Rocketry Planet

RETAILERS ARE SCARED. Not just in the hobby industry, but in almost every industry, all over the world. They're scared because communication advances and fast, inexpensive shipping have steadily eroded their place in the distribution chain.

In the 1800's, the retailer was supreme, challenged only by the Sears & Roebuck catalog, and even then the sale was usually made through a local general store. In the 1940's, mail-order catalog sales began to emerge. The trend of direct communication between the end-user and the manufacturer has since accelerated dramatically. The advent of the Internet and the growing widespread acceptance of on-line shopping are putting fear into the hearts of retailers all over the world.

Direct-to-consumer marketing is also loosening the stranglehold that many dominant industry manufacturers have on the traditional distribution chain. The traditional distribution chain in the hobby rocketry industry flows from manufacturer to distributor to retailer to end-user. Our experience provides a very good case in point.

Rocket Vision, which is a division of Impulse Aerospace, manufacturers high quality, high value consumer rocketry goods, in the D-G power class. In late 1998, the company began aggressively pursuing traditional hobby distribution channels. We ran squarely into a brick wall. Hobby dealers purchase 90%+ of their products from a few giant distributors. These distributors all carried Estes Industries rocketry products. The distributors declined to carry our products, and their reasoning went like this: "No matter what products we carry, we can expect a certain dollar value in sales from any given hobby store, in any given product class, say $2,000 per month in rockets from the XYZ hobby store. Why should we pick up another rocket line, when we already carry the market leader?" It didn't matter that our products fit a different niche, or that they were substantially better products. Estes had 30 years head start. It is close to impossible for anyone to break that stranglehold on the distribution channel. Quest Aerospace provides a terrific example of a well funded, professional company attempting to do so, and getting swatted down like a bug for their efforts. What to do?

If you can't go through an obstacle, go around. Enter the Internet, and direct-to-customer marketing. Turn the problem on its head, and make Estes' strength their greatest liability. To keep their distribution chain happy, Estes must provide at least a 55% gross mark-up on their products. That's 15% for the distributor, and 40% for the retailer. That's why a few pieces of cardboard and balsa cost $17 in the hobby store. By going direct to the customer, and eliminating any dealer mark-ups, we have that 55% that we can put into the product, promotion, organized launch support, etc. Since the established distribution chain tends to reject newcomers, the innovative products are being sold around the retailers. A direct-to-customer company will always be able to deliver better value to the customer, because they don't have to pay the middlemen.

Our sales have quadrupled since we went direct-to-customer, and we're having a lot more fun hearing from individuals who actually fly the rockets rather than people who are only interested in their bottom line. Our profits are up, and our investors are delighted with our performance. Most importantly, our customers seem surprised and happy at what value they can get for their money.

A few retailers are jumping on the mail order and Internet bandwagon, however most are not, preferring to ignore that avenue of customer contact. Many retailers are lamenting the changes in the marketplace, claiming that mail order and Internet sales will be the death of the local hobby shop. They may be right, but if their survival means you have to pay $17 for paper towel tubes, is it really worth it?