Creative Leisure News - Business-Wise

Mike's often irreverent, thought-provoking analysis of the industry.

Vendors Discuss Hobby Lobby's Success

So many reasons for so much success.

Compiled by Mike Hartnett (February, 2004)

From opening a 300 sq. ft. store to $1.1 billion dollars?!? Hobby Lobby stores are closed on Sundays, don't have the fancy POP technology at the checkout counters, and Oklahoma City is not exactly the mecca for talented job-hunters. So how did David Green achieve such success? We asked some vendors who sell to HL and to HL's competitors.

Six Reasons Why.

The following is from the Marketing VP for one of the industry's largest vendors.

1. They may have the lowest product costs in the industry because they manufacture so much themselves and import a much larger proportion of products directly from Asia than any other craft retailers.

In many cases they will buy new lines from a vendor, but once they see the sales movement, "knock it off" themselves. They are very open about this strategy and as a manufacturer you have to decide whether this type of business is worthwhile.

From our perspective, we feel it is. If it is a successful line, and not covered by some type of intellectual capital, they are going to source it and we might as well get the initial business! The caveat here is that the line has to be a proven success, not too fashion-oriented, and easy to source. That tends to rule out SKU-intensive, design-oriented lines.

2. They keep products in stock. They have a good supply chain system which ensures they have the product on the shelf.

3. They do not plan-o-gram as rigidly as many retailers, and as a result can move new items into their stores faster than most. So they stay on top of trends and new products.

4. Their store managers tend to be entrepreneurial and are compensated in a way that rewards performance and innovative merchandising. They are not too corporate or rigidly controlled.

5. Their store size and product mix attracts a very broad consumer base, rather than just the core crafter. Home decor items are the key here and they do very well in that area.

6. I believe their lease costs are lower than, say, a Michaels as they tend to operate in secondary locations rather than the A power centers.

All in all they are a quality company. They treat their people, customers, and suppliers with dignity and respect and execute their business plans very well. I expect they will continue to enjoy great success.

11 Reasons Why.

This email is from a mid-size manufacturer who has been selling to Hobby Lobby for as long as any company in the industry.

1. He hired good people � not "good buyers" or "good managers" or "good executives," but genuinely good people.

2. The buyers that I have worked with have had store experience. (Years - not just a few days of exposure.)

3. The buyers and other employees actually answer their phones or call back very quickly.

4. An emphasis of hiring from within (see #2).

5. Honesty and integrity. We have received notices of overages on shipments and not just on shortages. And a strong policy of "no favors (bribes)". My buyer even takes me to lunch sometimes! (Only one caveat on integrity � if your product gets too much volume and they can knock it off or import it, they will.)

6. David Green obviously takes care of his employees because they stay with him. They seem to be family.

7. They make it very easy to do business with them. No "entitlements" or "vendor-partner" forms or calling for one discount after another. You quote them the best price and they take it or leave it. And no charge-backs for having the wrong size case label, etc.

8. They have not become a slave to systems and plan-o-grams. Their only emphasis is pleasing their customers.

9. They can react quickly. If something looks good, they�ll find room for it and buy it now � not for a year from now. And no tests � they�re buyers and good buyers sometimes have to be "product pickers" and stick their necks out.

10. Vertical integration where it made sense and in recent years, diversification.

11. They�ve all made Hobby Lobby (and I would assume Mardels, Hemispheres, et al) a joy to do business with.

Wearing Many Hats.

In my opinion, HL has flourished because of several key initiatives: They have set themselves up as a manufacturer, distributor, and retailer. They are able to create/design, manufacturer, and/or distribute (Crafts, Etc), and deliver to their customers products that are timely and at attractive prices. They have been very strategic in opening new stores that complement their own transportation and distribution strategies. Overall, they have been able to leverage many of the costs associated with doing business." � Bill Kenna, Jr., VP of Domestic Sales, Plaid

Miscellaneous Comments.

1. "All I do know is that [David Green] has very loyal employees. He must treat them well. I also know he has very loyal customers. They shop Hobby Lobby first." � Small manufacturer

2. "Hobby Lobby has consistently shown fast decision-making capability on new lines and is quite often the first to market with these new programs." John Kozub, Janlynn

3. "By working smarter and not harder. By getting the customer who respects his honoring the Sabbath to shop on Saturday; I cannot tell you how many of the people in my church are crafters � seems like 100%, whereas this is not true about people in my neighborhood.

"In life you get what you honor. I believe David honors his religious beliefs strongly. He also does so in his business beliefs. Perhaps this is why we hear rumors that competitors like Michaels are always seeing what Hobby Lobby is doing out there before making their move." � CFO of a major craft company

4. "They keep their buyers, and the buyers keep their word. Plus, they don't borrow money." � President of a mid-size craft company.

5. "Hobby Lobby is a culture seemingly filled with salt-of-the-earth people working real hard, acting with sincere integrity, and delivering their goals." � Major craft manufacturer

6. "We have worked with Hobby Lobby since 1995 and each year they have solid growth. They do straight-forward business, take a chance on something new, and give purchase orders up front to match their capacity. It is ONE of my most enjoyable accounts to work with; the buyer cares, is receptive, and responsive. If you do the same unto them you WIN. Going to one of their stores is also a unique experience � always enjoyable and greatly diversified." � Major craft manufacturer

7. "David is a very private guy, but has time for all his people personally. All I can emphasize is the fact that he is probably the smartest MERCHANT in our industry. He has a knack for finding the product, knowing how to get it made at the best value, and how to bring it forth to the consumer at the best value. With no formal education in marketing, they manage to be a driving force everywhere they locate. � Small craft manufacturer

8. They open new stores regularly, but only if they can use their own trucks to ship goods to them and then back haul with a full truck back! With no high tech systems, they can know what is selling. And I understand he looks at figures himself regularly including pricing. And most of all, they don�t make a HUGE Margin on everything they sell. � Pat DeSantis, Wright's.

Loyal, Decisive.

From a long-time industry consultant:

They do what they say and say what they do. They have build a great business with a lot of long-time, loyal employees who know their jobs and stay with them. While they keep adding people, they really think through matching the people to the job and letting them grow and become experts at what they do.

They can make a decision and do not make you wait for weeks to tell you why they cannot do something. They are consistent and stick to their course. They are great at analyzing a project, making a plan, and then simply executing it.

They are not arrogant, they return calls, and deal with everything much the same way they always have. They are tough buyers but fair, and I think they are that way throughout their business. Most of all, they are pleasant even when they say no. Also, HL is a private company, so they can do what they say and say what they mean. The owners are the owners � long-term players, not just there for a few years.

I guess good people do sometimes finish first.

(Note: For previous columns in the Business-Wise section, click on the titles in the right-hand column. Email your comments, suggestions, complaints about the industry to Mike at mike@clnonline.com.)

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