Creative Leisure News - Business-Wise

Mike's often irreverent, thought-provoking analysis of the industry-- with an occasional guest columnist.

A Letter from America

The state of the craft industry in the U.S.

by Mike Hartnett (November 3, 2008)

(Note: Great Britain's trade magazine, Craft Business, asked CLN to write on the state of the U.S. Craft industry.)

Greetings from the other side of the pond! As I write this from my home office in Central Illinois in late October, the U.S. is shell-shocked by the economic earthquake. No one is sure how the bail-out will work, or if it will work at all. We keep waiting for the economic dust to settle to see what the industry landscape looks like, but the earth keeps moving.

What is clear is that the consumer is frightened. Housing prices have plummeted and food prices have risen. Access to credit is difficult, and everyone's retirement investments are dismal. The end result: consumers are cutting spending at the most critical time of the year for retailers.

The U.S. craft industry had already been suffering from an unsettled year for two reasons:

1. Price increases for raw materials due to rising oil prices hit the industry during the first half of the year. One major U.S. vendor received a 20% increase, and then was slapped with another 25% increase three months later. Oil prices have since dropped, but not the price of many raw materials.

2. Scrapbooking, the strongest, longest-lasting trend in the industry's history, appears to be fading, although still quite strong. I say "appears" because many independent retailers have shut their doors. Unfortunately, many consumers opened scrapbook shops without the necessary retail expertise or capital. When business slows down, they go out of business, hurting the many small vendors who relied on them for their livelihood. When scrapbook businesses close, that gives the impression the category is fading. However, it could be that the business is simply moving to the remaining retailers. The savvy survivors are expanding into cardmaking and other memory-related products.

The U.S. craft industry has traditionally done well during tough economic times, but usually a recession coincided with a hot trend. There was a bad recession during the early 1980's, but consumers had recently discovered counted cross stitch and somehow found the money to give the industry a huge boost.

This time, there is no trend that is that enticing to many consumers.

Signs of hope.

Sounds pretty grim, doesn't it? But it appears that consumers are doing what trend analyst Faith Popcorn once called "cocooning," spending much more time at home. They need something to do with their increased at-home leisure time, and crafts is the perfect solution.

Furthermore, craft stores offer the perfect answer to the dilemma of buying Christmas cards and gifts. If ever there was a time craft stores should be showing consumers how to save money by making Christmas cards and gifts, it's now.

Another trend: Wal-Mart appears to be easing itself out of our industry, which should be a huge boost to craft chains and independents. (Wal-Mart has 4,000-plus stores in the U.S. alone and employs more people than the U.S. has in its armed forces.) Wal-Mart has already eliminated needlework, and as it remodels its stores, it's eliminating fabric and condensing the craft department in favor of an expanded electronics section. (It separated scrapbooking/card making from crafts and combined it with party goods, adjacent to the greeting card section.)

The Jo-Ann chain has already benefitted from Wal-Mart change and thus far has had the best results of the U.S. chain stores. The results from the other chains are mixed, at best.

Hancock Fabrics has emerged from bankruptcy � the only retail chain to do so since the U.S. Congress tightened bankruptcy laws a few years ago.

Hancock should benefit from Wal-Mart's withdrawal from fabric, as should Hobby Lobby. (Hobby Lobby is privately held and does not disclose its sales and earnings, but founder David Green, who started Hobby Lobby with one shop in the 1970's, was named by Forbes magazine as one of the richest men in the U.S., with a net worth of $1.7 billion.)

The new management at A.C. Moore, a chain with 100 or so stores in the Northeast, is struggling to implement new inventory-control systems, just as Michaels did in the 1990's. The result thus far has been uneven.

Michaels' situation is more complicated. The company with 1,000-plus stores was sold to two private equity firms, Bain Capital and The Blackstone Group, which borrowed $4 billion and now expects Michaels to service the debt. (Retailing is hard enough without that burden!)

(Note: The article had a limit of 800 words. Obviously there was much more that could be written. Anything you'd like to add to this summary? Email your thoughts to CLN at mike@clnonline.com.)

xxx