions of the industry. This
trend is more visible in North
America than in Europe, where
consumers are more
knowledgeable and have more
sources to educate
themselves.
Buyers costs
of switching
Buyers usually have limited
additional costs of switching
from one product to another.
Substitutes or equal quality
products are available.
Distributors as buyers invest
distributors and mergers
among others
Yarn mills of Eastern Europe
and the former USSR are
practically not used yet. The
abundance of cheap labor
force and access to the new
dyeing technologies can make
these mills very competitive
and create extra capacities.
Dyeing process in the large
mills requires large order
quantities. In order to keep
economies of scale mills need
to forgo small orders. Two
trends are equally possible:
appearance of the new
smaller/leaner players on the
market or substitution of the
highly priced product, i.e.
spinning and dyeing will be
done in the different places.
It is an unfortunate trend but
for any quality product,
produced in Europe or North
America there exists a lower
cost East Asian counterpart.
The number of so-called
knock-offs grows in number
and in quantity per article.
Cheap labor and materials
make these products viable
inexpensive substitutes. For
example, high quality yarns,
such as Eros and Mexico are
priced at $10-15CAD, their low
cost analog Matrix made in
China is retailed at $4.99CAD
and even more discounted in
the larger retail chains.
The number of products is
limited and when all new
products are brought to
market, the market itself will
stall. Distributors will be
pressed to stay with the
Can firms
adjust prices
quickly?
Large and/or
infrequent
sales orders
History of
Cooperative
Pricing
Strength of
Exit Barriers
into promotion of the new
products. Switch may cause
them to forfeit potential benefits
of selling a product longer.
At the moment price of the yarn
consists of labor costs, price of
materials and supplementary
costs, such as shipping etc.
Any producer can control labor
and supplementary costs.
Adjustment of the raw material
component is problematic
because it is based on the
prices in the commodity
markets. Yarn prices are
relatively stable within the
industry and cannot be easily
brought up or down
Orders from distributors to
manufacturers are often large
and seasonal. The goal of the
large order is to offset shipment
and importing charges. Orders
from consumers to stores are
also infrequent. They are
based on the ability of the
individual to accomplish the
project for which yarn and
patterns were ordered.
There are no defined
cooperative prices. Stores keep
prices at MSRP level for the
different reasons. Distributors
do not sell same products and
similar products are usually
priced based on the common
benchmarks.
At present exit price is very
high among the yarn
manufacturers and distributors
alike. The former have invested
in the equipment and continue
to invest in upgrades,
computerization etc. The latter
usually invest heavily in the
large quantities of yarn to
product because they will not
be able to find an alternative.
The situation on the market will
not change in the future
because of the commodity
component. If the market
becomes more global then it
might be possible to adjust the
costs by placing order with the
equal quality, lower cost seller.
The trend will remain the same
in the future because it is
based on the seasonal
character of knitting in general.
The trend will remain the
same. There is no evidence
that distributors will settle for a
share of the same product.
Today’s trend shows that the
number of the distributors is
likely to increase whereas the
number of manufacturers will
remain relatively stable.
Smaller distributors will have
lower exit barriers and will
make distribution segment of
the market more volatile.
achieve economies of scale.
Exiting business will mean big
losses for this group.
Internal rivalry appears fairly strong today although it may weaken in the future if
more competitors exit the market or move their operations to the markets with the
cheaper labor. At the same time internal competition appears to be two-tiered
where high and low quality products coexist at the same market and appeal to
different consumer groups.
Threat of Entry
Factor
Significant
economies of
scale
Characterization
Yarn manufacturers,
distributors and large retailers
all achieve significant
economies of scale on
manufacture, distribution and
consumer prices respectively.
Reputation
and brand
loyalty
At the moment brand loyalty is
very strong and sometimes
inexplicable. Consumers being
offered a better quality product
still choose to stay with the
known brands.
Industry distributors are forced
to work in the resale rather
than distribution mode. This
separates manufacturers from
the consumers and keeps
number of distribution channels
limited.
Presently incumbents in the
industry have advantage over
new entrants because most of
the knowledge is cumulative by
nature and cannot be easily
transferred.
Access to
distribution
channels
Access to
technology
Future Trend
This trend will increase when
manufacture shifts towards
remote areas with cheaper
labor force. Delivery costs will
increase, which will force
distributors to order the
products in larger batches.
From the other hand cost of
materials/labor ratio will
increase which will force
manufacturers to seek
economies of scale by
purchasing larger material
batches.
This trend will remain in the
future unless distributors and
sellers of the new brand invest
in consumer education.
The number of distributors will
increase in the future.
Manufacturers, who seek
alternative distributors will be
able to find them easier
This trend will remain and
access to know-how will be
even more restricted than it is
today. Lack of the access to
the established techniques will
push new entrants towards
creation of low quality knockoffs
Access to
favorable
locations
Knitting industry is very
discriminate and personalized.
On a factory or distribution
level is very hard to penetrate
the market if relatively similar
substitute is already produced /
distributed in the market in
question. For retailers it is even
harder to penetrate existing
spheres of other retailer’s
influence because knitting retail
is very communal and built
upon personal relationships
between the seller and buyer.
Larger retailers can penetrate
into the existing market easier
because they can offer
significant discounts on the
same or similar products based
primarily on the economies of
scale.
Experience
Large European mills with
based
centennial experience have
advantages of advantage over newly created
incumbents
cheap labor mills in South and
South Eastern Asia. Quality of
production, established ring of
supply and distribution makes
these mills superior to any
potential incumbents. There is
a potential for the new agents
and distributors to appear on
the scene more frequently
because the incumbents in this
area are bound by previous
commitments. Loyalty of the
customers in North American
yarn retail is very strong.
Incumbent sell about 60-80%
of the ordered products
whereas newcomers sell close
to 40% in the first three years
of operation.
Retaliation of Incumbents are well separated
incumbents
from each other and do not
towards
pose the retaliatory threat to
We see new smaller
distributors slowly penetrating
existing markets. This trend
will continue in the future. One
of the most common
conditions for market
penetration today is celebrity
status of the distributor brand.
Such brands as Lily Chin,
Debbie Bliss etc., are built on
the name of their founder,
which is a marketing brand in
itself. Low price markup and
slow speed of penetration for
the regular distributors will be
seen as a big deterrence in the
future.
In the future the difference
between the new and
established mills will more
likely lessen. Suppliers of the
established mills will be
interested in the new markets
and will offer technological
elements of the same quality
established mills enjoy today.
Knowledge of the tastes of
customer base will give
incumbents an advantage over
the newcomers both in retail
and in distribution. There is no
significant advantage for the
incumbents now or in the
future.
It will be hard to unite the
incumbents in any segment of
the industry therefore entrants
newcomers
the newcomers.
will not fear any retaliatory
action in the future.
There are two overall trends in the yarn industries:
• Incumbents have their share of the market space, which they practically
monopolized. Attrition of retailers and distributors from their suppliers is
minimal. Newcomers must offer significant price or other financial
advantages to retailers, distributors or individual customers to facilitate the
switch
• Industry in whole is newcomer-neutral. Newcomers can offer products of
any quality in any price range without significant retaliation from the
incumbents. From the other hand the incumbents deem their market share
fairly safe because of the perceived brand loyalty on all buyer levels.
Due to a very recent surge in demand for the yarns in Europe and North
America, we can see that industry became very amorphous and can
accommodate a fair number of newcomers. This trend will continue for a while
but must subside due to either lack of demand or saturation of yarn markets.
Presence of Substitutes
Factor
Availability of
close
substitutes
Characterization
In the context of the whole
industry the word substitute
can have multiple meanings.
With the establishment of yarn
mills in the areas with cheap
labor, production of low quality
inexpensive substitute yarns
will grow. Patons™ Cha-Cha
and On-Line™ Smash are very
similar yarns. The former is
produced in China and has a
retail price of $4.00-$4.99 CAD
per 50g. The latter is produced
in Turkey and has a retail price
of $6.00 - $7.00 CAD per 50g.
While Smash is better in quality
and durability, Cha-Cha is very
popular among the consumer
groups, members of which do
not seek any of the mentioned
qualities.
Price-value
Presently high end yarns made
characteristics out of natural fibers carry a
of substitutes status equivalent to the status
of natural fine furs. The
substitution is possible but it
will be undesirable for the
Future Trend
The present day example is
based on the yarns made of
the artificial filaments. There is
a growing supply of these
filaments throughout the world.
As the price of these filament
goes down so does the price
of the cheap substitute yarns,
made out of cheaper materials.
From the other hand, the price
of the natural fibers will likely
to fluctuate around the present
values, which will make price
of the yarns made out of them
relatively high and stable.
There will be no possibility to
produce a cheaper substitute
for the present natural yarns,
made out of natural fibers.
There will be more substitutes
appearing in the future and
their price will drop drastically.
It will mean that market will
become two-tiered where
lower income consumer
mentioned consumer group. It
groups will use low
is possible to substitute natural quality/price products whereas
fiber yarns by their lower
high end consumers will
quality equivalents. This
continue using original brands.
substitution does not lead to a
This will cause even deeper
decrease in value but will
drop of value of substitutes.
diminish consumer satisfaction
(ex. scratchy wool)
Price elasticity At the moment price of yarn
Establishment of a two tier
of demand
has very limited elasticity.
markets will increase price
There is a set price for certain
elasticity. Suppliers of the high
brands of yarn. If prices
end products will keep prices
increase at the mill/agent end
high. At the same time the
of the product chain distributors number of suppliers of the high
will not be able to match the
end product may decrease
increase and will likely look for with the decrease in numbers
substitutes. Relationship
of their potential clientele. At
between retail and independent the same time price elasticity
distributors is even more
of demand at the low end
fragile. Availability of
market will decrease because
substitutes of the same quality cheaper substitutes.
and different brand can cause
retailers to switch from one
distributor to another.
Price-value
Knitting techniques and tools
The number of complements
characteristics have been virtually unchanged will probably remain the same
of
through many centuries. Latest but they will be geared more
complements boom in knitting has been
towards the experienced
accompanied with a large
knitters.
number of products which are
complementary to the knitting.
Majority of these products are
relatively inexpensive but their
price/value is still questionable.
Such items as needles with
interchangeable tips, special
wool shampoos can be
attractive for novices but not for
experienced knitters and
designers.
As in any other industry with the large and diverse consumer base, substitutes
are readily available. These substitutes have often very poor quality and price,
attractive to the low income consumers. “Original” natural fiber products,
especially made out of wool and other exotic animal fibers will be reserved more
and more for the upper tier consumers. Two-tier market existing today will have
stronger division between lucrative and affordable yarns.
Power of Suppliers
Factor
Concentration
of supplier
industry
Purchase
volume of the
individual unit
in comparison
with the
overall
supplier
volume
Relationship
specific
investments
Do suppliers
pose a
credible threat
of forward
integration
into the
markets
Characterization
At the present state the
industry dynamics resembles
an hourglass. There are many
different yarn growers and
many yarn mills. In Europe and
North America there are very
few commodity traders, which
deal with delivery of fleece from
the growers to the mills. The
other point of concentration is
distribution. From the retail
perspective there are very few
yarn distributors if compared to
the yarn retail outlets.
Individual retailers purchase
very limited quantities of yarn
as compared to the overall
volume of a single distributor.
SR Kertzer in Ontario works
with more that 100 stores, each
of which purchase from $100 to
$10,000 CAD worth of yarns
during a high knitting season
(November – March).
These investments are nonexistent in the yarn industry.
Majority of retail outlets are
courted by the suppliers rather
then opposite. Yarn mills are
more inclined to deal with the
specific traders because they
have access to a specific fiber
source.
Yarn mills and agents are
presently seeking direct
relationships with the retailers.
Retailers can drop prices
significantly by forgoing
distribution markups.
Future Trend
It was mentioned previously
that there are trends to move
yarn mills to the areas with
cheaper labor. These areas
produce a lot of natural fibers,
especially cottons. This trend
will eliminate the need to have
traders/concentrators of the
natural fibers. From the other
hand, it was mentioned that
the number of distributors is
likely to grow in the future. This
trend will somewhat increase
distributor/retail ratio.
With the increase in the
number of distributors each
one of them will be selling less
per store.
In the future, the growing
number of suppliers will lead to
a higher specialization of
products sold by a single yarn
distributor. Mentioned
exclusivity of brand supply
may lead to a situation when
yarns from one supplier will be
more desirable by retailers and
they will be willing to invest
into more exclusive
relationship with this supplier.
Excess and specialization of
distributors in the future will
draw few of them towards the
retail markets. There is a
number of differences in
business approach between
retail and distribution, which
will make this transition very
rocky.
Reduction in costs of artificial
fiber yarns will bring prices
lower and make price
discrimination impossible.
From the other hand, lucrative
yarn markets may see larger
fluctuations in price because of
the exclusivity of product.
Are suppliers
able to pricediscriminate
between
different
customers
There is evidence of price
discrimination especially in the
low-tier artificial filament yarn
market. Because of the low
profit yield on these yarns,
manufacturers and agents are
willing to accept lower profit
margins in exchange for the
higher volumes. It is very
common among the
manufacturers, who work
directly with large retailers,
such as Wal-Mart
Suppliers have very limited ability to dictate prices on the markets. Move towards
forward integration between manufacturers/agents and retailers may move
distributors out of the market chain. Although this move appears to be beneficial
for the suppliers on the short run, it may also hurt them on the long run because
they will have to create their own distribution units, thus increasing their own
costs and subsequently yarn prices. Benefits, which backward integrated
retailers will enjoy on the short run, will be offset with the price increase on the
long run.
Power of Buyers
Factor
Concentration
of the buyers
industry
Volume of
buyer
purchase with
respect to the
overall
supplier
volume
Do firm invest
into
relationship
with buyers
Characterization
Distributors as buyers are more
concentrated than the yarn
mills they are buying from. The
opposite can be said about the
relationship between retailers
and distributors.
Distributors often seek rights
for exclusive distribution over a
certain territory. This makes
them buy yarns of specific
brands and makes in very large
volumes.
Manufacturers and agents
invest heavily into building
special relationship with the
buyers: distributors and
retailers alike. Distributors also
invest into relationship with the
retailers especially new
Future Trend
It was predicted that the
number of distributors will
increase. This will reduce the
concentration of distributors
and diminish influence of
distributors as buyers.
Increased number of
distributors will lock each one
of them with the specific
supplier or a group of
suppliers. Distributors will be
more specialized, which will
bring more competition on
distribution/retail level.
Increased number of
distributors will increase
competition between brands of
yarn. With the limited buyer
capacity, distributors will have
to make more effort to entice
retailers to buy products they
distributors, who don’t have
established customer base.
Buyers price
elasticity of
demand
Threat of
vertical
integration by
buyers
Does product
represent
significant
fraction of
distribute. Increased
investment in buyers may
strain capabilities of certain
suppliers and force them out of
business.
Presently price elasticity of
With the increasing number of
demand for the buyers is
suppliers and exclusivity of
relatively low. Increase in price distribution, described above,
of the product will move both
the price elasticity will
distributors and retailers away
increase. Exclusive distribution
from the product. They will be
of expensive yarns will create
searching for substitutes, which a group of products with
will allow both distributors and
practically no equal
retailers to keep profit margin
substitutes, which will certainly
at the present level. It is
allow for more price elasticity
practically impossible to pass
before consumers make
any of the price increases to
decision to abandon
the consumers of the product
overpriced products.
because they will move to the
available substitutes or stop
using the products altogether.
Latest developments in the
Current trend of locking
industry have shown that
suppliers with the exclusive
buyers actively seek vertical
distribution agreements will
integration with the makers of
continue into the future. More
the product (yarn mills) in order distributors of fine expensive
to reduce product costs. US
yarns will be in the direct
company KnitPicks openly
relationship with the
advertises products as coming manufacturers. This integration
directly from the mills, which
trend will also create a number
would explain very low prices
of equal quality substitutes,
this company offers to the
which in contradiction to the
consumers of yarns.
previous trends will dilute the
Distributors also seek
market and may lead to price
integration with the mills in
decrease. This prediction is
order to create so-called white
based on the fact that several
label products they intend to
newer distributors, such as Lily
distribute under their own
Chin, Debbie Bliss etc. are
brand name. Mentioned above selling practically the same
SR Kertzer and Diamond yarns product under different brand
both have branded products
names.
they offer to retailers.
Purchasing of yarns is the
Inexpensive substitutes to the
largest expense for both
current products may help
distributors and retailers alike.
retailers to increase profit
Average distributor incurs
margins especially if these
cost of buyer
business.
about 60-70% of their operation
costs through the acquisition of
new products. Average retailer
spends 40-50% of all expensed
funds on the yarns. The ratio is
different for the large nonspecialized retailers because
yarns represent very small
(fewer than 5%) fraction of their
retail expenses.
substitutes are of comparable
quality to the original product.
From the other hand, large
retailers are and will be able to
negotiate good prices with the
makers of the substitutes thus
negating any extra profits
specialized retailers may
generate. At the end
supply/demand equilibrium will
be established and fraction of
cost will become the same.
Are prices
Many distributors work with the Increases in number of
negotiated
smaller retailers on the post
distributors will open doors to
individually or prices. Price list are
individualized pricing because
sellers post
transparent and available for all average distributor will have
“take-it-orretailers on demand. Large
fewer clients than now. At the
leave-it” price specialized retailers and nonsame time, larger retailers will
specialized retailers have
start forgoing distribution
individually set prices with their element and negotiate desired
suppliers. Spinrite Inc. from
prices directly with the
Listowel, ON notifies all large
manufacturer.
buyers about potentially
discontinued items and lets
them buy off the remainder of
these items at prices, which are
50-70% below the list price. At
the same time smaller retailers
are forced to buy at list prices
until the discontinuation notice.
Today large buyers have a lot of power at the yarn distribution and yarn retail
markets. Threat of vertical integration and fragile relationships between the mills
and the distributors will force distributors to reduce their margins in order to get
more clients. This market is definitely looking like a buyer market today.
Conclusion
Although yarn industry is very old it in many cases still exists in the ‘craft state’.
Industry does not have defined distribution channels and threat of backward
integration remains very high. Large specialized and non-specialized retailers
dictate prices and outlook of the market. At the same time these retailers have
the least domain knowledge as compared with the smaller participants. They
often move towards higher profit margins on the specific products completely
forgoing the quality. Although prices in these retail outlets are usually lower than
in smaller specialized ones, they cannot offer the same quality of product and
service.
Vertical integration in the different stages of the market poses threat for the
market intermediaries. At the same time this integration leads to creation of the
same intermediaries at upper (retail) or lower (manufacture) boundaries of the
remaining market participants. For the manufacturers it will result in the extra
costs and for the retailers it will result in the lower profits (if they will be forced to
distribute the product in order to maintain distribution volumes set by
manufacturer).
Present industry volatility will lead to both vertical and horizontal rearrangement
of forces. We will see more low cost products coming out of the areas with cheap
labor. At the same time manufacturers of the exclusive high cost products will
explore the gap between low and high cost and will come out with the group of
products of relatively low price.
Industry Issues
Child Labor
Child labor is one of the most pressing issues in the world today. Any industry,
moving its production to the areas of cheap labor, such as Africa or Southern and
Southeastern Asia will definitely experience this issue sooner or later. While
animal farming tends to be safe from child labor, farming of cotton is not. There
are multiple reports coming out of African countries of Mali, Zimbabwe and
others, which indicate that child labor is commonly used at the cotton plantations.
It is more unfortunate because Africa tends to produce higher quality cotton than
the rest of the world. More so, the brand of cotton, commonly called ‘Egyptian
Cotton’ yields the most expensive high quality threads. Researchers point out
that tradition of using child labor in the cotton industry comes from British Empire.
In 18th century Great Britain majority of workers at the cotton factories were
women and children.
At the Soviet era Soviet republic of Uzbekistan openly used child labor in
gathering of cotton under the façade of compulsory communist labor. After
separation from Russia situation has worsened. 2005 report with the title “White
Gold. The True Cost of Cotton”, issued by Environmental Justice Foundation
shows that “blatant human rights violations characterize cotton production. In
order to bolster the workforce, the Karimov regime conscripts tens of thousands
of Uzbek children, as young as seven, to serve as manual cotton harvesters. An
estimated 200,000 children are conscripted in the Ferghana region each year.
The work is arduous and there are minimal financial rewards.”
Although the situation is well known to the consumers of Europe and North
America, the protests are less severe as compared to the protests against the
use of child labor in Cocoa/Chocolate industry. The main reason for this
difference is higher degree of dependency of modern civilization on cotton than
on chocolate, which is considered more of a luxury.
Knowledge Gap
Knitting industry from yarn mill to retailers has an outlook of the craft industry.
Yarn production, especially production from natural animal fibers remains
practically unchanged for the last 200+ years. Maturity of the industry has been
both its curse and salvation at the last decade of the 20th century. Maturity of the
industry and loyalty of knitters to their pastime helped whole industry to survive
through the times, when influx of new knitters was minimal. At the same time
experienced knitters remained very conservative and kept reusing knitting
models, developed during the previous knitting boom of the 70s.
Influx of new people into the craft at the beginning of the 21st century has
underscored the void, which was caused by industry stagnation. Lack of the
industry figures, raised to prominence in the 90s opened door for the new
generation of teachers and trainers, who had to learn the craft by themselves.
The craft that was for centuries yet another way of creating fabrics and garments
has been turned into a mathematical puzzle. High speed knitting and crochet
competitions may have brought ‘Olympic glamour’ but turned people away from
the craft essence.
Loss of basic concepts of craft due to the knowledge gap has changed the
demand for the yarns from natural fiber to the artificial fiber novelty yarns. Lack of
knowledge on garment creation has moved many knitters towards creating small
simple items, such as hats and scarves. As a result, pattern designers
concentrate on the simpler items and some of the elements of craft are close to
being forgotten.
Vertical Integration
This research means by vertical integration creation of direct ties between
designers and distributors and the manufacturers. Designers, creating their own
labels, invest more times and resources into promotion of the labels than in the
design. On the long run, designs produced for specific yarns are not as
successful as the ones produced for the mainstream yarns because they cannot
be used by the knitting community at large.
At the same time, the yarns branded by designers are usually derivatives of the
larger mainstream brands. Knitters use designs with the brands of the similar
color and gauge thus decreasing profits designers intended to obtain by
introducing their brands.
This situation is detrimental for the industry in whole because designers, invested
in the unpopular brands, tend to close the business altogether instead of
producing high quality designs.
Gender Conflict
Majority of knitters are female. Males constitute 10-15% of the knitting population
at most. At the same time male salesman comprise 90-95% of the sales force in
Europe and over 70% of sales and marketing executives in the US and Canada.
This obvious disproportion leads to the situation where very few salesmen and
marketing executives know how to knit.
While this may not be considered important from the business perspective, from
the craft perspective the industry values differ greatly from the values of the
individual knitters. Yarn brands produced in North America are devised to
increase profit margins while reducing the costs. From the finance and
economics perspectives this approach is correct. At the same time it causes
many knitters to drop the craft because they cannot find suitable yarns for their
projects. Large number of synthetic yarns produced under Phentex, Red Heart
and other brands are 100% acrylic and cannot be used for cold Canadian
climate. 100% wool yarns, produced in Canada by Briggs and Little and smaller
mills are made out of fleece shorn of the meat sheep, which is short, coarse and
generally itchy to touch.
Knitters, who are unable to find suitable materials to continue with the craft,
generally switch to the other hobbies. This reduction in knitter population will
have an adverse effect on the industry when the current hype subsides. It only
shows that decisions made by the non-knitters will hurt the industry on the long
run.
Conclusion
All of the issues, described in this chapter are very industry specific. Although
none of these issues can destroy the industry on the short or long run, they may
cause serious damage. Decisions, made by non-knitters on behalf of the knitters
may have the largest impact on the industry in general. Mentioned before
tendency to create a two-tier market based on the cheap/exclusive division can
be magnified by the decisions, which put profit before the craft. Reduction in
demand would have corrected this situation for any other industry. For the
industry based on ‘optional’ craft this correction may be too late for consumers
(knitters) to wait.
Cotton yarns were darlings of this industry for a long time. People use cotton
yarn brands to create summer garments and as natural substitute to acrylic
yarns. Education of the consumers and introduction of the labels ‘Free of Child
Labor’ on the cotton yarns, similar to cocoa/chocolate must be a priority for EU
and North American yarn trade organizations.
Organizational Concepts
Descriptive Elements
Multiple organizations within the same yarn industry supply chain pursue same
goals of producing and delivering yarn products to the end consumer. Failure to
achieve this ultimate goal will be detrimental to the whole industry sector and not
only the retail portion of it.
Competitive Strategies
Michael Porter defined several competitive strategies based on scope and
character of the competition. All elements of the competitive framework in the
yarn industry base their competitive strategies on the uniqueness of operation in
general and uniqueness of product in particular. Although it might be logical to
assume that all yarn mills produce ‘yarns’, each one of the yarn mills is very
different. In the scope of the industry yarn mills are at the narrow end of
differentiation spectrum. This conclusion is made based on the fact that average
mills produce 20-30 articles of yarns in different dyes. In Michael Porter’s view
yarns will use ‘Focused Differentiation’ as their competitive strategies.
Distributors, from the other hand operate with the broader spectrum of yarns,
sometimes in hundreds of articles in different dyes. In order to maintain their
reputation of being distributors of exclusive (high end) or ‘run-of-the-mill’ (low
end) yarns, these distributors still differentiate products they attempt to distribute.
In Porter’s view distributors use competitive strategy of ‘Differentiation’.
Recent attempts by retailers to integrate backward through bypassing distributors
are in fact attempts to implement ‘Low-cost leadership’ strategy. Web retailers,
such as KnitPicks directly claim that low cost of their products derive from the
fact that products are bought at the mills without any middle-tier distribution.
Types of Strategies
Using Miles and Snow’s typology of strategies we can see that smaller retailers
usually act as prospectors, trying to maximize profits through increased volumes
and cost reduction. Larger, usually more passive retailers, which do not rely
solely on the yarns in their business act in Analyzer capacity. Having opportunity
to obtain better deals based on their purchase volumes, these retailers do not
see a need for strategic innovations. Distributors usually employ ‘defender’
strategies. Mentioned before tendency of increase in the number of distributors,
forces existing established distributors to protect their customer base. At the
same time these distributors have to protect their volume of sales, which is
reduced through attrition of retailers and through integration between retailers
and yarn mills.
Quinn and Rohrbaugh model, emphasizing approaches to the effectiveness
values, places majority of industry participants in the segment, members of which
state primary goals of their strategy as productivity and profit. Due to Quinn and
Rohrbaugh this approach does not put a lot of emphasis on morale and
cohesion. As a result both distributors and mills have very high attrition numbers.
It is especially common among the distributor group where majority of the
workforce has low to minimal skills.
Environmental Uncertainties
Robert Duncan proposed a framework of assessing environmental uncertainties
of the organizations. Both distributors and mills operate in a very typical
environment. Natural fibers, used in yarn creation have not changed since they
were first used. Certain development was made in the area of dyes and artificial
filaments. Nonetheless, changes in these ingredients are infrequent. New types
of artificial fiber appear once a decade and dyes are changed with approximately
the same pace.
External elements, which can somehow influence the industry, are also fairly
scarce. European Union has issues several regulations regarding the import of
the natural fibers onto its territory and they are upheld equally in all EU countries.
Realignment of yarn production and certain shift to the areas with cheap labor
and easy regulatory practices does not affect established yarn mills and
distributors.
All these conditions place yarn industry participants into Duncan’s ‘Low
Uncertainty’ segment. This low uncertainty element allows distributors and large
retailers to benefit from economies of scale and stock on the yarns with the
highest profit margin. Pattern designers and yarn creators also benefit from the
stability of the industry. Unlike video chip manufacturers, they can produce new
patterns and yarns on a very slow pace without any fear of designing obsolete
products.
Population Ecology
Established companies in the yarn industry tend to form a population ecology
group. Majority of the participants in the yarn industry have very similar structure
and goals. It can be explained by the fact that yarn industry itself hasn’t changed
its goals during the last 200+ years since the beginning of the industrial
revolution. At the same time both distributors and mills communities rarely
cooperate.
Products of the different mills are very dissimilar. It was also noted before that
distributors try to make an exclusive distribution agreement with the certain mill
and/or agent. Therefore products of different distributors rarely overlap. Smaller
retailers tend to form their own ecological system. This system is based on
location and regional allegiance of the customers. Retail ecology is very similar to
a biological ecosystem where every participant occupies a certain spatial
dimension.
Larger retailers such as Wal-Mart and Zellers are also part of the retailer
ecosystem. Smaller retailers tend to co-exist together with the giants by reducing
the number of overlapping products on which they cannot compete due to price
difference. At the same time larger retailers tend to occupy larger space. They
have a tendency to locate their stores in such way that their customer base does
not overlap.
All elements of the yarn business ecosystems developed their own survival
mechanisms. One of the mentioned mechanisms is differentiation of products,
another is differentiation of service. Smaller retailers tend to provide better more
personalized service, including knitting lessons, help in project completion and
general knowledge transfer. Many smaller retailers have created knitting clubs ad
guilds, which are usually regional and cover the territory, where customer base of
a mentioned retailer resides. Names of the clubs, such as ‘Georgetown knitters’
guild’ are a good indication of location and representation in the guild.
Trade shows are another element of the ecosystem. Local trade shows, such as
Downtown Knit Collective Frolic or Kitchener-Waterloo Knitters Fair help to
connect knitters and retailers under the same roof. Larger shows, such as
Creative Sewing and Needlework Festival provide marketplace for medium and
large size retailers. Difference in entry fees serves as a natural barrier
separating retailers by size.
Present trends show that smaller, less glamorous shows are popular among
more experienced and discriminate knitters, who come to these shows in search
of unique materials and trends. Larger shows attract more novices, who can also
attend seminars and lectures at the show grounds. This separation is indicative
for the industry in general as much as for the mentioned shows.
Internal Framework
Yarn Mills can be easily classify as production companies. Following
Woodward’s categorization of production yarn mills are ‘Large batch and mass
production’ companies. Process of yarn creation has a long time span. Even with
the new advancements in spinning and dyeing equipment typical production
batch can take from a week to a month depending on how the process is set up
at the mill.
Appearance of yarn agents, who consolidate orders and ‘shield’ manufacturers,
was caused by the inflexibility of the industry processes. Agents act partially as
yarn designers, partially as distributors. Because they are not bound by large
distribution agreements they can sell identical yarns from large batches to
different distributors or retailers.
Daft and Macintosh proposed different division of the organizations based on
their internal capabilities. Yarn mills and distributors tend to have extremely high
level of analyzability of their processes and generally low variety of tasks
performed. This places both mills and distributors in the ‘Routine’ segment of the
framework
Independent retailers work in the different realm. Because of the craft character
of the industry, they tend to be in the craft segment. Majority of retail store
owners and sales personnel are avid and qualified knitters. They create their own
knitting designs or modify existing designs to better suit yarn sales. These
retailers are in the ‘Craft’ segment of the framework.
Internal structure
Both yarn mills and distributors tend to have highly mechanistic organization
structure. This conclusion is based on the fact that they both have very routine
internal processes. As it was mentioned before majority of the distributor
personnel is low paid-low skilled workforce, working at the basic warehouse jobs.
Majority of processes at the distribution level are extremely well defined and
never change. Basic processes include acceptance of shipments from
manufacturers and agents, processing of shipments and distribution of yarn to
the customers.
Taking away new yarn creation, yarn mills processes are also very well
described and generally uniform. When contents of yarn are established and
dyes are created workers must apply existing processes to the large batches of
yarn.
Organizational Lifecycle
Larry Greiner defined organizational lifecycle as a sequence of stages, through
which the company must pass in order to mature. Majority of the yarn mills are
mature organizations. European yarn mills have 100+ years of history at the
same location and often under the same name. North American mills tend to stay
stable although they were affected by ‘knitting crisis’ of 80s and 90s and had to
retrench in order to sustain their operations.
From the other hand, distributors are relatively young organizations. Their size
prompts that they have not passed through all stages, described by Greiner.
Judging by the fact that internal systems of the distributors are usually not up to
par or plainly do not exist, we can say that distributor organizations are in the
area described by Greiner as ‘Formalization Stage’.
It is very hard to classify retailers based on the Greiner system. In order not to
harm the ecosystem majority of the established retailers tend to adopt ‘Small
Company Thinking’. This approach results in the inability of growth beyond the
immediate sales area, lack of information technology systems and outdated ways
of communications. Very few retailers have adopted EDI or any other interactive
ways of communication with manufacturers and distributors. Newly created
retailers tend to emulate the ways of their established colleagues.
Organizational Culture
Being a craft related business, yarn industry has many different cultural
elements. Mentioned before knitting clubs and guilds are direct manifestations of
fraternal culture, accepted by the retailers.
Knitting industry has very well defined symbolic elements. Many yarn mills have
sheep on their logos. Yarn stores tend to use yarn balls and needles as part of
their symbolic statement. Many specialized retail stores tend to use words ‘Wool’
or ‘Yarn’ in their names and same often true for the names of the mills.
Many yarn mills are very proud of their heritage. European mills often have
antique equipment, used by the mill, on display in the customer lobby. Others
have stories about mill owners and first workers and the difficulties they had to
overcome at the beginning of the mill operation.
As many other industries, yarn industry has very specific jargon, which may differ
from country to country. North American and British mills accepted yarn weight
system, where yarn of every thickness has its own weight attribute. Many
European knitters are puzzled by the names ‘Worsted’, ‘Fingering’ in relation with
the yarn thickness. Different ways of knitting in Europe (Continental) and England
lead to creation of different vocabularies with respect to knitting tension. English
knitters tend to pay attention to knitting tension or ‘gauge’, showing it at every
yarn label. European knitters regulate gauge within their knitting technique and
do not pay much attention to it.
One of the main jargon differences between yarn industry in Europe and North
America is the use of the word ‘wool’. It is very common to hear this word as a
substitution to the word ‘yarn’. Older knitters in North America tend to call every
yarn – ‘wool’, which causes a lot of confusion in the intercontinental
communications.
Many Canadian knitters learned to knit in schools, where they were given distinct
instructions (patterns) to accomplish their tasks. As they grew in their skills they
still require patterns sometimes describing every stitch in every row. In contrast
European knitters are in general more independent. They do not require row-byrow or stitch-by-stitch instruction. This difference results in different approach to
the creation of the knitting models (patterns). Very often European designed
garments are admired in North America. Designs in the form of patterns are not
accepted as commonly because North American knitters cannot deduce the gaps
it the vague description of the garments.
This difference in trade or craft culture created similar differences in the
organizational culture and approach with respect to the knitting patterns. North
American yarn mills and distributors have many pattern designers on staff. They
promote yarns through depiction of models. Revenue stream from sell of the
patterns is very well established and pattern division is highly recognized in the
organizations. Pattern creators (modelers) are relatively high paid and
respectable group within the mentioned organizations.
In the contrast with this, European yarn mills do not pay attention to pattern
designs. In Italy pattern designers are a small group, which works with multiple
mills and agents at the same time. The major drawback of this approach is that
there is no long tern commitment between designers and organizations, which
hire them (predominantly yarn agents). Because of this models (patterns) have
shorter lifespan, sometimes no more than one season. There are no
expectations about revenue stream from patters. Culturally it turns model
designers into industry outsiders. Their input into Italian yarn industry is minimal
and so is the recognition of their efforts.
Conclusion
This chapter of the project must answer one last question: can industry sustain
itself on the long run. This question is more important in North America than in
Europe because Europeans have never stopped knitting. In order to answer this
question, it is very important to understand why the craft of knitting has been
created and promoted during the last 5000+ years.
One major reason for knitting is to create garments made of natural fibers, which
could not in the past be created by any machinery. Even modern automatic and
computerized knitting machines can only take yarns of a certain thickness. Thick
and heavy chunky yarns, made out of wool and other animal hair must be knitted
by hand. It makes knitting as a craft indispensable in northern and mountainous
areas, where warm clothes are necessity and not the requirement.
Irish sailors from the Island of Aran have created another very distinct type of
sweaters with intricate design. The goal of this design was to make sweaters
completely waterproof. The legends say that Aran knitting was the favorite
fisherman pastime during the long winter months. Cowichan Indians from the
west coast of Canada and Islandic sheep herders had very similar approaches to
creating waterproof sweaters although designs were completely different.
Although our civilization has created other waterproof jackets and anoraks,
woolen sweaters in Aran or Cowichan designs are coveted among fishermen and
yachtsmen.
Crochet garments, such as lacy blouses and shawls were always popular among
the European nobles. Warm and cool at the same time these garments could be
worn all years long.
These statements can lead to one conclusion: knitting garments have been a
part of the human culture for many generations. Garments made out of natural
fibers, such as animal hair and cotton are irreplaceable. Mankind will continue to
create garments out of natural fibers as long as they can be produced on earth.
Recent development in the natural fiber yarns have shown that many obstacles
to the wider use of the fibers can be successfully overcome. People, who are
allergic to lanoline, contained in the sheep hair can use fiber shorn of alpacas or
other camelids.
Fragile character of short staple cotton can be overcome by using stronger plant
fibers, such as hemp or flax.
Popularity of man-made fibers as substitutes the natural hair is explainable.
Extensive use of man-made fibers, such as acrylic was heavily promoted by the
chemical industries. Major ‘advantage’ of these fibers over natural ones is that
they are not shrunk in hot water and could be washed and dried in the machines.
The other advantage was the lack of potential allergens. This made acrylic and
polyester yarns very popular in North America. These yarns are also significantly
less expensive to produce.
Experienced knitters can distinguish between acrylic and wool yarns just by
touching them. Natural qualities of sheep hair to spring and curl makes yarns
more elastic. Elasticity is the quality of the yarn the most coveted by knitters.
Garments, knitted of the elastic yarns keep shape better. Aran cables and lace
are equally more attractive when produced out of woolen yarns as it was
intended in the past.
In the future there will be less and less need to knit with acrylic and other
synthetic fibers. Predicted polarization of the market into high-end natural fiber
segment and low-end artificial fiber segment will make knitting with the artificial
yarns more marginal. Cheap machine produced garments of the artificial fiber
yarns will look very similar to the ones knitted by hand, which will make hobby of
knitting from the artificial fiber yarns obsolete.
We will still see artificial fibers in the blends with the natural fibers, such as wool
or cotton. Addition of 20-30% of nylon to the wool makes garments more durable
and practically non-shrinkable during laundry. Addition of 10-20% of dolan or
elaston to the cotton will make it more elastic and similar in knitting properties to
sheep wool. These two uses will be predominant for the artificial filaments, used
in knitting.
In the view of this, production of the artificial fiber yarns will shift towards the
yarns used in the machine knitting, which are usually thinner and have stronger
twist than their hand knitting counterparts. Production of the natural fiber yarns
will increase. The point of equilibrium between supply and demand will be
affected by the limitation in supply of the fiber. Although there is no shortage of
greased wool in the world today, commodity prices are rising.
Industry Outlook Predictions
Rise in demand for the natural yarns will make yarn mills an important element of
the yarn industry. Today mills have no problem to fulfill the orders in the accepted
timeframe. With more demand to the natural fiber yarns industry will have to reprofile machinery for processing of the natural fibers. This process will incur
significant extra costs. It will also put pressure on the satellite industries, such as
spinning equipment producers.
Raise in cost of the yarn production cannot be automatically passed onto the
other elements of the industry. Being a supplemental (craft) industry, yarn
production must be sensitive to the fact that raising cost may push people
towards other crafts while dropping knitting hobby at all. Market may move
towards high-price low-demand quadrant where people will start looking for
substitutes to knitting.
Established mills can avoid moving into this direction by looking into cheaper
sources of natural yarns and enhancing technology to adapt to them. Advanced
modern mills have new ways of working with the thicker and less expensive
fibers, provided that they are of the sufficient length. Modern exclusive yarns are
often produced of the 28mi fiber as opposed to 20-22mi in the past.
Another way to reduce consumer costs of the yarns is to promote integration
between retailers and yarn mills. Elimination of the distribution component or
passing it to the mill will bring temporary reduction in yarn prices and keep
number of knitters higher. It is a temporary measure because mills will incur
additional costs of distribution.
There is a different trend, which can be more successful in the future, such as
appearance of larger number of smaller distributors working with the smaller
number of yarns. These distributors will be more mobile and lean and will be able
to serve same number of retailers for less.
The next logical step will be creation of one value chain including all elements of
the industry. Distribution will be specific to a mill or an agent. It will be done by
the source of the yarn (mill or agent) or outsourced to an independent
organization. Spinrite practices this distribution successfully in North America.
For European mills it will mean creation of international distribution channels as
well as creation of their own brand presence in the places, where their yarns are
sold. This move will eliminate yarns with ‘white labels’ and re-branded yarns. It
will mean that exclusivity of the yarns, which were labeled by pattern designers
or just celebrities will disappear.
Described moves will streamline the industry and make it more value oriented.
The fiscal validity of these moves will create temporary disarray especially in the
retail segment of it. It may also change the monetary relationships in the industry.
North American industry is accustomed to the credit payment system, whereas
European are accustomed to ‘due on receipt’ payments. Move towards the
European system may cause some of the retailers, which are presently
delinquent with their suppliers to go out of business.
New distribution system and integration of the value chain may spawn price wars
between retailers, integrated directly with the mills. It will also lead to appearance
of retailers, integrated with the low quality cheap labor mills. Non-specialized
retailers, such as Wal-Mart will benefit from this integration and will try to drive
the price of the low quality yarns even lower than they are today.
Major differentiation between the tiers of yarn creation and retail will be service
and education of the consumers. Smaller specialized retailers, who are presently
monopolists in their immediate areas of operation, will be forced to educate their
clientele in the quality of their products or loose them to wal-marts. As a result
smaller retailers will not be able to keep their business ‘out-of-habit’ and will be
required to reshape or close their businesses. Recent closures of the stores in
the small towns (ex. Owen Sound, ON), where new Wal-Mart was opened
confirms the viability of the overall prediction.
Craft stores, carrying knitting yarns and gadgets, belong to another segment of
the industry, which will change in the nearest future. Recent closure of
Lewiscraft™ chain in Ontario due to insolvency shows that non-specialized craft
retailers will not be able to survive the competition with the their larger nonspecialized counterparts, for which yarn is neither primary nor significant portion
of their revenues. These retailers cannot achieve same economies of scale as
Wal-Mart. At the same time they cannot afford the same quality of service and
personnel smaller prospectors can offer.
While survival of the industry is hardly in doubt, its reshaping is imminent.
Current knitting frenzy will certainly make retailers rethink their inventory
selection, store practices and business connections. Retailers, which cannot
adapt to the new business requirements, will be forced to close the business or
reduce it in size. Alternatively retailers, who will be able to adapt to the new
conditions will grow and take place of the closing businesses.
Distributors will not be able to sustain their own value chain and will be forced to
integrate into the value chain of the manufacture in the form of outbound logistic
element. Distribution business will become smaller and more specialized towards
the needs of the manufacturers they distribute for.
Present state of the industry and number of disjointed elements and value chains
shows that this industry is very far from maturity. This fact definitely makes it
more difficult to provide perfect and concise industry description. At the same
time, it makes industry less rigid and more adaptable as a whole. It has a chance
to mature during the current surge in demand and adapt to the predicted
conditions.
List of Literature
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12. “Textile History” http://www.teonline.com/textile-history.html
13. “History of Yarn”, http://en.wikipedia.org/wiki/Yarn
14. “A Short History of Manufactured Fibers”, http://www.fibersource.com/ftutor/history.htm
15. “History of Fabrics”,
http://inventors.about.com/library/inventors/blfabric.htm
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17. Qiviut - Under-Wool of the Arctic Musk Oxen.
http://www.mountainshadowfarm.com/qiviut.htm