Cigar News

An Open Letter to the Cigar Industry: The Lie About Internet Cigar Sellers

The Lie About Internet Cigar Sellers

It is said that “silence is acceptance.” And I have been silent for quite a while.

But given the current state of affairs in our industry, and now that everyone has taken their respective sides about the PCA/IPCPR’s ability (or inability, as I see it) to represent the needs of all retailers – it’s time I speak out, and fight for what’s fair.

As a brick and mortar retailer, as well as a Catalog/Internet company, this much is clear: our role in this industry has been misrepresented – that we’re “the enemy” of local retailers and must be driven out of business. And that must end.

This letter is meant for retailers, manufacturers and consumers. We are a fractured industry: B&M retailers vs Internet, Machine-made vs Premium. If we continue down this road it will be a defeat for all of us. And now that the factions representing the retail end of this business have been trying to cut Internet retailers out, the entire system will start to break down. That means the FDA wins the battle against us, without even having to fire a shot.

To our suppliers:

Deny the positive impact of Internet retailers like Famous Smoke Shop, if you like. But you must at least respect the growth we’ve brought to the cigar industry as a whole.

When pressed to provide us with fair treatment, manufacturers always respond, “But what will the retailers say, if we did ‘x’ or ‘y’ for you?” Retailers shouldn’t say anything – because the Catalog/Internet side of the business needs vendor support, as much as any other seller. Our contribution to the business is, and has been, enormous – and that has contributed to everyone’s success.

The Catalog & Internet cigar business likely represents 50-70% of all box sales. Will the industry grow by that much if our category dies? The answer is simply “no.” Manufacturers will have fewer outlets to sell their cigars. The collective cost of doing business will rise (i.e., FDA, regulation, excise taxes, etc.), and all of it will be passed on to the retailers – and ultimately, to the consumers. Cigar consumption will decrease as prices will double (maybe even triple) over the next five years. Rising cigar prices will not produce growth for any portion of our industry.

inside famous smoke shop retail store
Inside the current Famous Smoke Shop brick & mortar store in Easton, PA.

To the PCA:

You may think you’re hurting your perceived enemy, the Internet company, by pushing us out; but you’re hurting store owners, manufacturers and your friends in Nicaragua, Honduras and the Dominican more. And you don’t even try to understand why.

Accept the reality that local and Internet retailers are in a symbiotic dance, where we each provide a service to the customer. Let me remind retailers that we can never replace the face to face interaction you provide at the local level. Conversely, we’re able to serve the consumer who lives too far away from your shop to buy cigars. If the industry prospers, so will you – if you keep cutting us out, the industry will decline.

A stubborn fact remains: no matter how difficult or untenable the PCA or their tax-happy representatives make it to sell cigars, the Internet cigar business is not going away. Stop looking for excuses and scapegoats – it’s not our fault that 48 states have an excise tax and Pennsylvania and Florida do not. Do not blame the Internet for your failed attempts to stem the tide.

This brings us back to my previous document concerning the actions of the Maryland retailers and the PCA. The PCA needs to come clean and make a public statement acknowledging their involvement in taxing remote sellers and explain their motivation. This action cannot be undone and may lead to more states enacting excises taxes. What can be undone is a clear policy of where the PCA stands on this issue and what steps , if any, the PCA is willing to make to help their Internet brethren. But the fact that there has been no response from the PCA Board to my “Letter to the Industry” only arouses my suspicions.

Famous Smoke Shop 80th anniversary cigars guide Famous Smoke Shop in New York City's Garment District circa 1980s
The Famous Smoke Shop retail store, in 1980s New York City.

To consumers:

The Internet brings you convenience, selection and provides affordability. You know this already.

There is a human cost to the cigar business’ decline. The B&Ms won’t pick up the slack if Internet retailers go away – instead, fewer cigars will be purchased by the industry as a whole. That means fewer cigars being made, factories will close, people will be laid off, and tobacco farmers will be forced to grow products other than tobacco to survive. For the cigars that get made, prices will climb as supply becomes limited – and many B&Ms will go out of business.

The Internet cigar business has historically been willing to work on lower margins than the B&M category. This has been an advantage to consumers: we (meaning companies like Famous) keep prices low by buying in large quantities, and helping manufacturers move merchandise that might be difficult to sell. It was not because of altruism that we did this; rather, it was because competition is a good thing. This is how the market is supposed to work.

I have a saying about the cigar industry, it’s sardonic: The cigar industry hates regulation, except when they are doing the regulation themselves. A little history is in order here…when I entered the industry full-time around 1970, the concept of a premium cigar did not exist; neither did the Internet. There was very little regulation of cigars and Federal import tax was 4 ¼ cents per cigar. That’s about $1.00/box. Pricing regulation, which our industry (not me) loves and enforces, did not exist. Then in June 2007, the Supreme Court overturned a 96-year precedent and ruled that it would not be illegal per se for a manufacturer to set and enforce a minimum price. You see, up until that time, companies such as Famous, J&R, Holts and Cigars International could basically buy cheaper and sell cheaper, benefitting the consumer most of all. Soon after this ruling, cigar manufacturers and importers got on the bandwagon: “Here Famous, sign this pricing contract or we can’t do business.” I will leave it to you the consumer whether this was a good thing.

I’ve been in this business full-time over 50 years. I’ve earned the right to speak my mind – and while there will always be a few in our business that will speak harsh words against me or my company, I don’t believe that anyone can say I have ever broken my word. (And if this isn’t true, here’s your chance.)

I am not done with my indictments. I feel a Pandora’s box has been opened and for warfare not to ensue within our industry, I for one, need clarity on whether the PCA has everyone’s back.

The ball is in your court.

Arthur Zaretsky
President & CEO
Famous Smoke Shop

P.S. I almost forgot… I was amazed by the outpouring of support from consumers and friends within the industry. I want to thank everyone who has posted positive feedback on my previous letter.