When I started my handbag business, I looked for competitors also creating felted wool handbags as proof of concept. Sarah Oliver Handbags was the company with which I identified the most. And now it’s gone.
Of course, there were other people making felted wool handbags on handmade or craft websites, but I thought most of their creations didn’t match my quality standards or were priced well below what they should have for the time and materials involved. Sarah Oliver Handbags was by far the largest company I saw and had professionally made, beautifully hand knitted bags at a reasonable retail price.
I looked at her designs and made sure that mine weren’t exactly the same. I also tried to make mine better by lining my handbags, while hers were not. While we both had magnetic snaps, hers were attached differently on the handbags. There’s only so many ways you can make a similar handbag different, but I tried my best to improve on her model.
HOW SHE STARTED
The company was named after it’s owner, Sarah Oliver, who is a designer from California and the founder of the organization. She hired women from a retirement community to knit her bags and called them the Purlettes+1 (as there was one male knitter in the group).
From what I’ve read, she’s sold over $2 million of handbags, and had probably doubled that amount by the time she closed shop.
For my own store, I used her pricing as a model for what I should charge. Even though her handbags were a little more expensive than mine, her bags seemed to fly off the shelves. I knew that it took me 6 hours to make mine plus material costs. I couldn’t figure out how she could make her handbags for so little?
Before your mouths gape thinking that our handbag prices are not sold for cheap, the standard rule is for direct costs to be one-fourth of the total cost. The rest goes for marketing, advertising, website, adminitrative costs, overhead, and other indirect costs of selling. Also, wholesale price is HALF of the retail price. So, you have to be able to make a profit after all direct AND indirect costs at half the retail price.
I couldn’t get my costs comparable to hers by a far stretch. I became obsessed with reducing my costs. Doing steps in batches. Looking for the lowest costs of materials while still maintaining quality. I just couldn’t do it. My costs were still almost twice hers.
THE SHARK TANK EXPERIENCE
Ms. Oliver wanted to expand her business and made the decision to go on Shark Tank in December 2015. I don’t regularly watch Shark Tank, so I only knew about it after the fact when I did a periodic check of her website.
I thought she did a great job and built lots of excitement based on the story of the Purlettes+1. Brand experts always tell you to come up with a great story to sell your products. Honestly, I had no idea that elderly women and men hand knitting handbags in retirement centers would resonate so well.
The Sharks tend to ask about prices and costs. Ms. Oliver was carrying a purse and one of the Sharks asked about the labor cost of the bag she had in her hand. Ms. Oliver replied $17. I about fell over! $17? It would take me 4 hours to hand knit that same bag. That’s $4.25 per hour. Then a Shark asked total costs to make that bag. Her response was $47 and she sold that bag on her website for $225. Now my brain was in a fog… $47 in total costs? How in the world could she hit those numbers? I was flabbergasted.
Anyway, the Sharks loved her business and her story and she sold 30% of her company for $250,000 to three of the them. Her business took off, thanks to the show. She had a massive backlog of orders the last time I checked her website.
THE DEATH OF SARAH OLIVER HANDBAGS
I occasionally checked her website just to see new handbags or if her prices changed. Basically, just to see how she was doing. Unfortunately, it had been about a couple of years since I checked her website.
I noticed that not much had changed on her site in a long while and that there was no new press on her site. That was odd. I did an internet search to see if her business was still open or if it sold and was shocked to see that it had closed instead.
Digging further, it turns out that Shark Tank sank her shop. I wasn’t the only one who noticed that her labor costs were ridiculously low – so did the federal Department of Labor.
The Fair Labor Standards Act (FLSA) states that employers must pay at least a minimum hourly wage. She had been treating her knitters as independent contractors, but the government reclassified her contractors as employees. That would have meant $7.25 an hour, plus Social Security and unemployment costs. On top of everything, an employer must also figure in rest times. I’m sure most elderly knitters needed rest time in order to finish their handbags. Ms. Oliver couldn’t figure out how to make the business work given higher labor costs. So, she shut it down.
THE MORAL OF THE STORY
I’m not sure there is a good moral to this story. When Ms. Oliver started her business, she contemplated having them made overseas specifically because of lower labor costs. She didn’t want to do that. I understand that completely as I don’t want to do it either. If I get big enough, I want to hire U.S. employees.
I’ve done nothing but dream of being able to hire independent contractors who are stay-at-home moms, or elderly women, or women in places with high unemployment who want to work but need to work from home. Or the retirement center. The thought of giving women jobs, well, it makes me feel happy. I live in Kentucky. The poorest county in the nation is in Kentucky, in the southeast corner of the state. There is nothing more in this world that I’d rather do than hire people in that county. To give them hope. I haven’t been able to get that thought out of my head since I started.
However, I have the same issue as Sarah Oliver. How do I cut costs to the point where I can make money selling my handbags in retail stores? Labor is my biggest cost. How do I lower that? Until I figure that out, I can only sell online. And it’s tough to get people to my website and buy something.
The alternative is to raise my prices and convince people that the value of my handbags is worth the cost. Obviously, I think they are. I made my handbag in 2013 that I carry around every day. It looks like new. But the sales price has been my sticking point. People see the bags I carry and love them. Ask all kinds of questions. Then comes the killer question…. how much is it? The minute I respond, they say a polite thank you and move on.
We live in a fashion world where everything is either really cheap or really expensive. I can’t begin to tell you how many times I’ve been told that they love my bags, but they can get something cheap for $25. I have more than $25 in material costs alone! It doesn’t matter that their $25 handbag will fall apart in a few months, while mine will last for decades. Quality no longer seems to matter in the U.S., only a cheap cost. That mentality is starting to change, but it might take decades to completely reverse.
The flip side of this discussion is that people are willing pay $1,000 for a plastic canvas bag if there is a famous designer label slapped on it. Seriously? Plastic? It makes me cringe. I’m not Walmart and I’m not Prada. I’m stuck in the middle hell of trying to create a brand with name recognition and a value proposition that people can buy into.
It’s been tough. Really tough. Hopefully, I figure out a way to make it all work or I’ll go the way of Sarah Oliver Handbags.