Date: July 17, 2006
Vol. X, No. 14

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TABLE OF CONTENTS

COMMENTARY: So Many Issues, So Little Time 

My goal is to make CLN food for your business brain. Here's what's on the menu for this issue: Where will the new prospective owners of Michaels take the company? How will the industry adapt to, and profit from, the growing world of digital scrapbooking? The new, younger consumer – how to we cater to her? All of these questions are served up in this issue. What's presented below is not meant to be definitive answers, but rather as food for thought.

Read the issue and then join the discussion by emailing me at mike@clnonline.com or grab me as I roam the aisles at the CHA Summer Show. I've been reporting on this industry for 27 years and everyone I've met had something interesting to say.

Benny Da Buyer. Of all the stores CLN has heard about, Spark Craft Studios in suburban Boston comes closest to catering to the new consumer. Read co-owner Jan Stephenson's take on the young, urban crafter and Jan's strategies for attracting her.

Business-Wise. CLN asked, how many of these new consumers are there? Readers respond: "They're already here."

Kate's Collage. A scrapbook designer explains why she thinks digital scrapbooking will never overtake paper.

Still online: Memory, Paper, & Stamps contains a multitude of readers' thoughts on the future of scrapbooking – digital vs. hard-copy.

Assuming the sale goes through, Michaels will no longer be a public company. Removing the burden of having to please stockholders should help the company avoid short-term decisions that don't necessarily help the company long term. On the other hand, pressure by the new owners to receive a return on their investment may force Michaels into some poor decisions.

So, do you think the sale will make Michaels a stronger, better company, or ultimately a weaker retailer? Click on Industry Polls in the right-hand column to cast your vote, or click HERE.

As the Middle East boils over, gas prices are rising again, but they have already strongly affected sales, according to CLN's unscientific poll. Almost one-third, 31.8%, said rising prices have significantly hurt sales, while 50% reported sales were somewhat hurt. Only 13.6% said their sales were not hurt, and 4.6% were not sure.

The results were not completely unexpected, for some; but 26.3% said the effect was much worse than expected, while 31.6% said it was somewhat worse. Slightly more than a fourth, 26.3%, thought the effect as was expected, and 15.8% said thus far it wasn't as bad as they had feared.

The Jo-Ann's board named Darrell Webb, 48, as Chair/President/CEO effective July 24. For the past four years, Webb was President of Fred Meyer, the 128-store supercenter division of Kroger. After Kroger acquired Fred Meyer in 1999, he served as Group VP for Procurement, with the task of unlocking purchase synergies across all Kroger divisions. He then became President of the Quality Food Center division before returning to Fred Meyer in 2002.

According to a filing with the Securities and Exchange Commission, Webb's first-year salary/bonus package will be $1.5 million, the Associated Press reported.

In virtually his first act as CEO, Webb hired Travis Smith as Exec VP/Merchandising and Marketing, effective July 31 Smith replaces Dave Bolin, who resigned last fall.

"As the key step in rebuilding our senior leadership team, we are delighted to add to the Jo-Ann team a person with Travis' breadth of experience in marketing and merchandising, in both softlines and hardlines categories," Webb said. "Travis has a keen understanding of how to drive comparable store sales growth, while balancing gross margin performance, for optimal financial results."

Most recently, Smith was Sr. VP/General Merchandise of Fred Meyer where he was responsible for the general merchandise product categories, including apparel; home and electronics; and product development and merchandise planning and replenishment.

Gregg Searle, lead director of the Jo-Ann's board, stated, "The board would like to thank Alan [Rosskamm] for his many years of dedicated service to Jo-Ann. Under his leadership, Jo-Ann grew to the number one market share position in sewing. In recent years, he began a strategic transformation to enable the company to better serve its customers by broadening its creative offering into the much larger and faster-growing craft categories. We are very pleased he will remain a part of the company's future success through his continued service as a member of our board of directors."

All My Memories Wholesale has been sold to Seastone Companies of Provo, UT for an undisclosed sum. The new company will be known as All My Memories (AMM). AMM produces 3,500+ scrapbook-related products from its facilities in Draper, UT. Seastone is a leader in the gift card packaging and accessories industry.

AMM Founder Jorjana Brown remains as the company’s Chief Creative Officer. Former AMM COO Bryce Stevens has been appointed President, and Bryan Dunford, former GM of Seastone Media Group, is the new Sr. VP of AMM. "The change will be transparent to the All My Memories customer base in terms of day-to-day operations, but will allow the company to develop and bring new products to market faster as well as increase the visibility and availability of its existing product lines," Dunford said.

"We intend to rapidly expand All My Memories’ business," said Warren Osborn, CEO of Seastone and now AMM CEO. "It has incredible brand recognition, a great product offering, and a very impressive management team. Seastone has strong manufacturing, international trade, supply chain management, and design experience that it brings to the table."

The Scrapworks product line and trademark were sold to As You Wish Products, which will operate Scrapworks as a separate division. Terms were not disclosed. As You Wish is primarily involved with overseas sourcing and product development for the toy and craft industries. Scrapworks will continue to exhibit at the CHA Summer Show (booth #321).

As of CLN's deadline, the CHA Summer Show is 11% larger than the 2005 show, pre- registration is up 20%, and hotel bookings are up a whopping 38%. Numerous events have sold out. Online registration at www.chashow.org is still available through tomorrow, Tuesday.

"Chicago, My Kind of Town" (Sat., July 22, 6:00 - 9:30 pm) is selling out quickly; the on-line discount price is $35; it's $50 at the show if tickets are still available. The price includes hors d’oeuvres, two drink tickets, live Ovation Orchestra, Second City Comedy troupe, and dinner at Chicago-themed buffet stations ... Event #D703 "The American Lifestyle: Trends in Design, Product, Color and Crafting" (Thurs., July 20, 3:00 - 4:30) previews what’s hot and what will be happening in the home dec, craft, gift, and stationery industries in the year ahead.

There was a thoughtful piece in the 7/2/06 edition of the New York Times that may shed a slightly different light on the "new consumer" CLN has talked about. She's tech savvy, wants to make one-of-a-kind items, etc., etc. Author Rob Walker contends it's all that and more: "A wave of indie entrepreneurs see do-it-yourself as an ethic, not an aesthetic."

He cites Leah Kramer, founder of Craftster (www.craftster.org) who believe that "many craft consumers have borderline socio-political motives, seeking in these alternatives to mass-produced, corporate-made goods not just something unique but also a product with no murky labor or environmental-impact back story."

Walker also cites Faythe Levine, of Paper Boat Boutique and Gallery in Milwaukee, who believes the new wave is "building an alternative to mainstream consumption...."

Darrell Webb has his work cut out for him. When he takes over as Chair/President/CEO of Jo-Ann's later this month, the June sales report will be on his desk: net sales decreased 7.4% to $140.5 million and same-store sales dropped 10.4%. Analysts polled by Thomson First Call had expected a decline of 5%, reported MarketWatch.

For the first nine weeks of the second quarter, net sales are down 6.0% to $250.3 million and same-store sales are off 9.2%. A year ago there was a same-store sales increase of 1.4% for the same nine-week period. Year-to-date, net sales have fallen 1.8% to $675.0 million and same-store sales are down 5.9% year-to-date versus a 0.4% same-store sales increase for the same period last year.

The news was much brighter for Hancock. Sales totaled $33.0 million, up 4.8%, and same-store sales rose a strong 6.2%. The long-awaited turnaround may be in progress: in the first two months of the second quarter, total sales have risen 5.2% and same-store sales are up 6.1%. For the year, total sales are down 0.8% to $153.9 million and same-store sales are down 0.6%.

A.C. Moore does not report monthly sales figures (nor does Michaels), but did issue its second-quarter sales report: For the quarter ended June 30, sales rose 14% to $129.8 million and same-store sales rose 3.0%. For the first half, sales are up 11.0% to $262.8 million, but same-store sales are up only less than 1%.

New CEO Rick Lepley said, "For the balance of this calendar year we will be focused on reviewing every facet of our business including our merchandise assortment, product sourcing, store and warehouse processes, and selling, general & administrative expenses, all in an effort to improve our operating results."

Wal-Mart posted only a 1.1% same-store sales gain. Target's same-store sales rose 4.8%, slightly better than analysts' expectations of 4.6%, due to strength in pharmacy sales and baby merchandise, MarketWatch reported.

In general, retail sales were considered lackluster. Ken Perkins, president of research firm Retail Metrics, said that 53% of chain stores posted lower-than-expected sales, Reuters reported. Disappointed retailers blamed the high gas prices and the record rains in the Northeast.

Other same-store results: Walgreen, +9.0% ...Duckwall-ALCO, +6.2% ... J.C. Penney + 4.3% ... Family Dollar, +3.6% ... Factory Card Outlet & Party, +3.4% ... Dollar General, +2.5%.

(Note: The following is reprinted from the Maps2Memories newsletter. Maps2Memories will be exhibiting at the CHA summer show in booth #1125. To learn more about this organization designed to help independent scrapbook retailers, visit www.maps2memories.com.)

Budgeting with your rep is not an oxymoron, I promise, but way too many retailers think that it is (you know, like "jumbo shrimp"). When the majority of retailers hit a tough place in the road and have to seriously tighten the belt, the first thing they do is freeze out the rep instead of admitting the circumstances.

Everybody is budgeting today – if you are not, you are out of business. It is absolutely nothing to be embarrassed about. And contrary to what some retailers assume, budgeting time is when they most need a good sales rep.

The good reps want you to get the most bang for your buck and they truly want to help you succeed and stay in business. If your store closes, they don't make $$$ either. Being honest with the rep, telling them you have an open-to-buy of $500 or $5000 will enable them to put together the best package for your money. After all, nobody can have it all anymore, but working together will ensure the highest degree of success. Use your reps. – Pam Riddell

So you're buying Michaels, eh? Here's a few words of advice. You have entered a wonderful, idiosyncratic industry that has made billions of dollars for thousands of entrepreneurs – and brought happiness to millions of consumers.

1. Remember the old adage, "If it ain't broke, don't fix it." Craft customers are like the tide. They rush in and buy if there are hot trends, and recede if/when the trends fade. While management is responsible for identifying and capitalizing on trends, if sales are disappointing at times, don't assume management is the problem. It's just the way the crafter has always been.

2. Don't try to make your profit off the vendors. Trust me, they've been squeezed enough. The result? Manufacturers have dramatically reduced marketing programs that educate and inspire consumers. We need to give more consumers more reasons to want to craft; if you keep squeezing the vendors, you'll have to create those reasons by yourself.

3. The practice of taking a U.S. vendor's product and having it copied overseas may save you a few bucks in the short-term, but it's driving manufacturers into other industries and motivates them to show their new products to your competitors first. (Unfortunately, it's not just Michaels, it's others, too.) Long-term, you'll have to spend a fortune developing a huge product-development department because there won't be any U.S. vendors to develop products for you.

4. Understand Michaels customer is unlike the customers in your other retail holdings. This isn't another Toys R Us, Burger King, Staples, Burlington Coat Factory, Shopper's Drug Mart, Brookstone, Domino's Pizza, Houghton Mifflin, or Universal Orlando. If the craft consumer wants to make a particular project that requires six products, and Michaels does not carry all six, she won't buy any of them. Michaels has the best inventory replenishment system in the industry; don't screw it up.

5. Bain lost millions the last time the company entered the craft industry. The major problem was hiring execs who thought they worked for Proctor & Gamble and could sell bottles of fabric paint the way P&G sold Tide. There are lessons to be learned from this.

6. Of course you want to take some of Michaels' cash flow to pay off your debt, but don't take so much that it hampers the company's ability to grow, refurbish/remodel their stores, and drastically improve their in-store merchandising.

7. There are no stock-holders to appease, so you don't have to make short-term decisions that can cause long-term consequences. For example, please, don't abruptly stop all orders just to make fourth-quarter inventory levels more appealing to Wall Street.

8. One area that could be improved: bringing new products into the stores. This is a trendy, fashion-oriented industry. If you're nimble enough to capitalize quickly on the next hot line, you'll gain a reputation among the biggest-spending crafters as THE place to go for the latest and greatest. Michaels does not have that reputation now.

9. How the overall industry performs will have a huge impact on Michaels' bottom line. Encourage, if not demand, your people to participate in the boards and committees of CHA, TNNA, NAMTA, and other groups. Trust me, it's insurance on your investment.

No new owner buys a business and does ... nothing. CLN wondered what signs should the industry be looking for after Bain Capital and the Blackstone Group take over Michaels, so we asked a number of industry veterans:

1. A major manufacturer and Michaels vendor said, "I think the signs to watch for with Bain are 1. Change in current marketing direction. Michaels has been moving in a very positive direction lately. They should keep going that way. 2. Sudden departure of staff. Did some hang-on just to get the deal done? Will new owners bring in 'experts'? (I think this is where we have seen blunders in the past as our industry in unique to other retail industries.) 3. Moves to expand outside the traditional product mix (again, usually as a result of one of the 'experts')."

2. A very successful, long-time veteran asked these questions: "1. If Michaels sales are disappointing the rest of the year before the deal closes, wait for the price to come down and/or the deal be postponed into next year. 2. How much debt do they pile on Michaels? Do they slow down company's growth and have the company get even more aggressive about entitlements to help pay off the debt? 3.Do they close even profitable stores to free up debt?"

3. A successful, long-time retailer: "1. How they will analyze the number of stores vs payout per store. In the past it has seemed they were focused on simply putting up more stores even as they divided the sales of existing strong stores. 2. Under Michaels leadership they truly created impressive systems for cost reductions. But they are not doing the things that build the consumer interest and sales over the long term like classes. These things are expensive and require the willingness to invest."

The last of the four Craftmart stores in Arizona is closing, and Chuck and April Umbarger are retiring. The store in Chandler was 35,000 sq. ft. Daughter Laurie told the Arizona Republic, "Crafts are not at all what they used to be. Video games are more interesting than knitting, I guess." Customer Kristina Kinney told the Republic, "It's sad that they're closing because they're a family-run place and they have things the other stores don't."

One colleague claimed high rents forced the Umbargers, former members of Sierra Pacific Crafts, to close stores as old leases expired. Another colleague thought part of the problem was trying to beat Michaels at its own game – discounts, coupons, etc. "The Umbargers are just plain tired of the retail wars, and business was not nearly as bad as the article suggests," one SPC member told CLN.

Meanwhile, SPC member and CHA board secretary Emma Gebo scored one for independents. A few years ago, a Michaels Village Crafts store opened in her town, Pocatello, ID and began to compete with her. Now, not only has the Michaels store closed, but Emma and her husband Dave are moving their store into the Michaels vacated space and will open later this month as Sierra's. (Look for SPC to begin licensing the name to other members.)

The hard-copy vs. digital scrapbooking issue assumes that the scrapbooker is a ... woman. Not necessarily so, argued Eric Benderoff, the technical columnist for the Chicago Tribune. He claims men are scrapbooking, but it's via the computer and they don't like to call it scrapbooking. "... There's a lot more of us out there scrapping than you realize," he wrote.

What's wrong with the word? "I think of people going to a store to buy an ink stamp with little feet, so they can stamp little feet around the pages," one man told Benderoff. "And I think about doilies."

Benderoff cited research by the Photo Marketing Assn. that indicated sales of "photo books" (albums created with digital photos) reached $200 million in 2005. The research did not indicate how many are men, but the figure is expected to double by 2007, thanks in part to men.

He also cited Veronica Hugger of the National Scrapbooking Assn. and Lin Sorenson, Editor of Simple Scrapbooks, who both agreed it's a matter of semantics: these men are scrapbooking, whether they want to call it that or not.

So men are scrapbooking on the computer, as are more and more younger women, who don't feel the need to escape from technology. What's a retailer to do?

CLN was swamped with responses when we asked the digital vs. hard-copy question. (To read them, click on Memory, Paper & Stamps and Kate's Collage.) The consensus appears to be for retailers to a) learn everything they can about digital; b) buy a photo kiosk for their customers to use (the current issue of Craftrends has an extensive listing of available kiosks); c) buy software and equipment such as large-copy printers; and d) create an area in your store where the digital-minded consumer – male or female, young or old – can create whatever they want to call it. Regardless of their inclination, most consumers won't spend thousands of dollars on software and high-end printers; instead, CLN readers think they will spend money in a store in order to use the retailer's equipment.

One scrapbook retailer who has taken the digital plunge is ScrapMasters in Bel Air, MD. It's a traditional store, plus a coffee/pastry café and a photo print center with four computer stations where customers can edit and print their digital photos. (Visit www.scrap-masters.com.) Owners David and Cathy Potts provide the Noritsu dDP-410 printers and say 6"x6" is the most popular print size. (Noritsu will be exhibiting at the CHA Summer Show.)

To read a sampling of the digital scrapbook world, visit Polka Dot Potato.com, (www.polkadotpotato.com), DigiShopTalk.com (www.shoptalk.com), and Digi Scrappin with Jen (www.jenjen.typepad.com). To see a new digital photo service applauded by the Wall Street Journal, check the beta version of Sharpcast's new photo service at www.sharpcast.com.)

1. Congrats to Jaime Gunthals of Interweave who recently gave birth to Byron Wilson Guthals ... And to Lisa Kanak, the owner of The Cropper's Corner in Fredericksburg, VA who gave birth to Elizabeth Amelia Grace Kanak on July 4th at 9:17 pm to the sounds of fireworks. Lisa wrote, "We're all home, healthy, happy – albeit a bit tired." Lisa runs a scrapbook store while pregnant, has three other kids, gives birth to a fourth, and she's a BIT tired?!?!?

2. Packing for Chicago for the CHA Summer Show? Chicago is going through a terrible heat wave at the moment, but it's supposed to break later in the week. There's a projected high of 88 for Thursday and only 83 with isolated thunderstorms on Friday.

STORES. The Ft. Worth Star-Telegram profiled one of the largest independent scrapbook store in the country, Scrapbook Warehouse, in Lewisville, TX (and now a second store in Coffeyville). The Lewisville store is 15,000 sq. ft. and stocks 26,000 sku's. The stores have approximately 25,000 customers. "On Fridays and Saturdays from 6 p.m. to midnight, scrappers in Lewisville and Colleyville pay $5 to reserve space for scrapping with friends. All 114 places are usually reserved by Tuesday," the Star-Telegram reported. To read the complete article, visit www.dfw.com/mld/dfw/business/local/15004779.htm. 

SIGN OF THE TIMES. The Memories Scrapbooking Expo (Nov. 10-12 in Orlando) will hold a digital crop party, "Drag & Crop!" Attendees will need to their laptop computers but will be under the tutelage of Epson personnel. The Expo will also include two PJ Party-themed traditional Creative Bash Crops sponsored by A.C. Moore. About 6,000 are expected to attend the show, held in the same convention center with the Bead & Art Glass Fest, which will have celebrity guest Jackie Guerra, host of Jewelry Making on the DIY network. Visit www.memoriesscrapbookingexpo.com and www.beadandartglassfest.com.

NEEDLEWORK. Plaid's new program with Jenny Hart of Sublime Stitching under Plaid's Bucilla label will include 12 styles of embroidery kits geared towards a younger generation and will be unveiled at the CHA summer show..

ART. The National Art Materials Trade Assn. is creating a consumer website with news, project sheets, product and safety info, etc. For info, email membership@namta.org or call 704/892-6244.

SHOPLIFTING. Wal-Mart will no longer prosecute first-time shoplifters who steal merchandise worth less than $25, the New York Times reported. This practice, common with some other large retailers, will allow it to focus on theft by professional shoplifters and its own employees, who together are the major shoplifting culprits. Under the old policy, at some 24-hour supercenters, police were called as often as six times a day.

BEADS. Looking for independent bead shops? Visit www.localbeadstores.com.

LOOKING TO HIRE. Walnut Hollow is expanding and needs a Sales Associate in Dodgeville, WI. Bachelor's degree, 3 years sales experience, good communication skills, etc. Send resume/salary requirements to Human Resources Manager, Walnut Hollow, 1409 State Rd. 23, Dodgeville, WI 53533 or email myersb@walnuthollow.com.

BOOKS. For a preview of what Design Originals will unveil at the CHA summer show, visit www.d-originals.com/pressrelease/cha2006/chaprevieweditor.html. There's scrapbooking, paper crafts, stamping, Tim Holtz’s new distressables, beading/jewelry, and quilting.

CHA. If you're a CHA member and missed or forgot the recent mailing, to log into the Members Only section of www.craftandhobby.org, you'll now need your 6-digit CHA ID number and your zip/postal code – all nine digits.

PEOPLE. Meredith named Gayle Butler Editor-in-Chief of Better Homes and Gardens magazine; she had been Editorial Director for BH&G's Special Interest Publications and Creative Collection, including titles in quilting, sewing, knitting, and scrapbooking. BH&G has a circulation of 7.6 million and a monthly readership of 40 million.

WEB, I. The National NeedleArts Assn. is underwriting a new website, OnePixelataTime.org that will be an extension of TNNA’s Stitch to WIN Against Breast Cancer Campaign. The Campaign includes "One Stitch at a Time," stitching replicas of the Post Office's Breast Cancer Research stamp. On the new website, the stamps will be "completed" when visitors pay $5 to select a pixel on images of the stamp. A visitor will receive a coupon from a sponsor for each pixel chosen. To inquire about sponsorships, call Sherry Mulne at 614-237-0700, or email bdirect@columbus.rr.com. The deadline is Aug. 5.

WEB, II. Loew-Cornell has updated its website with a variety of free marketing tools for retailers and teachers. Visit www.loew-cornell.com.

AWARDS, I. Winners of the New Product Awards at the recent Society of Decorative Painters Expo were Viking Folk Art in the Surface Division for its line of basecoated surfaces; North Light Books for The Brushstroke Handbook in the Publication Division, and Turtle Hollow Egg Farm for its miniature paint savers in the Product Division. (There were numerous products introduced to painters at the Expo, products that traditionally were marketed to crafters.)

AWARDS, II. More SDP winners from the recent Expo: Nilda Rodriquez, SDP Ambassador of the Year ... Louise Jackson, Dedicated Service ... Nancy Genetti, Outstanding Chapter Service ... Wymer and Pat Cooper, President's Commendation ... Stan Brown, Priscilla Hauser Award for Business & Industry ... and Brenda Stewart, Silver Palette Award.

QUOTATION. "The message from Wal-Mart today to the rest of the business community is, there need not be any conflict between the environment and the economy. We will find the way not only to reconcile (those), but to find new profits and new opportunities as we do the right thing," – Al Gore (Associated Press)

ROLODEX. Petersen-Arne has moved to 4310 W. 5th Ave., P.O. Box 2683, Eugene, OR 97402. Phone numbers remain the same.

To read the latest listings by 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*: 17.11 ... Change**: +0.82
Hancock Fabrics (HKF). Last*: 3.24 ... Change**: -0.15
Jo-Ann Stores (JAS). Last*: 12.62 ... Change**: -1.99
Michaels (MIK). Last*: 42.16 ... Change**: +0.92
Wal-Mart (WMT). Last*: 43.10 ... Change**: -5.23
CLN Retail Index. Last*: 118.23 ... Change**: -4.5%
Dow Jones Index. Last*: 10,739.35 ... Change**: -3.7%

Two New Yorker cartoons recently made us chuckle:

1. Two little boys, about 10 years old, are walking down a street. One says to the other, "For Father's Day I gave my dad one hour of free tech support."

2. A middle-aged man is walking down a street talking on a cell phone. He says, "Can you hang on a sec? I think I just took another picture of my ear."

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4. Creative Leisure News is published the first and third Mondays of each month.  Because July has five Mondays, your next issue will be Monday, August 7.

xxx

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