Date: August 1, 2005
Vol. IX, No. 15

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TABLE OF CONTENTS

COMMENTARY: Thank You  

This recent CHA Summer Show was the 30^th annual and last show managed by Offinger Management Co. Walt Offinger was instrumental in helping the fledgling Midwest Craft & Hobby Assn. get off the ground and eventually evolve into the Assn. of Crafts & Creative Industries. Now that ACCI has merged with HIA and formed the Craft & Hobby Assn., the CHA staff will take over what has become the CHA Summer Show.

Offinger Management is not riding off into the sunset – far from it. The company still manages TNNA, SCD, and numerous other industry affiliated groups. But to Walt and Sam Offinger and Marrijane Jones and her staff: A big, big thank you.

No doubt there will be some changes in next year's Summer Show (July 21 – 23). I don't know what they are yet, but speaking as a member of the CHA board, I can tell you the board is committed to making it a great show and has the resources to make it a must-attend event.

"Vinny Da Vendor". A manufacturer asks why independents continue to support vendors who engage in product dumping and other practices that hurt independents.

Business-Wise. Barbara walks through our industry's stores for 25 years and nothing really tempts her, until now. A first-hand view of a hesitant consumer becoming a hardcore enthusiast.

New Trade Show Exhibitors. Last call for checking out the new exhibitors at the recent CHA summer show.

Note. If it appears to be an "old" column, click the "Refresh" or "Reload" button of your browser.

Buyers: What did you think of the products, displays, and workshops? The business seminars? Exhibitors: How would you rate the buyers' responses to your efforts? To vote, click on Industry Polls in the right-hand column, or click HERE.

The war in Iraq may be making headlines, but it's not the most serious challenge facing the U.S., according to respondents in CLN's latest (unscientific) poll. The U.S. economy, health care, and the war on terrorism tied at 23.7% as the country's most serious problems. The war in Iraq was next at 18.4%. "Other" was next at 5.3%, and Global warming/environment and Social Security tied at 2.6%.

Variety Distributors, a full-line merchandise distributor in Harlan, IA and serving 800+ independent retailers, has agreed to purchase Rust Wholesale in Greensburg, IN. This acquisition will increase Variety's customer base by 40%, officials said..

"Variety Distributors currently dominates the Midwest, and this acquisition gives us similar domination capabilities east of the Mississippi," said Variety's GM Donald Lantz.

"The Rust family has built a very reputable and community-minded business over the past 68 years and we want to continue this same philosophy" Lantz said. "Rust had the same business philosophy as we did, and the synergies created by this acquisition will be amazing. We expect our revenues to nearly double, allowing us to lower our overall cost of operation."

Variety execs plan to increase the merchandise offerings at their newly leased 90,000 sq.- ft. warehouse in Indiana within the first year. "The southeast and east is now within our reach and has huge growth potential," Lantz added.

A few years ago Variety bought Mangelsen's, one of the industry's first and largest distributors/importers.

The founder of Michaels and one of the most famous names in craft retailing is back as VP of Retail Operations for International Galleries Inc., an company selling fine art. (Visit www.igi-art.com.) The website says "IGI has procured the exclusive rights to selected works of numerous up and coming artists whose subjects reflect the classic themes; still-life, landscapes, interiors, wildlife, abstract, religious, portraiture, etc. The wide range of mediums utilized from pencil, charcoal, acrylics, watercolors, oils, pastels, [etc.], further differentiates diverse artistic styles, techniques and interpretations."

Mike started in business in 1967 as the manager of a Texas Ben Franklin store that was situated between Montgomery Ward and Woolco. Mike soon realized he couldn't compete selling the traditional variety store inventory. Slowly he added crafts. That was the beginning of the craft superstore that is so prevalent in our industry today and for which Mike was honored by what is now the Craft & Hobby Assn. It eventually became Michaels and later Mike founded MJ Designs which eventually went bankrupt due in part to over expansion. (Comment: Mike was widely considered the most innovative merchant and trend-spotter in the industry.)

For the second quarter ended June 30, there was a net loss of $50,000 ($0.00) compared with income of $335,000 ($0.02/fully diluted share) a year ago. As CLN reported earlier, sales rose 12.1% to $113.5 million, but same-store sales grew only 0.5%.

Sales for first two quarters grew 11.1% to $236.4 million, but same-store sales declined 0.6%. Net income for the first half of 2005 was $1.20 million ($0.06) compared to last year's net income of $1.56 million ($0.08).

CEO Jack Parker stated, "The second quarter was one of significant change and accomplishment as we re-merchandised the majority of our basic departments. During this period of activity, we were not satisfied with our sales results but we believe that we are well positioned to capitalize on business in the critical back half of the year. We are maintaining our earnings forecast for the year in the range of $1.00 - $1.03 per fully diluted share."

The store count is up to 99.

China revalued its yuan by about 2.1%, which means Chinese-made goods will be slightly more expensive in the U.S. and U.S.- made will be slightly less expensive in China. "This is a very positive development. It clearly puts China on the right path," Treasury Secretary John Snow told the Associated Press, and Federal Reserve Chairman Alan Greenspan said it was a "good start."

Some economists have said the yuan is under-valued by as much as 40%. The current U.S. trade deficit with China is $162 billion trade deficit with China. Sen. Charles Schumer (D-NY) had introduced legislation that would impose an across-the-board tariff of 27.5% on Chinese goods. "China has put the key in the ignition but now they have to step on the gas," Schumer said, and promised to ask for a vote in October if the yuan doesn't rise further.

The move should have no immediate effect on our industry and very little effect in the near future. But just in case, one major industry importer is scouring Southeast Asia for other suppliers, and news reports Wal-Mart is increasing its orders from countries such as India.

Shortly after the CHA Summer Show, CLN received irate emails from well established independent craft retailers. They accused a well known vendor of telling independents the product wasn't available for a demonstration – then demonstrating the product to the chain stores in a private area of the booth.

We edited the emails to protect the identities of the retailers, sent the results to the president of the company, and asked for his comment. Essentially he denied showing any preference to the chain stores.

The retailers were not satisfied. "Unfortunately, we have many issues with the company," one independent wrote, "and this was the icing on the cake. We have made up our mind, no more business with them except on completely proprietary products that we cannot live without. The company is such a pain in the ass to do business with that we will jump to any knock off item in a heartbeat as soon as one is available – and we do not normally take that position on anything."

"We don't expect to be treated differently," another independent told CLN. "It would be nice to be treated the same!"

(Comment: CLN is not in the business of passing judgment and labeling someone a good guy or a bad guy, but clearly this is a warning to all vendors. If a customer perceives that he is not being treated equally, you will lose that customer. And the only way retailers can respond is by withdrawing their purchase orders.)

The U.S. House of Representatives narrowly passed the Central America Free Trade Agreement last week and sent it to President Bush for his signature. CAFTA eventually eliminates tariffs and other trade barriers between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republican..

"CAFTA helps ensure that free trade is fair trade," President said in a statement following the vote. "By lowering trade barriers to American goods in Central American markets to a level now enjoyed by their goods in the U.S., this agreement will level the playing field and help American workers, farmers and small businesses."

"We've given away textiles.... We've given away fruits and vegetables," Democratic Rep Charlie Melancon told the Associated Press. "Now let's just go ahead and give away everything and be dependent on every other country for our food and our defense."

The treaty should have little immediate effect on our industry, but it may eventually improve the farm economy in the Midwest and may offer manufacturers wishing to out-source a closer-to-home option than the Orient.

Everyone in the industry has anecdotal stories of how crafts, scrapbooking knitting, beading needlework, and painting are good for consumers. Now the medical profession is weighing in on the subject. In the 9/1 issue of Woman's Day, the article, "The Pleasure Principle," cites a Dr. Lang, chair of department of psychiatry at St. Louis University.

Dr. Lang tells Women's Day that "it's the day-in, day-out pleasurable events that are more important to our health." Dr. Lang recommends gardening or crafts. "They are satisfying because they're tactile and visual, engaging the hands while freeing the mind. This allows a more meditative state to surface."

The article also includes: "Even scrapbooking may be therapeutic, at least in Alzheimer's patients. Photo albums are used in reminiscence therapy, to help stimulate memory."

While at CHA in Atlanta early this year, I happened to have a chance to sit in with a scrapbook store owner while she purchased from a particular vendor. The vendor happened to ask the owner how the old line was moving. The owner replied that certain items were having very slow sales and she was apprehensive about placing a big order when she still had a sizable inventory. The vendor immediately responded with an offer of credit on the old line, so that she could clearance it out without taking a big loss. He also offered her samples and other marketing tools that would help attract customers to the product to move it out of the store. She then seemed to feel more comfortable about placing a larger order. I saw this as a terrific example of a win-win situation for both the vendor and the owner. – Name Withheld

A new generation of consumers appears to be taking "do it yourself" to a new level. The industry's traditional customers wanted step-by-step instructions and gauged the success of their projects by how closely they replicated the model. This new change partially accounts for the popularity of one-of-a-kind scrapbooks and jewelry. Even knitting enables the consumer to choose the color and type of yarn.

The younger generation is into personalizing – even their own bodies with tattoos and (gulp) piercings. Meanwhile embellishing, which is a form of personalizing, is spreading throughout every industry category. So perhaps it's time to change the industry's jargon, suggested the folks at Duncan, makers of Tulip and Aleene's brand products.

Instead of Wearable Art, the traditional term for fabric painting, clothing embellishments, and jewelry-making, Valerie Marderosian, Duncan's VP of Marketing and New Product Development, suggests we adopt the term, Fashion Art.

"Fashion Art encompasses art for apparel, but takes it a step further," said Valerie Marderosian, VP of Marketing and New Product Development. "It's all about self-expression; it's all about personalization; it's about making a statement – who you are, what you love, what you feel – in what you wear and in your home."

(Note: The following is from noted designer-author-consultant Marie Browning of Marie Browning Creates.)

I have a little problem with the "smiling bunny" references in the last few newsletters that people have been referring to. Here's my rant:

It seems "smiling bunny" crafts is becoming the new industry term for "not cool", or tacky crafts. Yes we are starting to introduce crafting to a new generation, but the cute "smiling bunnies" still are valuable and we need to honor that. In fact, I have a friend who has just been licensed and sold her "smiling bunny" into a huge new fabric line. It's cute and whimsical, not sappy, and very, very marketable. This bunny's message is soft and lovable. It has the "aw, cute" factor that's so important in product design.

All crafted items are someone's creative expression, and as an industry we must value that. It's the "cute bunnies" that help build this industry to what we enjoy today. The folks that still make "cute" crafts are expressing their creativity and should be embraced and encouraged.

We as an industry provide the sparks for others to ignite and build their own bonfires, not to pour water and drown creativity. Let's celebrate and honor everything creative, especially the "smiling bunnies."

As Pablo Picasso, said, "Ah, good taste! What a dreadful thing! Taste is the enemy of creativeness!"

(Note: Marie is an excellent designer. See her work at www.mariebrowning.com. To comment on design issues, email CLN at mike@clnonline.com.)

1. Rave reviews about the vendor seminar, "How To Sell To The Chains," at the CHA Summer Show. The speakers presented a blunt, honest view of the process. To download the materials, visit www.craftandhobby.org/eduevents_workshop.html.

2. Disappointing reports on the Dallas and Atlanta gift shows. One vendor thought stores may be buying closer to the season, and wondered if high gas prices have started to affect retail.

3. The craft home party operation, Purple Tree, created a quite a buzz at the CHA Summer Show. If Purple Tree can do for other categories what Creative Memories did for scrapbooking, it will be a tremendous boost to the industry. Visit www.purpletree.com.

4. A well known vendor commenting that some chains include in their "partnership" programs requests/demands for new-store/relocation discounts, rebate and co-op ad programs, guaranteed sales, etc., etc.; yet some chains do not. The vendor's question: "How artificially high must vendors set their original prices for the chains wanting freebies so that after all the discounts the vendors are still in business?"

1. I recently made a presentation to groups of buyers and offered as food for thought the sad story of plastic canvas: Once upon a time, plastic canvas was HUGE. It had four consumer magazines devoted to it and ASN Publishing, a major needlework publisher at the time, reported a plastic canvas book was its #1 best seller; this was at the height of the cross stitch boom.

It was a a wonderful way to introduce needlework to kids and perfect for the elderly whose hands and eyesight weren't up to the minute requirements of other needlearts.

What happened? Retailers and vendors got greedy. Both groups assumed they'd increase their market share if they lowered their prices. The price war drove margins so low that eventually no one was making any money. When that happens, the industry turns its attention to other, more profitable categories. Creativity stops. Then consumer interest stops.

Incidentally, this is not a tale of mean, greedy chain stores ruining a category. Chains were not a major factor in the industry in those days.

Why am I telling this 20-year-old story? Because it could easily happen again. Today the industry has a good thing going in certain categories. Let's not let greed ruin them, too.

2. In the Editor's column of CNA magazine's August issue, Karen Ancona has an interview/profile of my wife, Barbara. They're old friends and Karen was intrigued when I told her Barbara had finally become hooked on a craft. So she interviewed Barbara; meanwhile the current Business-Wise column has my memories of Barbara's 25-year sojourn through our industry before finally finding a category she found stimulating and rewarding.

3. If you're only been in the industry for a couple of years, you may wonder why I gave prominent coverage to Mike Dupey. CLN is a newsletter not a book, so I won't go into all of the details. But trust me: this industry wouldn't be near what it is today if not for Mike.

GROUPS. Pam Riddell of The Riddell Group launched Maps 2 Memories, a very creative, innovative operation designed to help and support independent scrapbook stores. For info on stores joining and vendors advertising, visit www.maps2memories.com. Pam is also organizing another meeting for all Kentucky and Tennessee retailers to help them join forces, compare notes, work together. (Retailers in other states should consider similar meetings.)

ENGLAND. The London Times recently published an extensive report on the growth of scrapbooking in Great Britain. The country now has four scrapbook magazines, the Times reported, and a fifth may be in the works. Websites mentioned were www.scrapaholics.co.uk and www.ukscrappers.com. From the article: "Another enthusiast, 35-year-old Sarah, says: 'During the first year I got into it, I spent more than £5,000 buying stash. It should come with a Government health warning.' Lynne Embery, 52, adds: 'And a wealth warning.'"

WEB. CLN went to Google and typed in Scrapbooking. There were 2.27 million entries.

PHOTOS. A recent Two Peas thread described how a scrapper took a photo of her son to Wal-Mart and ordered copies. The clerk refused the order, saying the photo was "too good" and therefore must have been taken by a professional, which would be a violation of the pro's copyright. This is not unique to Wal-Mart, and some copy stores refuse to make copies of a copyrighted article for the same reason. It becomes tricky, however, because the available photo software allows scrappers to touch up photos to the point where they look professional.

INTERNET. To read an interesting site that tests – and questions just how acid-free some acid-free supplies are – visit www.scrapbookcritic.com.

QUOTATION. "Do you know how many 'patriotic' scrapbook layouts I have seen in magazines that were created using products made (only because it's cheaper there) in China?" – Scrapbook Manufacturer

DIGITAL. SBC, the phone/Internet company, sent an email to its customers encouraging them to do all of their scrapbooking online. To see what the company is suggesting to thousands of customers, visit www.sbcup2speed.com/lp/46_jul2005/w/ITK0705W1.html.

CLEARANCE. Your Scrapbook Clearance Center opened a fourth location. They're in Destin, FL; Kennesaw, GA; Pigeon Forge, TN; and now Buford, GA – across from Michaels.

PRODUCTS. Destination Scrapbook Designs has introduced a hilarious new sticker line, Scratch That Niche. The company has also partnered with Collage Press on a coordinated Doubletake two-sided cardstock and AlphaSets stickers. visit www.destinationstickers.com.

BEADS. The Chicago Tribune published a major feature on the growing popularity of beads; the article cites CHA as saying it's the fastest growing category in the industry, and when CHA asks consumers what they are going to do next, they say beading. (However, CLN checked, and the reporter mistakenly attributed to CHA a more recent study conducted by Craftrends.) ... Another consumer bead magazine has emerged; the bi-monthly Simply Beads was launched in January and features a column, "Ask Katie," by bead pro Katie Hacker. Dynamic Resource Group is the publisher. Visit www.simplybeadsmagazine.com.

KIDS. Various kits offered by Made By Hands won awards from Creative Child magazine and Dr. Toy. Make-Your-Own Scrapbooks won the magazine's Toy of the Year award. Other award winners were Make It-Take It Friendship Cards, Make It-Take It Scrapbook Cards, and Make Your Own Postcards. Visit www.made-by-hands.com.

CROCHET. It continues to grow. Dynamic Resource Group created two new project books, A Passion for Pineapples and Flower Garden Pineapple Doilies. Each has a variety of patterns in the popular pineapple design. Visit www.anniesattic.com and www.drgnetwork.com.

NEEDLEWORK. Dimensions introduced a line of needlepoint projects designed by Erica Wilson, one of the industry's most famous designers. The kits are for specialty shops only. Visit www.dimensions-crafts.com ... DMC doubled the colors in its linen embroidery floss line to 24. The colors match the numbering system of its cotton floss line. There's a new thread/yarn cutter, scissor case, needle case, and embroidery scissor, too. Visit www.dmc-usa.com.

PAINTING. Coca Cola has launched a new drink, Coke Zero, and CLN hears the company will use a picture of painter Bob Ross to help promote it. Apparently nobody presents the image of "chill out" as much as Bob.

HOBBIES. The Hobby Manufacturers Assn. announced that the 21st annual Hobby Expo, to be held in Los Angeles Oct. 20-23, has reached the 600 booth mark with 255 exhibitors. The 2004 Expo had 212 exhibitors in 527 booths. There will be at least 125 new exhibitors. Online registration for is available at www.ihobbyexpo.com. Dealers can also fax registrations to 973-838-7124. Expo attendees from the past three shows do not have to be re-qualified to attend.

SALE. Janlynn is having its annual Tent Sale where it sells discounted excess merchandise to the local community from a tent on the Janlynn property in Chicopee, MA. (Comment: It's an excellent way to clear out excess merchandise without competing with your customers, and endears the company to the local citizens.)

STORES. A new study by the consultancy/research firm Retail Forward claims Wal-Mart is the "stickiest" store in the U.S. It's measured this way: The "stickier" the store, the more often customers return.

LEGAL. Some New England craft artists are claiming their works have been copied in China and are being sold cheaply in nearby stores. They've filed suit against the Christmas Tree Shops, a New England houseware chain, reports National Public Radio ... The New York Times reported that the number of art majors in Chinese schools is soaring because of the jobs available to "turn out tens of thousands of assembly-line paintings, particularly copies of famous Western works...." The Times says Pier 1 and Bed Bath & Beyond are importing Chinese copies, but Wal-Mart is not; the discounter is afraid of copyright issues.

WAL-MART. Is suing former Vice Chair Tom Coughlin to void his multimillion-dollar retirement package, the Associated Press reported. The suit claims that between Feb. 1, 2003, and Jan. 31, 2005, Coughlin received a base salary of $2+ million, plus bonuses, equity awards, and other benefits that added another $12.1 million; yet the suit also claims Coughlin spent company money on watches, Bloody Mary mix, headphones, sunflower seeds, underwear, a karaoke machine, snake boots, an XM satellite radio, truck accessories, and airplane tickets. Coughlin denies the charges, and a federal grand jury is investigating.

PEOPLE. Caron named Ed Hamrick as Director of Marketing for all Caron and Bond-America products. Ed is a 32-year veteran of Caron and the parent company, National Spinning.

TV. E.W. Scripps' second-quarter earnings surpassed Wall Street's expectations, thanks in large part to a strong showing from its cable networks, which include HGTV and the DIY Network – probably a sign that those networks' craft and home dec shows are successful ... Pattie Donham, has a bi-weekly segment on the Tulsa CBS morning news channel. Pattie is also the host of Craft Studios on PBS.

SCHOOL. A survey by the National Retail Federation concluded that back-to-school spending will decline this year – $13.39 billion from $14.79 billion – but most of the decline will be in the electronics category. Apparently most students already have computers, CD players, etc.

To see the a partial listing of the jobs currently available through the only personnel recruitment firm specializing in our industry, click on Jobs in the left-hand column, or click HERE.

A. C. Moore (ACMR). Last*: 28.73 ... Change**: +1.49
Hancock Fabrics (HKF). Last*: 6.90 ... Change**: +0.19
Jo-Ann Stores (JAS). Last*: 27.52 ... Change**: +0.52
Michaels (MIK). Last*: 41.00 ... Change**: +1.30
Wal-Mart (WMT). Last*: 49.35 ... Change**: -0.64
CLN Retail Index. Last*: 153.50 ... Change**: +1.9%
Dow Jones Index. Last*: 10,640.92 ... Change**: +0.6%

This late-breaking news was emailed to CLN by a subscriber:

A major research institution has recently announced the discovery of the heaviest element yet known to science. The new element has been named Governmentium. Governmentium has one neutron, 12 assistant neutrons, 75 deputy neutrons, and 224 assistant deputy neutrons, giving it an atomic mass of 312.

These 312 particles are held together by forces called morons, which are surrounded by vast quantities of particles called peons. Since Governmentium has no electrons, it is inert. However, it can be detected, because it impedes every reaction with which it comes into contact.

A minute amount of Governmentium causes one reaction to take over four days to complete, when it would normally take less than a second. Governmentium has a normal half-life of four years; it does not decay, but instead undergoes a reorganization in which a portion of the assistant neutrons and deputy neutrons exchange places.

In fact, Governmentium's mass will actually increase over time, since each reorganization will cause more morons to become neutrons, forming isodopes. This characteristic of moron promotion leads some scientists to believe that Governmentium is formed whenever morons reach a certain quantity in concentration.

This hypothetical quantity is referred to as "Critical Morass." When catalyzed with money, Governmentium becomes Administratium -- an element which radiates just as much energy as the Governmentium since it has half as many peons but twice as many morons.

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xxx

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