Coats and Clark took the quilting community by surprise last week when the company announced they’d be closing Free Spirit Fabrics, their premium quilting cotton brand, effective May 1. “We had been working diligently to grow this division,” said the president of North America Crafts at Coats, Stephanie Leichtweis, in a phone interview. “There was an inherent weakness in the business model that couldn’t be overcome. The fabric business is very crowded. We’re not the only ones in the industry looking at how to get in front of 4,000 independent retailers every day.” Lechtweis was hired for the position in October.
Crafts represent just 16% of Coats’ overall business which is primarily focused on industrial and performance threads. The company has steadily reduced their craft portfolio over the last two years. In the summer of 2016 Coats closed down their UK crafts division when it proved unprofitable. At the same time Westminster Fibers, a Coats subsidiary, ceased distributing specialty hand knitting yarns to independent yarn shops. The shuttering of Free Spirit is yet another step in streamlining this sector of the company.
According to the Coats financial reports the margin on their crafts products is slim, just 3% versus 13.3% margin on their industrial threads for the first half of 2016, for example. The company’s craft sales have been declining for at least two years. In the first half of 2017 their needlecraft sales were down 11%. Without Free Spirit Coats is left with Red Heart yarns and the Coats thread brand, both of which are sold at big box retailers such as Wal-Mart and JoAnn Fabrics.
Free Spirit had 26 booths at Fall Quilt Market in 2017, or 2.6% of the show floor. Image via Free Spirit on Instagram.
The Founding of Free Spirit
Free Spirit was founded in 2000 by Nan Harding, the owner of Fabric Traditions. She hired Donna Wilder, vice president of marketing at Fairfield, to start what she envisioned as premium quilting cotton company with a distinctly modern aesthetic.
“I felt the quilting industry at that point really needed a new vision,” Wilder said in a phone interview last week. She began recruiting modern surface pattern designers from other industries to design fabric, seeking them out at stationary and home shows. Wilder signed Amy Butler, Denyse Schmidt, and Anna Maria Horner, and Free Spirit made a splash in the quilting industry. Over the course of six years, from 2000-2006, with a team of just four employees, Wilder grew Free Spirit into a profitable company that she says was grossing five million dollars when Fabric Traditions sold it to Coats & Clark in January of 2007.
The Free Spirit team at QuiltCon 2017 in Savannah. Some employees will be offered jobs elsewhere within Coats. Image via Free Spirit on Instagram.
The quilting industry as a whole experienced a 20-year period of rapid growth around the time that Free Spirit was established. According to the Quilting in America survey, in 1997 the value of the market was $1.21 billion. By 2014 it was worth more than three times that amount at $3.76 billion. Today there are 40-50 companies today manufacturing premium cottons for the quilting market.
Still, the margin on quilting cotton has always been slim. Quilting fabric is printed in factories in Korea and Japan where the minimum run per design is 3,000 yards, 1,000 yards for each colorway. It costs about $2.00 to print a yard of fabric and another .50 to import that yard into the United States where it’s sold to a local shop for around $5.50. The fabric company uses the difference, or margin, to pay all of their expenses, with whatever is left taken as profit. Expenses include employee salaries and health insurance, rent for office space, warehouse costs, insurance on the merchandise, pay for sales reps or distributors, royalty payments for the designers, and marketing costs including Quilt Market. “When it’s all said and done the margin is essentially gone,” explains Gina Pantastico, co-founder and director of operations at Cloud9 Fabrics. “You have to sell a whole lot of fabric to make it work.”
While the quilting industry was booming, fabric manufacturers ramped up the pace of production and were able to make it work financially. “In 2009 I would say we did 35-40 collections a year,” Mickey Krueger, president of Windham Fabrics, said in a 2016 interview on my podcast. “Today, we do 100.” Ted Hoffman, president of Clothworks, said in an interview on Sit & Sew Radio last week, “If you’re the end consumer the quantity of stuff you have coming at you is unparalleled.”
According to the Quilting in America survey, in 2017 the quilting industry’s growth leveled off for the first time in twenty years. When demand slowed the excess supply of fabrics caused the market to soften. At the same time, retail of all kind is going through a transition as consumers increasingly buy online, and quilting supplies are no different. Although 97% of dedicated quilters are purchasing supplies in person, 68% are also buying online. The amount of fabric they’re buying, on average, decreased slightly from 99.9 yards per year in 2014 to 99 in 2017.
Bolts of Free Spirit fabric on display at Missouri Star Quilt Company in Hamilton, Missouri. Image via Free Spirit on Instagram.
Is Ecommerce to Blame?
The shift to ecommerce, combined with the aging population of quilt shop owners, has caused many brick-and-mortar quilt shops to close their doors. Gamache says he’s tracked a 10% shrinkage rate in the number of shops he sells fabric to in the last two years.
Industry observers point to Fabric.com, a large online fabric shop which was bought by Amazon in 2008, as a major culprit in undercutting brick-and-mortar shop prices. Fabric company executives, however, tell a different story.
“It’s true that Fabric.com may sell some fabric for less money and if that’s what they’re doing wrong in anybody’s eyes, I’m not sure that’s entirely valid,” says Krueger of Windham. “They buy a lot of fabric. Anybody that buys a lot of fabric is probably going to be entitled to a discount; it doesn’t matter if you’re Fabric.com or a brick-and-mortar store. Their philosophy is to sell it aggressively and I’m not sure that there’s anything wrong with that. I’m sure there are many brick-and-mortar stores that sell fabric aggressively. We just don’t know about it because they’re not online shouting it out.”
Pantastico of Cloud9 explains that if Fabric.com were really the cause of brick-and-mortar closures she’d see a dramatic uptick in the size of their orders, but that’s not the case. “Is Fabric.com making up for the loss in brick-and-mortar shops? No. If they were, nobody’s sales would be declining. While ecommerce has changed the way people are buying, it hasn’t picked up the slack.”
There’s simply more fabric on the market than there is shops, or end consumers, to buy it. “Shops can’t purchase what’s available,” Kenneth Gamache, president of QT Fabrics, explained on the Sit & Sew Radio podcast last week. “We’re purchasing inventory in the hopes to sell it, but getting over-inventoried can ruin a business, not just on the shop level, but on the supplier level, too.”
Although many in the industry have noted the issue of excess supply, Free Spirit’s closure still came as a surprise. With a roster of all-star designers including Tula Pink, Kaffe Fassett, Heather Bailey, and Tim Holtz among others, it seemed that if any company would survive it would be this one. “The market has gotten very dense and more challenging the last few years for everyone,” Michael Steiner, co-founder and president of Michael Miller Fabrics, stated in an email last week. “I’m not surprised a company has bowed out, but I am surprised that company is Westminster.”
A worker in the Greer, SC warehouse prepares Tula Pink pre-cuts. Image via Free Spirit on Instagram.
The Influence of Instagram
Popular social media platform, Instagram, launched in 2010, just a year after the Modern Quilt Guild was founded. The highly visual nature of the site made it an easy favorite for quilters to socialize online. Fabric companies took note, offering quilting influencers fabric lines as a way to build marketing partnerships to sell more yardage.
“I felt like people were getting gobbled up,” says Michelle Engel Bencsko, co-founder and creative director at Cloud9. “It was just a matter of time before this personality or that got gobbled up and had a fabric range.” Although exciting for designers and their fans, those partnerships are proving to have limited sales power in a downturn.
Karen Montgomery, owner of The Quilt Company, an independent quilt shop in Allison Park, Pennsylvania explains, “I think the real takeaway from this is that social media followers do not equal retail sales. Consumers may love your blog and hang on your every Instagram post, but that doesn’t mean they will buy what you are selling at regular retail prices.” Instead, the market became flooded with fabric that Engle Bencsko says doesn’t tell a good story. “I see a lot of bad artwork on fabric and I think ‘how are they selling this’?”
“It just got real big real fast,” Pantastico of Cloud9 says. “Some companies think the more you print, the more money you’ll make. But you’re sitting on dead inventory. You’ve got a perfect storm.”
For Coats several unprofitable years in a row was enough to prompt an exit from the premium quilting cotton business. “It was time to part ways so that the Coats brand has the ability to succeed with a new strategy,” Leichtweis said. “We love our fabric and our designers and bringing them to market. This decision wasn’t taken lightly. We’re focused on an innovation-led growth strategy, but their designs and creativity won’t end.”
*Feb. 22 @12:41 pm After hearing feedback from independent quilt shop owners as well as more fabric company presidents we adjusted the margin dollar amounts stated in this article for better accuracy.