LEADERSHIP CORNER
Craft Supply president finds ways to cope with 'tough squeeze'
Interviewed by David Butts
Advertiser Staff Writer
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Title: CEO, president and co-founder
Company: Craft Supply of Honolulu and The Hobby Company
Age: 54
High school: Beavercreek, Ohio
College: Bachelor's degree in mathematics from Bethel College, Mishawaka, Ind.
Little-known fact: Flew solo in a Cessna 150 at age 18.
Breakthrough job: Wills came to Hawai'i in the mid-1970s when her husband, Jim, took a one-year visiting position at the University of Hawai'i. They stayed, and in 1980, Pamela Huddleston asked Ann Wills to join her in taking over The Hobby Company at Pearlridge Center.
Major challenge: Inventory control. "Our inventory is like the beauty and the beast. It's wonderful because we have a large inventory and we seldom can make any real big mistakes in our purchasing, but on the other hand it also is hard to turn."
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Q. Are Wal-Mart and other big box retailers cutting into your business?
A. They have cut into some of our product lines. They've also encouraged our business in some ways. For instance, in the hobby business, they might sell a basic plastic model that will get a child or an adult interested in the hobby. We would then be much more a specialty store that would carry a much more in-depth supply.
Price-wise we really can't compete. We try, but it really cuts into our margin. Wal-Mart sells a bag of pillow foam for probably what we pay for it. What we try to do is avoid some of those product lines that they have.
We have good customer service. We hire people who are top in the craft or hobby field. In the hobby industry, we have probably some of the best RC (radio-controlled) car racers in the island.
Q. What did you know about the hobby business when you took over The Hobby Company?
A. We knew nothing about the product. Our greatest challenge in the beginning was learning the products. We did that by going to Mainland trade shows and (talking) to a lot of the manufacturers.
Q. Don't most books on small business say you should stick to your area of expertise?
A. We didn't know retail, nor did we know the products. We knew that we were willing to work and give it a good effort.
Q. You started with six employees and about $400,000 in annual sales in 1981. Now you have about 65 employees and $4 million in sales. During that growth, did you find that doing business in Hawai'i is as daunting as it is made out to be?
A. The cost of doing business in Hawai'i is high. ... For us it's because we have freight expense along with other things like the employee benefits that are required. We have to be frugal.
I haven't found that anything has stopped us. We haven't ever had a problem with the state. We really are an above-the-table kind of business. We just do whatever we are supposed to be doing as far as regulations. But it is expensive: the insurance cost, the (workers' compensation). ... Sometimes we just think of ourselves as a community service. We are servicing our customers well. It's tough to continue to bring them products at competitive prices and also watch the bottom line.
Q. What should be done about the high cost of health insurance?
A. On the one hand, I really want to cover my employees for their healthcare. I think everyone should be covered. From the social side of it, I really am a proponent. On the other hand, from the business side, what we end up having to do is be very careful about how many full-time employees we have, so we can cover the benefits. What we end up with is just a few full-time people, and everyone else is part-time.
Q. What effect does raising the minimum wage have on your business?
A. Minimum wage is tough, and we've had two years in a row that we've been hit with that on Jan. 1.
Retail obviously is known to start almost everybody at minimum wage. Probably 50 percent of our employees start at minimum wage and then we have to turn them. They are going to move on to get higher-paying jobs.
When the minimum wage goes up we almost have to boost everybody up. It has a trickle effect on up to the top. So it does increase our salaries. It is really tough. When the competition has come in, we've really had to keep our prices competitive. It's not like we've been able to cover our costs by increasing our prices. We don't like to increase our prices.
What we end up doing is having to have more turnover of employees because they will go to other places. We train them and they work for a while, and then they find a higher-paying job.
We can only afford to pay so much. We still have to have the same number of employees. We just have incoming, so that increases our training costs.
Q. How are freight costs?
A. This year our freight costs are up about 8 percent, which is really high. It's been attributed to fuel cost. ... What we've got to do is keep passing that along to customers, which is really tough.
Over the years we've gone to cooperative freight consolidating. We consolidate freight on the West Coast and ship it together. That's been somewhat economical, but even with that, the cost has increased as a percentage of the cost of the product. So, we go back to our manufacturers and try to negotiate some better prices or some freight allowances.
Q. You have rising healthcare costs, rising wages, increased freight charges and competition that won't let you raise prices. It sounds like you are getting squeezed.
A. It is a squeeze. Right now it's a real tough squeeze. (We) always have to be re-evaluating and reinventing ourselves.
I have to go back to the manufacturer and say, "Look, I've got to have a better price. I've got to have a better discount. I've got to have better terms." We are just constantly trying to look for ways to stay in business.
Our product lines are the same thing. We really watch the trends and we expand or contract a product area according to what our customers are asking for or what the trends are at the time.
Q. You are also helping to run a new nonprofit organization. How are those challenges different from running a for-profit company?
A. Probably my greatest challenge ... is figuring out how to fund a nonprofit being, (in) that I've not been in the nonprofit world. I know how to sell product. I haven't quite figured out how to raise funds yet.
Q. You are the president of the board at the Outreach for Grieving Youth Alliance, Hawai'i. How did you get involved with that?
A. We just happened into this because we have craft supplies. Cynthia White (the executive director) ... said she needed craft products. I said, "That's easy. We'd be happy to give you some craft products."
Children that have had a death of a parent or sibling come together and play, do arts and crafts. That will open up some of the hurts and some of the stories that they have to share with each other in a very safe and kind environment. We have volunteer adults that go through training to work with the children. It's had a great impact, and I'm interested in helping to promote it.
