The Start-up: 1998 - 2000

The Alpaca Fiber Cooperative of North America, Inc. was formally established in February 1998, an elected Board was installed and the cooperative officially opened for business by beginning to collect fiber on July 1. The first collection of huacaya and suri fiber from members totaled approximately 27,000 pounds. A relationship was established with the Sonora Wool and Mohair Company to provide grading, record keeping, baling and storage. Due to low world alpaca prices and the relatively small commercial quantity of fiber, the BOD elected to hold over the 1998 clip to be combined with the 1999 clip before processing into yarn and finished products.

The 1998 and 1999 clips (total of approximately 52,000 lbs) were containerized in late November/December 1999 and shipped to Arequipa, Peru for processing into yarn by Michell & CIA Company before being processed into finished products by other manufacturers in Peru. There was a great deal of interest in receiving alpaca products prior to receipt of the finished goods being manufactured from North American fiber. The End Products Committee, led by Julie Safley, developed a line of men's and women's sweaters and accessories as well as blankets, sofa throws and small area carpets which were offered through a black and white line drawing catalog mailed to members for purchase on a wholesale basis. These products were made entirely from Peruvian yarns purchased from Michell & CIA Company. This generated $200,000 in revenue; however the program ended at slightly better than break even after covering overhead. The quality of the products was satisfactory but delays by suppliers and partial shipments caused considerable unhappiness among members. Distribution, a major challenge, was handled entirely by volunteers.

In December 2000, one year after the 98 and 99 fiber was shipped, finished products were finally received back in the US and distributed to members who had placed advance orders. 50% deposits provided by the members funded the manufacturing. Products delivered in year 2000 were made entirely of North American produced alpaca fiber. This process turned out to be incredibly cumbersome and difficult to handle for both the Peruvian companies involved and the AFCNA. It was fraught with losses and complications that the parties involved in the process did not wish to repeat. Fiber investment by members limited the designs we could produce on the basis of available grades and limited color choices due to dye lot minimums. In addition, members waited nearly a year for delivery of their products.

Early Success and Expansion: 2001 - 2003

The AFCNA had reached a major turning point by 2003. Three things had become obvious: 1) An organization the size of AFCNA could not be run totally by volunteers. 2) The world market price of raw alpaca fiber, in the foreseeable future, would not provide a satisfactory return to the members. 3) Manufacturing products from the actual North American fiber collected was not feasible. There were three major changes: 1) The first paid employee, Karen Dewhirst, was hired as general manager. 2) The feasibility of selling from available inventory was tested. 3) AFCNA contracted with Fulfillment Direct, in Florida to handle orders and shipping. A limited selection of hand-knitting yarns, suri and huacaya woven scarves and suri stoles, and a basic dress sock knit in the United States were available for purchase and immediate delivery. Members, and retail customers who located the website, could purchase from the website or call a Fulfillment Direct. The strategy of selling from inventory was very successful in spite of limited selection and difficulties with Fulfillment Direct. It was determined that this could be a very effective growth strategy if sufficient capital could be generated to purchase and maintain inventory levels to meet growing demand.

Due to the success of 2001 marketing program. The BOD decided to continue and expand in this direction. A four-page black and white photographic catalog was mailed to members and AOBA members in October 2001, to sell accessories, sweaters and blankets for the holiday season. Inventory was moved to Decatur, TN after concluding the relationship with Fulfillment Direct. A full time customer service representative was hired. This provided AFCNA with direct control of customer service, distribution and inventory. The holiday season was very successful with all product purchased being sold, generating $150,000 during October through December. This was over 3 time the sales of FY 2002.

In 2002, we contracted all design and manufacturing of America's Alpaca™ products. The design strategy was to provide alpaca apparel and accessories reflecting the lifestyles enjoyed by alpaca breeders. Clothing was characterized by high quality and classic styling that was casual and appropriate for the market demographics. This was significantly different from other alpaca garments being imported by competitors. An 8-page color catalog was mailed to members in May 2002 to test the ability to market alpaca clothing to be worn in the warm seasons. This again was very successful with 90% of the spring/summer apparel sold by the beginning of the fall season. Additional emphasis was given to the Yarn Division. AFCNA attended The National Needlework Association (TNNA) tradeshows to cultivate wholesale yarn customers selling from boutique yarn shops. This strategy was successful, though on a smaller scale than the apparel program, due to the smaller size of the market and competition from established yarn companies. Though the growth was gradual, the purchasing season for the yarn business complimented the apparel business and provided a more even cash flow for the company. There is a natural synergy between the yarn and apparel businesses. As we developed new and innovative yarns for the apparel business, the ability to meet large yarn spinning minimums was made possible by packaging the excess yarn from the apparel program to sell to yarn shops. This strategy expanded the acceptance and availability of America's Alpaca™ yarns and allowed us to keep apparel program over-production losses to a minimum.

The strategy for FY-2003 was to build on the success of 2001 and 2002. The marketing program focused on increasing retail sales through web sales and a direct marketing campaign. Items sold at retail prices significantly increased the profit margins. A direct mail campaign during the fall/winter 2002 season tested our ability to market our apparel and accessories to consumers, outside the alpaca community. Leased mailing lists were obtained from catalog companies selling to our target market; Sundance, Orvis Women's, Jennifer Tyler Cashmere and Smith & Hawken. The mailing consisted of three high quality color catalogs. Through this campaign, the retail sales increased from 2% of our business the prior year to 8% and doubled the number of customers purchasing at retail price. Almost 1% of those receiving the catalogs placed an order. According to industry experts, this response was excellent for a new company. The increased retail sales due to this direct marketing campaign was quite significant.

In 2003, AFCNA made it first capital equipment investment purchasing a state of the art sock machine. The popular, heavy terry socks were being made in Canada from the members' fiber. Although the 100% made in North America was a good selling point, the manufacturing costs are high, setting the retail price above competitors, and with a very low profit margin for the Coop. Socks were (and remain) one of the best selling items. With a machine available to produce the terry socks, we felt we could significantly reduce the cost, lower the price and increase the profit on each pair.

Growing Broke: 2004 - 2006

Expectations were high as FY-2003 came to a close. Sales had kept a record pace, ultimately reaching nearing $1.5 million.

Unfortunately, when the books on the year were closed out it was discovered that AFCNA had suffered record losses. These were the result of several factors:

• Increased staff expenses related to product development and order processing/fulfillment
• Marketing expenses
• Inventory over-runs (and under-runs)
• Etc.

Drastics steps were necessary to extricate AFCNA from the brink of collapse. The Board of Directors took over direct control of the day to day operations of the Cooperative. Paid staff positions were cut to two. Offices were transferred to a lower rent facility in Decatur, Tennessee. Assets, including the AFCNA Yarn Division, were sold to service secured debt, and unsecured debt was restructured.

Every aspect of the business' operations were brought under intense scrutiny, including strategic planning, inventory control and accounting systems, product manufacturing and acquisition, etc. As a result, AFCNA emerged better organized and defined, if still in a precarious financial position.

Changes implemented as a result of this re-examination of operations included:

• Conversion of financial and inventory control to a system that provided real time access to pertinent business information
• Refocusing on the value adding and marketing of member produced fiber
• Outsourcing manufacture of products produced from member produced fiber
• Introduction of "Designer Lines" - products from outside manufacturers sold by the Co-op on a consignment basis, a strategy that shielded AFCNA from inventory over-runs, preserved operating capital, and allowed us to offer expanded product lines
• Strategic alliances with several major textile processors in the United States who were willing to work with member produced fiber
• Better definition of AFCNAa's structure, resulting in the creation of the Marketing Division and the Purchasing Division
• Etc.

By the end of 2006 AFCNA was on much firmer footing and attention could again be paid to expanding the business and AFCNA's role within the larger North American alpaca industry.

The Path to Profitablity: 2007 - Present

The painfully restructuring undertaken after AFCNA's unsuccessful foray into retail apparel sales has proven its worth. At the end of FY-2007 the Co-op was able to send the first ever cash payment to its members. These payments, though small, represented both net proceeds generated by the Marketing Division, and a portion of net profits genereated by the Purchasing Division.

The Co-op's reputation within the North American alpaca industry had been seriously tarnished by the near collapes of 2004, and member relationships were at their nadir. Steps were implemented to improve communications with and between members, and to communicate with the larger alpaca community the incremental successes being made. As a result, AFCNA has experienced significant growth in membership, and increased participation in Co-op activities by the membership. AFCNA collected well over 40,000 of alpaca fiber in 2008 - a better than 20% increase over any previous clip collection.

Refocusing on member produced fiber, AFCNA has brought a number of products to market, including rugs, throws, gloves, scarves, hand knitting yarns and our ever popular Extreme Alpaca™ socks. We have also begun providing high quality yarns to manufacturers of alpaca apparel and accessories.

FY-2008 ended with a Marketing Division profit, and the Co-op experienced a better than 35% increase in month over month sales during the 2008 Holiday buying season - even in the face of a deepening recession in the United States and the rest of the world.