Oh, my innocent little pretties, did you think we had exhausted the dirty laundry of the yarn industry? Not yet, my dears, not yet. Special thanks to Valerie and reader V. for tipping me off to the following hypothetical (of course) story. (And if I’d been keeping up with my blog reading, I’d have seen it on Jenna’s blog.)
Once upon a time, there was a manufacturer of fancy yarns who I’ll call Milli Morris. Milli sold high-end yarns, in luxury fibers, and wanted her yarns to be upscale, to have a certain cache. One day, Yolanda's Yarns decided that it wanted to carry Milli Morris yarns. Yolanda started an account with Milli Morris. She received Milli Morris yarns and sold them to her knitting and crocheting customers.
One day, however, Milli Morris contacted Yolanda's Yarns, stated that Milli Morris was implementing a keystone pricing policy and asked Yolanda to comply with it.
What's "keystone pricing," you ask?
Well, apparently "keystone pricing" is a standard term in the retail industry, and refers to a policy or practice whereby a retailer (here, the yarn seller) consistently sells a product for double the wholesale price (i.e., two times its actual cost). So if Milli Morris was selling a skein to Yolanda's Yarns for a wholesale price of $10, it was requiring henceforth that Yolanda sell that very same skein of yarn for $20 to the consumer. And not a penny less.
It sounds like an appalling markup from the consumer's standpoint, but it's pretty standard in many segments of the retail market. (Since my retail experience is limited, readers can chime in here to back me up or contradict me.)
Here’s the backstory: It had come to pass that Yolanda's Yarns thought it could sell Milli Morris yarn cheaper and still make enough profit. (One critical piece of the puzzle that I haven't figured out is whether Yolanda's Yarns is an internet-only business, a discounter that provides minimal customer service and technical assistance at an actual storefront, or whether it also has a full-service, bricks-and-mortar yarn shop.) In any event, Yolanda's Yarns had been selling Milli Morris yarns for an amount less than twice the wholesale price; using the example above, say $17 a skein instead of $20. The customer was happy: s/he could get Milli Morris yarns a few dollars cheaper from Yolanda's Yarns than anywhere else. Yolanda was happy: she was selling lots of Milli Morris yarn, and still making $7 per skein.
But guess who wasn't happy? Other yarn shops. They had been abiding by the $20 keystone price and now Yolanda's Yarns was undercutting them on price. Let's face it: if given a choice, why would a knitter pay $20 a skein if she could pay $17? And the beauty of the internet is that you can order without leaving your desk chair, and they'll ship your stuff to your house, even if you live at the other end of the country, sometimes for free.
So the other yarn shops notified Milli Morris that Yolanda's Yarns was selling her yarn for less than the $20 suggested retail price. Milli Morris subsequently contacted Yolanda's Yarns (in writing, no less! don’t these people have lawyers? or at least some common sense? Free legal tip of the day: If you must allegedly engage in conduct which looks like price-fixing, which I strongly advise against, please do not leave a paper trail.) and insisted that it comply with a keystone pricing policy.
The owner of Yolanda's Yarns was mad now. She worked hard to run her business in as cost-effective a way as possible, and she wanted the right to price her merchandise however she wanted. She didn’t want to raise the price of the Milli Morris yarn. It then came to pass that the next time Yolanda tried to place an order for Milli Morris yarns, Milli said no. Milli refused to sell Yolanda's Yarns any more Milli Morris yarns based on its failure to comply with the keystone pricing policy.
Now ordinarily, this might have just been an unfortunate footnote in Yolanda's Yarn's business. However, Yolanda herself happened to know a little bit about antitrust law. Some correspondence was exchanged, and the phrases "antitrust violation" and "price-fixing” were invoked. Ultimately, Milli Morris informed Yolanda that it was suspending the keystone pricing policy. Yolanda's Yarns would like to continue selling Milli Morris yarns, but it isn’t clear whether Milli will continue to sell to Yolanda or not – Milli Morris yarns are no longer on Yolanda's website.
What’s going on here? Who’s right and who’s wrong? I’m no antitrust expert – and I don’t even play one on TV – but I’m willing to tackle some of these issues. Tune in next time.