Interesting Reading

Posted on the Trout Shop's newsletter, Jerry Lappier makes some interesting points about our industry as it stands today. Kind of a longer read, try and stick with it.

Have you been to a good fly shop lately?
By Jerry Lappier


There's a storm brewing that could change fly fishing forever. Mass distribution of fly fishing products seriously threatens the fly fishing culture as we know it.

In today's information packed world, being concise is a virtue. This newsletter was written with industry professionals in mind, but has a ton of relevant information for everyone who fly fishes today. I've attempted to keep this article as short as possible, but due to the importance of the information, it is still somewhat lengthy. I hope you will read the article from the beginning to the end and voice your own opinion. You can make a difference.


May 28, 2011....
According to Cabela's in Billings, Montana, the Missouri River below Holter Dam was running very high, was dangerous and nobody was taking clients on the river. Where did they get their information?

The Historical Fly Shop
Fly shops earn your business. You can count on independent fly shops to provide you with honest and accurate fishing reports, quality products and unique services. It's their unwritten responsibility to the fly fishing industry. Promoting fly fishing is not something fly shops work towards, it's what they do and why they exist. Professionals that operate fly shops are driven by their passion for fly fishing and innately pass their love for the sport onto customers in the form of local advice and instruction. Seeking a high quality of life is at least equal to the desire to make money. Giving back is a huge part of the mantra.

Customers do their part to keep the engine running. They reward fly shops for their dedicated work by purchasing goods and services from them. Advice is free, but somehow the lights need to stay on. Many fly fishing customers go well out of there way to throw support behind the efforts of their favorite shops. It's one of the many great things about the sport. When given the option, we're happy to say that most fly fishing customers prefer to shop at fly shops.

This simple, but effective reward system has built The Trout Shop's success since 1989. If nothing else, customers want solid information every time they head to the stream. Dedicated fly fishermen know why it's important that local fly shops stay in business. By buying local, they know they'll always have a convenient conduit to the river. Without local fly shops, where will you get honest and accurate fishing reports? You want the truth, the whole truth and nothing but the truth. Not even the internet provides that.

The Trout Shop's History
Like all businesses, The Trout Shop is always seeking ways to grow and, frankly, make more money. At first in 1990, we had a fly shop in Craig, Montana, that provided guide services, shuttles, boat rentals and a few tackle items. We tied our own flies and never got paid. The building we operated out of was built in 1888 and needed lots of repair. Remodeling a dilapidated building was not our forte, but we had a few friends that helped steer the ship in the right direction. With their help, we added a few rooms to our building and were able to provide lodging services for our Missouri River guests. After a second year of remodeling, we had seven rooms available for rent. Food service was our next hurdle. At the time, we thought our fly shop was simply too big at 250 square feet. We shoved the fly shop into a corner, enclosed an awning and turned the remainder into a small café - we provided full service at that point.

We didn't know that the movie A River Runs Through It would be released in 1992. Financially, the timing couldn't have been better for us. We had an established location and all the necessary products and services needed to successfully fly fish the previously unknown Missouri River. The stimulus the movie provided has never been matched. Fly fishing became popular.

Increased popularity provided an obvious, but unattended area of growth for us - tackle sales. Our fly shop truly was too small to meet our customers' and our own personal needs. Parrothead Fly Shop, located across the street from our lodge on Bridge Street, closed after five years of doing business. We picked up the lease and staked a claim to our new and somewhat larger location. Increased tackle sales became possible.

Moving our fly shop proved to be a good idea. It opened the doors to coveted fly fishing dealerships. Getting premium dealerships in those days wasn't easy. Minimum annual purchase requirements by the manufacturers and a relatively small market limited our ability to grow our dealership portfolio, but we pushed forward nonetheless knowing a dealership's built-in value would pay off in the end. Despite the river's popularity, Simms and Sage would not open dealerships north of Helena (45 miles south of Craig). The sales representative for both companies did not want to open us because he wanted to protect his dealer in Helena. No slices of those pies were available to us. It took a personal visit from K.C. Walsh, President of Simms, and three years of persistence to obtain these power brands.

Our calculated bets on the dealerships we obtained were rewarded. Like we hoped, tackle sales steadily climbed along with the popularity of the sport and the river. Still needing more space to display our burgeoning tackle business, we purchased a house two blocks from our lodge at the Craig Interstate 15 Exit. It only took two years before the house turned fly shop proved to be too small. We added 1600 square feet more onto our retail sales floor and added a deli to our operation. Today, we have Starbucks Coffee and approximately 2200 square feet to operate from.

The Demise of the Historical Fly Shop
Our fly shop is too small again. Even with the added space, the morning hustle to get to the river seems crowded at times. Adding onto our fly shop seems like an obvious solution. We have the space and the approvals necessary to make it happen. So what's the hold up? The shaky economy is one solid reason to hold off until better times. The radically changed relationship between retailers and manufacturers is a better reason to be hesitant.

Here's why:
According to the American Fly Fishing Trade Association's (AFFTA) marketing survey that was prepared by Leisure Trends in 2008 for year-ended 2007, the following key findings are noteworthy:

Note: The data below is the most recent available from AFFTA. A new report has been authorized and will be available to AFFTA members later this year. AFFTA did not prepare a market survey from 2009 - 2011.

• Total sales in the fly fishing industry were $804.8 million dollars.
• Tackle sales in specialty stores and independent sporting goods stores accounted for $657.9 million dollars.
• Tackle sales in national chain stores accounted for $146.9 million dollars.
• Tackle sales in specialty stores declined 9.5% from the peak sales period in 2004.
• Tackle sales in national chains increased 13% from 2006 to 2007.
• Independent, single-location fly shops accounted for 45.4% of the retail tackle sales.
• Specialty stores, regardless of the number of storefronts, are the most likely to be actively introducing new participants to fly fishing.

Fly shops are feeling the pinch. From the Leisure Trends survey, "An interesting development in 2007 was the growth of both chain sporting goods stores and specialty (multiple) operations and the decline in specialty (single) and independent sporting goods operations. Compared to 2004, year 2007's contribution from specialty (multiple) operations (+56.8%) grew much more dynamically than sales among specialty (single) operations (-16.8%). This led to an increase of $71.4 million in total sales for specialty (multiple) operations (such as Sportsman's Warehouse) and a decline of $130 million for specialty (single) operations (fly shops) from 2004". Ouch! How did the national chain big box stores do? They did just fine, thank you. From 2006 to 2007 (the beginning of mass distribution), big box stores watched their fly fishing sales increase 13%. So, everyone is growing except fly shops.

Why Did Fly Shops Fall on Their Faces?
The erosion of the historical industry started with the decision by the power brands to distribute to Cabela's - the 1,000 pound gorilla. In 2004, Cabela's went public and netted a fist full of dollars - about $160 million. They had no problem spending it and premium fly fishing manufacturers had no problems accepting it. The gorilla's expansion plans were aggressive to say the least. They wanted to sell every fly fishing brand out there. They wanted to distribute all of their products in every state in the country, pronto. With $160 million in the bank, they had a nice war chest available to them. Cabela's wasn't enough. Bass Pro, LL Bean and other large chains were opened up simultaneously. The move to big box was on.

When Simms and Sage, the industry's power brands at the time, changed their distribution practices from "limited distribution in specialty stores only" to "distributing through big box stores and as many other outlets as possible", the industry changed. It happened over night. Suddenly, the power brands had changed the distribution game and nearly every premium manufacturer followed. Consumers can now find all the industry's premium brands in every nook and cranny of the universe. If you can't find them in a retail store, you can find them in countless on-line stores. In our forty-person, two block town of Craig, you can find two Simms and two Sage dealerships. Simms opened the 2nd dealer the day they opened their doors for business. It took Sage one year longer. Seeing the writing on the wall, we greatly expanded our Patagonia offering and opened our doors to Hardy, Scott, Nautilus and others. At least for now, they all adhere to limited distribution policies.

If all things are held the same, manufacturers increasing product distribution decreases each fly shop's piece of the specialty item pie. We don't live in a vacuum and things are not being held the same. According to takemefishing.org, the number of fly fishing participants in the United States declined to 5.6 million in 2009 from 6.1 million in 2006. In a four-year period, 8% of the market slipped away. Current participants are significantly older (48% are over 45) and more affluent (42.6% make more than $75,000 a year) than other sports. An aging population and their spending are disappearing from the industry quickly. A crippled economy isn't helping either. The facts are the facts. What fly shops face today is a declining market that is saturated with products. Manufacturers are not blind. They can see the problem, but must struggle for their own survival. Fewer sales per fly shop and smaller margins are, and will continue to be, the net result. Perhaps this is why 18 fly shops in California and industry veteran Kauffman's Streamborn closed their doors for good in 2011.

In the 1990's thru the early 2000's, manufacturers and fly shops were close partners in the fly fishing business. The decision by manufacturers to mass distribute products essentially ended the closeness and the love affair. What used to be a valued dealership is now simply a popular fishing brand. A fly fishing dealership has little goodwill value because there is nothing "special" about the dealership's products. Instead, fly fishing products are commodities because they are mass distributed. The luster has been rubbed off the brands. You can get the same thing at the same price everywhere. And, people do. With a stroke of a pen by the power brands, the historical fly shop's goodwill value declined greatly.

What's Wrong with Big Box?
While manufacturers knew that the very fly shops that made their brands special would be upset with their distribution changes, they could not resist the lure and simplicity of big sales to big box stores with the potential for even more. Besides, at the inception of mass distribution policies, the economy was strong and independent fly shops would not be harmed financially (or so they thought) by the decision. Everything would just keep growing like the housing market.

Simms defended their decision by stating that marketing of the Simms brand in Cabela's mass-produced catalog would inevitably drive more Simms sales in specialty stores. Only the Bible is distributed more widely than the Cabela's catalog. Simms may be right that co-branding with Cabela's will help sell the Simms brand. That's great for Simms' effort to grab market share, but does nothing to help sustain the core selling outlets - fly shops. Proportionally, fly shops are selling more Simms and less of brand X, but they are not selling more overall. They are selling less.

Fly fishing gorillas can hurt independent stores in many ways beyond their marketing strength. For example, gorillas can make large one-time purchases from Sage. Cabela's persuaded Sage to reintroduce their popular XP fly rod at a heavily discounted price specifically for them. Sage's response to fly shops inquiries surrounding XP sales was straight forward, "Sage will happily produce a special run of fly rods for a store if the store can purchase a similar large volume of rods". The odds of that happening are very slim. Specialty stores do not have stock holders' money to play with. Gorillas can issue you credit cards and provide reward points that can be redeemed to lower the price on your next purchase (AKA: discounting). Credit cards are only issued by very large companies and discounting is expressly forbidden by the manufacturers. It seems as if everyone is selling the same popcorn these days. Cabela's, however, can package it up and sell the same thing for less. Manufacturers will continue to sell to gorillas. That, you can count on.

Big box stores are great for manufacturers. You don't need a Harvard Degree to understand why manufacturers sell to them. Unfortunately, their short term gain is not worth the long term loss to the industry.

Whose Side is Manufacturing Really On?
In a letter dated February 12, 2012, to The Trout Shop, Simms' President and Vice President stated, "Thanks to your support, we enjoyed increasing demand for Simms products in 2011, and based upon your commitments, we believe Simms and our Dealers will enjoy a record 2012 season. Thank you." While we still support the Simms brand, we have focused our commitment and our spending on only their core products. Simms makes great waders, boots, jackets and other technical pieces. To a great degree, the direction that Simms appears to be heading is responsible for our product mix changes. Those in the industry know what a McFly Shop is. We're not a McFly Shop and work hard to bring new brands to the market and differentiate ourselves from our competition.

Simms goes onto say, "Like many of you, we have concerns about the continuing challenges facing specialty fly shops. Simms believes specialty fly shops are critical to the future viability of both our business and our industry. The #1 Core Value of our company is "Specialty Matters Most", and there isn't a Simms employee who doesn't understand the critical role specialty retailers play in fly fishing." We applaud their words, but how can they undo the damage already done?

Simms is cleaning up its distribution by banning sales on ebay and Amazon.com. Whether online or through a shop, Simms feels dealers should compete on the basis of the promotion of their own retail locations, and not based primarily on the Simms' brand. Improvements are being made to Simms' Authorized Dealer Site to make it easier for dealers to buy Simms' products. Core product inventory will be kept higher for improved delivery. Visitors to Bozeman will see a shiny new building with 30% more production space as they head to Yellowstone Park to fish. You can stop in to see and be educated on all Simms products in their dazzling new showroom, but you can't buy anything there. On Simms' website, they will continue to highlight both their Affiliate Dealers and local area fly shops. Their continuing goal is to drive foot traffic to dealerships. E-Blast promotions and informational and promotional coupons will be included with all products shipped direct from Simms - you heard correctly; Simms is going to sell direct to the public starting August 1, 2012. It all sounded so good until that point. They promise to sell at full retail price, pay all state taxes and charge shipping. They plan to be the high cost alternative where you can buy all that Simms has to offer. Hidden in the message is the notion that Simms present distribution system is not adequate and they need to take the bull by the horns themselves. Fly shops and Cabela's aren't getting it done. How hard will it be to open the cash registers to customers in their new showroom? Hopefully, that doesn't become necessary and change due to a stroke of a pen.

Questioning the fly fishing industry's manufacturer's loyalty to fly shops is warranted. There are many breaches of faith to point to, but one example stands out in the crowd. Last spring, large quantities of Simms G4 waders and Sage Z-Axis rods were found at Costco stores nationwide. Both manufacturers cried foul by blaming Costco for engaging in dirty buying practices. Costco made direct purchase inquiries to both companies. Both companies rejected their offers. Somehow, however, approximately 200 Simms waders and 200 Sage rods ended up in Costco stores at heavily discounted prices despite Simms and Sage's purchase rejections. How did that happen? Simms won't disclose who the "industry insider" is that bought the waders that ended up at Costco. Sage won't disclose who the "freight diverter" is that sent the Z-Axis rods to Costco. Costco is known for dirty buying practices, but these sales should have raised some eyebrows at both Simms and Sage before the orders went out the door. Facing a fly shop revolt, Simms and Sage bought up the Costco inventory at Costco prices. Both companies should get credit for doing the right thing, but their selling actions clearly show their eagerness to get products to the public.

It's no wonder that fly shops are simply pissed. Introducing a 1000 lb. gorilla to the market and simultaneously mass distributing to a declining market was/is too much for many fly shops to withstand financially or spiritually.

Is There a Solution?
How can a fly shop compete in the big box world we live in? Good question. Working hard and providing superior service is a given, but what else can be done? Matching the marketing capabilities of large chain stores isn't plausible in the independently owned retailer pool. The stakes are too high. Manufacturers control all the "P's" of marketing and tie the hands of dealers. They control the product's design, price, place of sale, packaging and promotion. In the pre-mass distribution days, manufacturer's firm grip on their products marketing was acceptable to dealers. With limited distribution, a fly shop knew it would get a piece of the pie and were firmly behind the power brands. Times have changed. Stringent marketing practices no longer work for anyone involved. A new solution is needed.

Fly shop's need the ability to change their way of doing business to compete and remain viable against the gorillas of the world. Rather than having promotional events for products, fly shops often act like pawn shops and negotiate deals on a per customer basis. Those who don't make clandestine deals with their customers find that consumers are trained to wait a year and get last year's discontinued premium products relatively cheap. In the age of the internet, this marketing practice leaves zero profit or a net loss for retailers. Check out ebay, Sierra Trading Post or Red Truck Fly Fishing. They are loaded with great deals on last year's products that didn't sell at the lofty prices mandated by manufacturers. Unless you have to have the latest and greatest, where do you shop?

AFFTA to the Rescue?
AFFTA simultaneously represents manufacturers and dealers on policy issues and probably can't solve this problem, but they should try. AFFTA is the sole voice representing the fly fishing industry. They are in the middle and know all the players necessary to save the traditional fly fishing industry that we all hold near and dear to our hearts. Fly Shops are the core of the industry - both Leisure Trends and Simms agree. AFFTA's mission is to promote the sustained growth of the fly fishing industry. Are we headed that way? From a historical fly shop's perspective and from AFFTA's own marketing survey, the answer has to be no.

AFFTA's efforts are focused on achieving three strategic objectives:

1. Growing demand for fly-fishing products by attracting an ever expanding audience to the sport.

2. Promoting better business practices and professional development opportunities for members.

3. Providing a clear, loud voice to elected officials and government agencies on issues ranging from the protection and rehabilitation of fly fishing habitats to tax related issues important to the fly fishing community.

AFFTA does a decent job on big issues. Educational business seminars are provided at the International Fly Tackle Dealer show and AFFTA is active in conservation issues. Special programs and discounts are available to members. Being a member provides benefits.

Through their Discover Fly Fishing Program, AFFTA hopes to "introduce people to the sport of fly fishing and drive traffic to their retail members and specialty stores". Discover Fly Fishing's facebook page helps keep the public abreast of member activities. Without programs like this, the fly fishing retail environment would be worse. AFFTA promised to unveil a revamped and improved program for 2011. At the International Fly Tackle Dealer Show in New Orleans last year and on Bourbon Street, nobody seemed to know anything about the revamped program. Perhaps we missed something. Disappointing.......

AFFTA's board is stacked against fly shops. Of the 255 AFFTA members listed on their web site, 131 are fly shops, 66 are guides, 32 are media producers, 9 are travel agents and 17 are manufacturers. If only entities interested in tackle sales are counted, fly shops outnumber manufacturers by nearly 8 to 1. Yet on the 16-person AFFTA Board of Directors, manufacturers outnumber fly shops by at least 10 to 1 despite "AFFTA's Nominating Committee's mandate to give due regard, and act in good faith, to assume that the membership of the Board of Directors fairly reflects representation of all segments of the fly-fishing industry". Board member Jeff Watt's bio states, "I have been involved in all facets of the Fly Fishing Industry outside of manufacturing. I have tied flies commercially, guided, worked retail and am getting ready to start my 18th year as a manufacturers' representative. I currently work for or have worked for several of the largest fly fishing vendors and have been instrumental in bringing fly fishing products to the largest retailers in the country. Years ago these retailers were not considered outlets for specialty retail, now they might be viewed as a saving grace." That doesn't sound like a lot of love for fly shops.

AFFTA's Nominating Committee is likewise stacked against fly shops. In June of 2011 AFFTA announced, "Based on the current board term expirations, there are currently three Board of Director seats to be filled with this election. To maintain the diversity of the board as outlined in the AFFTA bylaws, the association is strongly searching out at least one Media / Public Relations / Marketing /Associations /Government /Educational and one at large open seat." No fly shops joined the mix, but Jim Murphy, president of Hardy North America, did. If fly shops make up 51% of the membership, why is there only one fly shop board member? This huge disparity between the present board makeup and what's pledged in AFFTA's bylaws serves as a symbol of the way the market works and of the greater problem - manufacturers rule the roost. Meanwhile, fly shops struggle to adapt to the rapidly changed environment and often find themselves looking in the rear-view mirror with hand cuffs on. Where will the shakeout leave fly fishermen?

Being skeptical of AFFTA's efforts towards helping fly shops is reasonable. Somehow, the degrading dealer / manufacturer relationship trend has slipped through the cracks of AFFTA's foundation. Is it any wonder that dealer attendance at the annual IFTD Show continues to decline? Perhaps it's time to look within the fly fishing industry's organization and not on the perimeter for viable solutions towards the longevity of the industry. AFFTA needs to recognize the plight that fly shops face and the impact their general demise will have on the industry. Strategies need to be proactively developed that provide fly shops with a unified voice within an industry that innately depends upon them for survival. The time for action is now.

The Solution

Quality, branded products with on-time delivery are found at most fly fishing manufactures. The business side of things is handled. What's missing in the industry is a genuine understanding that manufacturers are pulling the rug out from under the people that built their brands and who personally cater to the long term viability of the industry. Manufacturers' business models are broken. They need to be revised to return value to their dealers.

According to AFFTA's own marketing survey, specialty stores are the most likely place to introduce new participants to the industry. Fly shops can't bring more people into the industry if they are out of business. Consumers need to understand that their choice of retail outlets makes a difference; that they can help. Products and their prices are the same regardless of where you buy them. From a manufacturer's perspective, it doesn't matter where consumers purchase their products as long as they get bought. If you're a fisherman, it definitely does matter where you purchase your products. Preserving the fly fishing tradition in great part depends upon consumers recognizing how small and fragile the fly fishing industry is. Doing your part by buying from local businesses that live on the sport and provide superior service will save the industry. AFFTA can't do it alone even if they try.

Moral of the Story

If Cabela's Billings store had called The Trout Shop on the Missouri River on May 28, 2011, they would have found that the Missouri River below Holter Dam was fishing well with nymphs until you reach the Dearborn River confluence. At that point, the river became dirty, but was still fishable especially with streamers. Dry fly fishing had to wait until runoff subsided. Anglers were fishing the entire 34-mile blue ribbon stretch of river despite the elevated flows. The Missouri was one of only three viable fisheries in the entire rain-drenched state. Fishing was from good to great.