COMMENTARY: TOO GOOD A DEAL?
A friend called recently to tell me he received a flyer from a
chain advertising 2-oz. bottles of acrylic paint for 24 cents each.
That is the lowest price I've ever seen -- and hope it's the lowest
price I ever see.
I hope history doesn't repeat itself. Years ago, plastic canvas was
a very strong category; then one day, months later, I realized I
hadn't heard much at all about it, so I asked the head buyer for a
major distributor. He said a price war had reduced the price so low
that no one -- retailer, distributor, or manufacturer -- was making
any money on plastic canvas, so they stopped working at it and
switched to other more profitable categories.
Granted, using a popular product as a loss leader is sound strategy,
but I think the relentless price cutting of paint is dangerous.
Another friend once said, "Sometimes I think we give the
consumer a better deal than she asked for."
NEW COLUMNS THIS ISSUE
Business-Wise.
Personal thoughts on the ACCI/HIA unification effort, by a
member of the ACCI/HIA Task Force.
"Vinny
Da Vendor." The sale is just the start of a marriage --
sage advice on how to deal with a chain.
"Benny Da
Buyer." Why Benny may not stop by your booth at the
next show.
Category
Report. Decorative Painting Status Report. (Due to technical
difficulties, this column appeared after the 8/18 issue went
online.)
Kate's
Collage. Do you know the difference between hearing and
listening? Talking and communicating?
Reminder: If you surf to one of the above columns and you see
an "old" column, click on the "Refresh" or
"Reload" button on your browser.
MICHAELS: A RECORD QUARTER
Net income for the second quarter ended Aug. 2 was up 15% to
$24.3 million ($0.35/diluted share). Net income for the first two
quarters rose 38% to $45.1 million ($0.65). The first half of last
year included a $7.4 million charge. Without it, net income would
have risen 13% this year.
Sales for the second quarter increased 7% to $616.5 million. For the
half year they're up 8% to $1.3 billion. Same-store sales were up 1%
for the quarter and 2% year-to-date.
CEO Michael Rouleau is pleased. "The significant investments we
have made in our infrastructure are starting to bear fruit, and they
give us great confidence in our future. Despite the soft economic
environment, we remain optimistic for a solid second half
performance, a strong holiday selling season, and another record
year."
During the conference call with analysts, Rouleau said the
infrastructure improvements are continuing to the point where the
company can now concentrate on improved merchandising. Essentially
it means doing a better job of advertising and maximizing the sales
potential of key items, seasonal, the front of the store, power
panels, endcaps, main aisles, etc.
The top categories are wedding, beads, jewelry, frames, and memory,
Rouleau reported. The first ReCollections store is doing well
so far, and the second is scheduled to open in October. The new
Aaron Brothers stores in Atlanta aren't doing quite as well as
expected. These are the first Aaron stores open so far east; the
others are in the west.
During the quarter, Michaels opened eight Michaels stores, one
Village Crafts store, four Aaron Brothers stores, and one ReCollections
store -- and relocated four Michaels stores. The current store count
is 775 Michaels stores, eight Village Crafts stores, 158
Aaron Brothers stores, one ReCollections store, and one
wholesale operation.
Apparently analysts liked what they heard; the stock rose $5+ the
next day.
KNITTERS, CROCHETERS WORKING TOGETHER
The Crochet Guild of America (CGOA) and The Knitting
Guild Assn. (TKGA) have joined forces to present three FiberArts
Markets in 2004. The first, Apr. 22-25 in Atlanta, will serve as
TKGA's National Convention and the Spring Regional Conference for
CGOA. The second, July 21-25 in Manchester, NH, will be CGOA's
National Convention and the TKGA Northeast Conference. The final
show will be in late October on the West Coast, and will serve as
both organizations' regional conferences.
Each show will feature separate education tracks and banquets, but
CGOA and TKGA will jointly host a trade show, a breakfast fashion
show, and a pajama party.
CGOA and TKGA are both managed by Offinger Management. TKGA has
nearly 10,000 members and CGOA membership count is near 1,300
members worldwide.
For more info, call 740-452-4541, visit www.crochet.org
and www.tkga.org, or email tkga@offinger.com.
This is yet another example of industry-related groups joining
forces or uniting. First TNNA and INRG announced a
joint show for next June, then ACCI and HIA revealed a
task force was working on uniting the two groups.
CRAFTERS & THE MEDIA
According to new surveys conducted by the Hobby Industry Assn.
at its consumer website, www.i-craft.com,
magazines are the most popular idea source for crafters. Among the
results:
Where do you find new craft ideas? Magazines, 61%; Internet, 52%;
Craft stores, 50%; Friends/Family, 44%; and TV, 37% ... 58% of
respondents read craft magazines; of those, 67% read 1-2/month and
23% read 3-5/month ... Magazines are purchased at local craft stores
(48%), grocery stores (43%). or by subscription (42%). The majority
of readers (58%) save their magazines after they have finished
reading them.
Forty-four percent of respondents watch craft-related tv programs,
ranking Carol Duvall, HGTV, and Martha Stewart as the most popular.
Crafters who log onto the Internet are looking for projects (75%) or
craft tips (61%). Most (75%) do not exchange crafting information
via e-mail. Craft web surfers prefer to shop in stores. Only 19% of
respondents shop online.
JO-ANN'S SLIPS INTO THE RED
The company posted a second-quarter net loss of $2.2 million
($0.11/diluted share) compared with a net profit of $2.0 million
($0.10) a year ago -- but that was better then previous
expectations. Net sales rose 1.6% to $359.2 million and same-store
sales increased 2.4%.
The results include a pre-tax charge for stock-based compensation
expenses of $1.4 million as a result of adopting the Statement of
Financial Accounting Standards No. 123, and $0.7 million in costs
associated with Jo-Ann's share reclassification proposal (see
below).
Operating profit for the quarter dropped to $0.7 million from $9.9
million, but includes the $2.1 million in charges highlighted above
and $1.1 million in incremental store pre-opening and closing costs.
Gross margins as a percentage of sales decreased from 48.5% to 48.1%
due to accelerated clearance activity; SG&A expenses as a
percentage of sales rose from 42.4% to 44.2%, but store shrink rates
improved. The company also claimed inflationary increases outpaced
the overall sales growth rate.
Chair/CEOAlan Rosskamm said, "In what is historically our
weakest quarter of the year, promotional and clearance efforts
helped us maintain positive same-store sales results, in spite of
strong same-store sales comparisons in the prior year. Accordingly,
we have significantly reduced the level of clearance merchandise we
will carry into the second half of the year. Despite accelerating
the flow of second-half seasonal goods into our stores, we ended the
quarter with lower inventory than a year ago, both on an absolute
and a comparable store basis. We are well positioned for an exciting
second-half, beginning with our 60th anniversary sale later this
month."
Year-to-date, sales are up 1.1% to $734.0 million and same-store
sales are up 2.5%. Operating profit dropped to $12.3 million from
$30.3 million due in part to $7.6 million in charges list above.
This year Jo-Ann's has opened nine superstores, converted two
traditional stores to the superstore format, opened two larger
traditional stores, and closed 21 stores. For the remainder of the
year, the company expects to open eight stores, seven of which will
be superstores. Two traditional stores will be converted to
superstores, and 20 - 25 traditional stores will close.
Execs continue to expect earnings/diluted share to improve in the
second half of the year and reach $2.00 - $2.10 for the year, and a
10-12% earnings improvement the following year.
As previously reported, Jo-Ann's filed a registration statement with
the SEC to reclassify two classes of common shares into one voting
class. Look for a shareholders meeting in November to vote on the
proposal.
HANCOCK PROFITS INCH HIGHER
For the second quarter ended Aug. 3, net earnings were $1.6
million ($.09/diluted share), compared with $1.5 million ($.08) a
year ago. LIFO negatively impacted earnings by $.01/share. Sales
grew 3.7% to $96.1 million and same-store sales rose 3.8%.
CEO Larry Kirk said, " ... gross margin was also higher than
last year. However, the duplicate costs of operating two
distribution centers for a time, as well as increased insurance and
pension expenses, offset much of the improvement in sales, gross
margin, and other expense categories. Store inventories are at a pre-season peak in preparation for the big fall and holiday periods,
and we believe that we have the necessary breadth and depth of
product for the all-important second half of the year.
"Even with a net decline of 70 stores since we began our store
repositioning process," Kirk added, "overall square
footage has increased almost 5% with the transition to larger,
better-spaced locations.
"As store closings return to a more routine level, we are
looking to accelerate expansion of an improving store model into new
areas and into existing markets that are under-served," Kirk
said. "We continue to be very interested in acquisitions of
multiple spaces as well. At this point in time, we are expecting to
open about 20 new stores in the second half of the year while moving
or closing about 15 locations."
Hancock opened and closed eight stores during the quarter. The store
count is 431.
SAVVYSTITCHER.COM COMES ... AND GOES
Here's a story for you: On the sly, a greedy old wholesaler
starts an e-commerce site to sell supplies direct to consumers
without his retailer customers realizing it. But word spreads among
retailers who rise up in arms complaining and boycotting the
distributor until he's forced to abandon his ill-fated Internet
venture. The independent retailer wins.
Nice story, eh? Too bad it isn't true.
The needlework industry has two prominent Hoffman families. Phyllis
Hoffman is the publisher of Hoffman Media which produces Just
CrossStitch and Sampler & Antique Needlework Quarterly
magazines. Her circulation director, Nathan Looney, and her son,
Eric Hoffman, started SavvyStitcher.com.
Phyllis and Eric Hoffman are related by marriage to Hoffman
Distributing, the industry's largest distributor of cross-stitch
leaflets to independent retailers. Both Hoffman companies are
located in Birmingham, AL.
Looney says Hoffman Distributing and Hoffman Media are separate
businesses, and he and Eric would place orders with Hoffman
Distributing just as any online or brick-and-mortar retailer would.
He claims there were no special discounts or advance notice of new
products and Savvy had to meet the same minimums. They did save on
freight because they would pick up their orders rather than have
them shipped across town.
But some retailers assumed something underhanded was going on.
Despite denials by Nathan and Eric, enough of them complained to
Hoffman Media and boycotted Hoffman Distributing that
SavvyStitcher.com closed its cyber doors.
(Comment: Hoffman Media and Hoffman Distributing have been
successful companies for many years. They didn't succeed by being
stupid, and it's hard to believe they would try to sneak something
past the customers upon whom they depend for their survival.)
IMPORTS -- AND HOMELAND SECURITY
Teters Floral Products, a division of Decorative
Concepts, has been awarded official designation as a certified
member of the Customs-Trade Partnership Against Terrorism (C-TPAT)
organization. This designation followed a rigorous process of
certification involving Teters and its overseas suppliers.
The Customs Bureau program was initially geared to certify sea and
rail carriers bringing goods into the U.S. and has been expanded,
under the umbrella of the Dept. of Homeland Security, to include
importers. To receive certification, companies must prepare an
executive summary of the company's supply chain, security
procedures, and profiles of overseas vendors. It also involves
creating strict security standards for production storage and the
transportation of merchandise by vendors, and completing a memo of
understanding with the Customs Bureau, as well as agreement by
overseas vendors to abide by all security procedures.
Why go to such trouble? Execs believe that as a member of C-TPAT,
Teters' import and transportation of product will move more quickly
and allow the company to better serve its customers through timely
delivery.
EMAIL: HOW PARTNERSHIPS HAVE CHANGED
(Note: The following came from a long-time industry
veteran and former manufacturer.)
When we began our business in 1969, my partner and I worked together
on a unique idea for the craft industry. My partner developed the
manufacturing process and I concentrated on the marketing and sales,
and we never compromised our goal to develop a successful company.
For many years I was selling to entrepreneurs who walked the aisles
of their stores every day and got excited about new products and
customer service. It was a great time to be a participant in a
growing and creative industry. We truly felt a
"partnership" with our customers.
However, nothing lasts forever. Eventually the craft industry was
discovered by corporate America and the engines of big business were
started. As a vendor, we had some serious decisions to make. Should
we sell to the companies that were opening stores across America, or
should we stay with our core base of customers? With the opportunity
to multiply our sales, it didn't take long to decide.
In the beginning all went well. As a matter of fact, these
"giants" in our industry called the vendors
"partners" and passed out awards at special gatherings
that verified their pact. But this was a different type of
partnership because only one side made all the rules and dictated
most of the terms.
Granted, we did not have to accept this relationship, but greed or a
desire to grow demanded that we acquiesce to the "big
boys."
I sold my business in the 90's and the new owner welcomed the
partnerships that we developed. He wanted to double the volume
through acquisitions and additional sales to the mega-stores.
Unfortunately the new owner made a number of errors in judgement and
went bankrupt. He trusted that his number one customer would follow
through on a pending order and not try to knock off his product line
in the Orient. SOME PARTNERSHIP!
Sour grapes? Not from me. I was fortunate to sell my business when I
did. I'm angry that a company I owned for 28 years went bankrupt and
some exceptional employees lost their jobs. I also feel sorry for
today's vendors, who have to endure the buyers who have no loyalty
except to price. Obviously this attitude trickles down from those
who are running an industry solely for the stockholders and their
own personal gain.
Fortunately, I can still remember the days when the craft shop owner
turned out the lights at the end of the day only to turn the key in
the lock the next morning. You could trust that owner because the
relationship was built on honesty. It's too bad that the big-box
retailers have lost sight of that virtue.
(Note: For different views of dealing with today's chain
stores, go to our website at www.clnonline.com and click on "Vinny
Da Vendor" and "Benny Da Buyer.")
RANDOM NOTES, RANDOM THOUGHTS
1. My very best wishes to Betty Rosskamm and Alma
Zimmerman, two of the founders of Jo-Ann's, who have resigned
from the board of directors and were elected to the honorary
position of Director Emeritus. Every small business owner who looks
at Jo-Ann's and other industry giants and thinks, "I could
never be that big," should read the Jo-Ann's history (www.about-joann-stores.joann.com/company/history.php).
Jo-Ann's started out as a tiny cheese shop operated by refugees from
Nazi Germany. Thanks in part to Betty and Alma, it didn't stay that
way. It's a wonderful story of America.
2. I receive an enormous number of new books, way too many
for me to describe each one, but occasionally one or more piques my
interest. A recent example is Easy Painting for Scrapbooking,
by Vicki Schreiner (Grace Publications). It is exactly what
Shea Szachara suggests in her article, "Decorative Painting
Report." To read it, click HERE.
The other is Getting Started in Altered Style (Design
Originals). I've been dubious of the altered book movement. Giving a
customer an old book and supplies and saying, "Go to it; there
are no rules" is great for people with true artistic ability
and self confidence. For example, Lynda Musante and Tracia Williams
(who write CLN's Designing
Perspectives column) love it, but I think the general crafter
and scrapbooker needs more guidance, more structure.
Getting Started seems to do just that and widens the
potential surfaces to much more than a book. It turns the potential
projects into a modern form of collage, and that is more likely to
appeal to consumers who don't have the talent and self confidence of
Lynda and Tracia.
MISCELLANEOUS NEWS
DELTA. Named Tiffany Windsor Dir. of Consumer Inspiration.
Tiffany is daughter of Aleene's founder, Aleene Jackson, and is the
former producer and host of Aleene's Creative Living tv
series, editor of Aleene's Creative Living magazine. Her
focus will be to "develop and deliver innovative, inspired, and
contemporary consumer and retailer programs, officials said.
AUGUST SALES. Back-to-school sales seem to be brisk. Two-thirds of the retail ceos surveyed by the Bank Tokyo-Mitsubishi
expect sales to improve, but pricing is a problem. A third reported
they had resorted to "considerable discounting," while
another third are doing "moderate discounting," reported Chain
Store Age.
WAL-MART. Will require all suppliers to put RFID tags
carrying Electronic Product Codes on pallets and cases by the end of
2006, reported RFID Journal. (These are radio frequency
tags.) As reported previously in CLN, RFID tags will
eventually replace UPC codes, and supposedly will speed up
distribution systems. The tags cost about a dime each, but when the
price falls below a penny, every product will carry one and won't
have to be scanned at the check-out counter. The expectation is,
once Wal-Mart requires them, other retailers will, too.
HIA. Will be surveying its 4,900+ members this month on a
variety of issues ... Exhibit and hotel space for the Dallas show in
February are going fast! Visit www.hiashow.com
or call 201-794-1133 ASAP. The show is Feb. 5-8, with education
starting on the 4th.
KNITTING. The Editor-in-Chief of Woman's Day magazine
devoted her column in the 9/16 issue to the pleasures of knitting.
Jane Chesnutt wrote, "I'll say that I've found knitting just
about the most relaxing activity out there. As for going into a
beautiful yarn shop after a hard day at work -- well, that's close
to nirvana." Chesnutt, who thanks Mary Colucci of the Craft
Council of America for teaching her to knit, devoted a
three-page feature article to knitting.
PEOPLE. Susan Faherty has joined Wright's as VP of
Sales -- National Accounts. She previously worked for Marian
as Director of Sales/Craft Division, and prior to that with Springs
Industries as National Account Sales Manager ... Judy Merriman
rejoined Wright's as VP of Marketing -- Trimmings. She previously
worked for Novtex as VP of Retail Sales/Marketing and prior
to that was VP of Sales -- National Accounts with Wright's.
MICHAELS. Standard & Poor's raised its credit rating for
Michaels to BB+ from BB, due to better operating
performance and cash flow, Reuters reported.
ACQUISITION. The Buffalo Batt division of Leggett
& Platt acquired the consumer (Mountain Mist)
division from Stearns Technical Textiles. Bill Neal, Linda
Pumphrey, and Vickie Paullus will continue working on the Mountain
Mist line. The brand name for Buffalo Batt's products is Super
Fluff. Stearns will continue to manufacture and ship Mountain
Mist products for now, but those functions will eventually move
to L&P locations. Mountain Mist customers should call
800-345-7150, fax 513-948-5281, or email vickie.paullus@stearnstextiles.com.
MEMORIES. Sandra Joseph resigned as National Director for Memories
Community and its Memories Expo shows. She has become
President of Reminders of Faith, which plans to take
scrapbooking to the Christian market. Alana Brown was named the
group's new National Director, and Mary Ann Manbevers was promoted
to Associate Event Manager.
SHOWS. New enhancements for 2004 Memories Expo shows
include expanded hours, a celebrity reception, more classes outside
of show hours, more demos and make-it/take-its, private wholesale-only shopping hours, and a "Wholesale-To-Go"
program for retailers and distributors buying in bulk. Visit www.memoriesexpo.com
or call 740-452-4541 for 2004 dates and info.
AWARDS. Friday is the last day to submit nominations for the
various HIA awards. Contact Howard Hoffman, the Chair of the
Award Committee, at hhoffman@tonerplastics.com.
TV. The reach of the PBS series, Scrapbook Memories,
has grown 15% since the ACCI show, reaching 71 million
households in 163+ markets, including 8 of the top 10. It's also in
the top five of how-to programs on PBS. There is still room for
sponsors for the next series which begins taping Nov. 13-18 and
uplinks to stations in January. Call Kathie Stull at 440-349-3977.
PAINTING. To promote their decorative painting books,
Jennifer Ferguson and Judith Skinner dropped by The Tonight Show
with Jay Leno and presented Leno with two chairs from their
debut book, Painted Chairs. Painted Whimsies was their
second book and their third, Trashformations, will be
published in December. All three are published by Martingale.
SHOWS. The Home Sewing Assn. is expecting 150+
exhibitors and 1,200+ attendees for the National Sewing Show
in Las Vegas, Sept. 23-25. Call 212-714-1633, email sewing@sewing.org,
or visit www.sewing.org.
KNITTING. Knit-Out & Crochet events will be held
across the country starting this month. Visit http://www.knit-out.com
for the schedule.
BLACKOUT. It did not hurt retailers as much as it might have.
Wal-Mart, with almost 200 stores affected, reported,
"from a business standpoint, neither sales nor profits will be
materially impacted by the blackout." But in a conference call
with analysts (see Michaels story, above) Michaels execs
estimated the company lost $400,000 in sales due to the blackout.
NLM. Next Level Marketing has closed. NLM supplied solid
marketing services for its clients, but the tough economic climate
forced this decision. John Lowenthal and Russ Gropman will be
missed.
PEOPLE. Industry veteran Duane Parker was named Director of
Sales for Walnut Hollow ... Tracey Travis, Sr. VP, Finance
for Limited Brands, Inc., was elected to the Jo-Ann's board
of directors.
BUSINESS PROFILE
Note: To learn more about how your company can be profiled
in CLN, call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.
To read other profiles, click "Business Profile Archives"
in the right-hand column. Profiles remain in the Archives for one
year; each time a profiled company is mentioned in a subsequent
issue, it will be linked to the profile.
THE CREATIVE NETWORK: JOB
OPENINGS
To see a sampling of the current job openings and to
contact The Creative Network, click on the "Jobs" button
in the left hand column.
THE CLN RETAIL INDEX
A. C. Moore (ACMR).
Last*: 26.79 ... Change**: +2.45
Hancock Fabrics (HKF). Last*: 17.02 ... Change**: -1.30
Jo-Ann Stores (JAS.A) [a]. Last*: 30.20 ... Change**: +2.60
Michaels (MIK). Last*: 45.45 ... Change**: +8.30
Rag Shops (RAGS). Last*: 4.46 ... Change**: +0.10
Wal-Mart (WMT). Last*: 59.17 ... Change**: +0.77
CLN Retail Index. Last*: 100.50 ... Change**: +8.2%
Dow Jones Index. Last*: 9,415.82 ... Change**: +1.0%
*Aug. 29 ** from Aug. 15 [a] voting share Prices are exclusive of
dividends
WHAT GENDER ARE THEY?
(Note: Making the rounds
on the Internet. This, not surprisingly, was emailed from a woman.)
ZIPLOC BAGS: Male. They hold everything in, but you can see right
through them.
SHOE: Male. It's usually unpolished, with its tongue hanging out.
TIRE: Male. It goes bald and often is over-inflated.
HOT AIR BALLOON: Male. To get it to go anywhere you have to light a
fire under it ... and, of course, there's the hot air part.
SUBWAY: Male. It uses the same old lines to pick people up.
HOURGLASS: Female. Over time, the weight shifts to the bottom.
HAMMER: Male. Hasn't evolved much in 5,000 years, but is handy to
have around.
REMOTE CONTROL: Female! It gives men pleasure, they'd be lost
without it, and while they don't always know the right buttons to
push, they keep trying.
REMINDERS
1. For more information on
how your business can be the subject of a "Business
Profile" or have products/photos included in the "CLN's
Online Product Preview, call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.
2. Paid subscribers are invited to have their website
evaluated by Lynn Carlisle of Carlisle Communications. She'll
check the site and provide a confidential assessment and suggestions
for improvement. Just email mike@clnonline.com
or ljc@carlislecommunications.com.
3. If you want a hard-copy of this issue, click on
"Printer Friendly version".
4. If your company is a paid subscriber, everyone in the main
office is welcome to register, free. Just click on "Current
Subscribers Click Here To Register."
5. If you want to recommend CLN to a friend, use the
"Tell Your Friends" box on the home page.
6. Creative Leisure News is published on the first and
third Mondays of each month. Your next issue will be Monday,
September 15.
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