Date: September 18, 2006
Vol. X, No. 18

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TABLE OF CONTENTS

COMMENTARY: Coming Together 

This issue includes a profile of the Craft Yarn Council of America. I wrote it, not so much to pat the CYCA on the back, but in hopes that vendors, publishers, and retailers in other categories such as scrapbooking, needlework, and painting would learn from CYCA's example.

These CYCA folks are fierce competitors, but they realized they would all benefit if they worked together to make the pie larger. They didn't sit around and complain; they invested money, time, and effort and it paid off handsomely.

Think there's a lesson here for other categories? I sure do.

Memory, Paper & Stamps. One of the industry's top independents, Lisa Kanak predicts what scrapbooking will be like in the year 2010.

Kate's Collage. Nancy Nally of Inside Scrapbooking offers some thought-provoking warnings for designers and vendors about privacy and scrapbooking

Designing Perspectives. A yarn shop owner with some candid advice for designers, advice that's relevant for designers in all product categories.

Category Reports. Reactions to the "advice" given to retailers, vendors, designers, and the industry in general, advice still online in "Benny Da Buyer," "Vinny Da Vendor," Designing Perspectives, and the 9/4 issue of CLN.

(Note: If the columns appear to be "old,"click on the "Refresh" or "Reload" button on your browser.)

Gasoline prices have fallen substantially, but are still much higher than a year ago. Heating oil will be higher this winter, too, although not as high as was predicted when the price of a barrel of oil rose above $70. How will this recent decline in oil prices affect your business? To vote, click on Industry Polls in the right-hand column, or click HERE.

Subscribers who voted in CLN's unscientific poll are not happy about the direction in which the United States is going. But they are not quite as unhappy with their local representative in the House of Representatives.

Fewer than a quarter of voters, 23.7%, believe the U.S. is headed in the right direction, while 68.4% believe the country is going down the wrong path. Only 7.9% are not sure.

The majority, 56.4%, say they plan to vote for a Democrat candidate in their local House race, while 33.3% intend to vote for the Republican. Only 7.7% are not sure.

Incumbents from both parties will have tough races, if CLN voters are any indication. Only 28.1% say they will vote for the incumbent, while an equal percentage say they will not, and a whopping 43.8% have not yet made up their minds.

(Comment: CLN will ask the question again shortly before the election to see if the campaigns make any difference.)

Crafts America LLC paid $2.9+ million for the assets of Herr's Pacific. The money was paid to a trustee for the IKG Partners' creditors and Cole Taylor Bank of Chicago. IKG Partners owned Herr's Pacific and EZ Gregory, a general merchandise distributor. The trustee is also in the process of liquidating the EZ Gregory assets (inventory and accounts receivable) and plant machinery and equipment, valued at approximately $5.6 million. That money will be used to pay off IKG's secured debt of approximately $4.6 million, with the remainder being paid to unsecured creditors (e.g. vendors) who are owed approximately $9.8 million.

A brief history: Herr's was started more than 30 years ago by Grace and Doug Herr, industry pioneers who built the company into one of the industry's leading distributors. The Herrs retired and sold the company to the Atkins Group, who later sold the company in 2001 to IKG Partners, led by Michael Greenberg. IKG later bought EZ Gregory and merged the two operations.

Michael Greenberg is President of the new Crafts America. He told CLN that buying EZ Gregory was a mistake that drained resources and focus from the company, but pledged he had new capital and that Crafts America was concentrating on crafts. The company continues to offer 50,000+ SKUs, and Greenberg says the fill rates are improving.

Although vendors owed by the old IKG would be paid only a fraction of what they were owed, the new Herr's Pacific will pay via wire transfer within 7-10 days of placing an order.

Chartpak has acquired the selected assets and rights of the Grumbacher® Artist Color Product Line from Sanford. The assets include inventory, equipment, and intellectual property relating exclusively to the Grumbacher® brand, one of the best known brands in art materials.

The Grumbacher product line includes Grumbacher pre-tested oil paints, Max Grumbacher water miscible oil paints, and Grumbacher Academy oil, acrylic, and watercolor paints, as well as artist brushes and related wet-media products. Chartpak President Steven Roth said, "Grumbacher has an excellent reputation and long standing relationships with the top art material dealers, art colleges, and major craft and hobby chains. We plan on continuing to be a comprehensive provider to both the professional and student artist."

Sanford's corporate parent, Newell Rubermaid, also announced it was selling its Little Tykes division which produces toys and children's furniture.

Founded in 1949, Chartpak is located in Leeds, MA and its brands include Chartpak®, Koh-I-Noor®, Pelikan®, Frances Meyer®, Clearprint®, and Craft House®. For info, call 413-584-5446 or 800-628-1910; fax 800-762-7918; or email info@chartpak.com.

Interweave Press, a subsidiary of Aspire Media, increased its footprint in the beading and jewelry markets with its acquisition of 60-year-old Gems Group from Primedia. The Group includes Lapidary Journal, Step by Step Beads, Step by Step Wire Jewelry, and Colored Stone. Special interest publications included in the sale are the Tucson Show Guide, Wedding Jewelry, Creative Jewelry, and Step by Step Clay Jewelry.

Six special events were also acquired – Jewelry Arts Expo (Fort Washington, PA).; Bead Fest events in Memphis, Atlanta, and Philadelphia; Wire Jewelry Expo; and the Jewelry Fest to be held in Wilmington, DE in December. In a media conference call Aspire's CEO Clay Hall said "The primary focus will be growing the existing shows." A website was also acquired.

Terms were not disclosed. Gems Group Publisher Joe Breck will continue to serve as group publisher from the current location in Malvern, PA.

Clay Hall said, "Our acquisition of Interweave Press – publisher of such well-known titles as Beadwork, Stringing (which will become a full-subscription magazine), Interweave Knits, Handwoven, Spin-Off, PieceWork, and Fiberarts – in June 2005, followed by our acquisition of Bead Expo earlier this year, helped establish us as a leader in this market," said Hall. "Now, with the addition of the Gems Group media properties and events, Interweave Press is the leading and most trusted source of information for beading and jewelry making enthusiasts."

Linda Ligon, founder and creative director of Interweave Press, said, "We've had a long-standing relationship with Joe Breck and his group based on mutual trust and respect. We look forward to being able to offer advertisers, exhibitors, and sponsors an opportunity to reach even more enthusiasts at different stages of their skills and interests."

For more info, visit www.interweave.com/PressRoom/PR_Press_Releases.asp and www.aspire-media.com.

Michaels. Vendor Partnership of the Year awards were presented to Impact Innovations, Binney & Smith (www.crayola.com), Santa's Best Craft (www.santasbest.com), and Tru Vue. Carrier of the Year awards were presented to Interstate Distributors and Mitsui O.S.K. Lines.

A.C. Moore. President Larry Fine gave Vendor of the Year awards to Beadalon (www.beadalon.com), EK Success (www.eksuccess.com), Caron Int.(www.caron.com), Parragon Books (www.parragon.com), Harbortown (www.harbortown.net), Wilton (www.wilton.com), and The Toy Group. Said Caron's Sales VP Jan Kahn: "In these challenging times, special recognition from one of our retail partners for double-digit sales growth and responsible inventory management is particularly gratifying and we deeply thank AC Moore for this special honor."

From jewelry-making pro Katie Hacker, author of Hip to Bead, published by Interweave Press:

"There are some things you can count on to become popular again every autumn: earthy hues, copper, and natural materials like wood, bone, and shell. This year, you'll also see lots of black, tan, and other neutral colors; heart, key and locket charms; fibers mixed with metal; large chain links in mixed shapes and sizes; long earrings; vintage-inspired components; gothic motifs like skull and crossbones; and mixed metals. Looking ahead to winter, pearls, ribbon, asymmetrical combinations, long necklaces, and sparkly jewel tones will be popular."

To learn more about Katie, visit www.hiptobead.com and see her on the PBS series, Beads, Baubles & Jewels (www.beadsbaublesandjewels.com). She has her own site at www.katiehacker.com and an online journal at www.katiehacker.blogspot.com.

The music and movie industries have been clamping down on illegal copyrights. Now it's our industry's turn. The 9/14 issue of the Wall Street Journal included a front-page article on the Embroidery Software Protection Coalition that is suing and sending threatening letters to consumers who resell licensed designs on the Internet. The Journal cited instances of consumers who unknowingly bought illegally copied designs being caught up in the legal web.

Nearly 1,500 consumers have already received stern letters, some of whom have swamped message boards with nasty complaints about the Coalition. In June the Coalition sent a subpoena to Yahoo, the Journal reported, which hosts a message board, asking for the identities of sewers so the Coalition can consider suing them for defamation. Coalition President Gary Gardner told the Journal regarding the "little old ladies" caught in the turmoil, "Although they're a grandma, they're not a nice grandma. Some of them are outright vicious, even when we point out to them that what they're doing is illegal."

The article cited the Oklahoma Embroidery Supply & Design (OESD), one of the largest producers of licensed designs. The company can find illegal copies of their new designs being sold on the Internet within three weeks of releasing them. "Some of the sewing companies say they're lost half their business to design pirates," the Journal reported.

Members of the Coalition include Action Tapes; Bernina (www.berninausa.com); Great Notions Embroidery Designs (www.greatnotions.com); OESD (www.oesd.com); Pfaff, (www.pfaff.com); Pulse Micro Systems (www.pulsemicro.com); and Viking (www.husqvarnaviking.com). The website for the Coalition is www.embroideryprotection.org.

(Comment: Cross-stitch groups have made some futile efforts to protect its designs, but it can be expensive to hire lawyers to track down offenders. As scrapbooking becomes more technology-oriented, look for this same problem to rear its ugly head.)

The former Wal-Mart VP of Merchandising Systems, Robert Hey, Jr., who was convicted of wire fraud with then-Vice Chair Thomas Coughlin, is suing Coughlin for emotional distress, the Associated Press reported. He claimed he was only following Coughlin's orders in a scheme to defraud Wal-Mart and that Coughlin threatened to fire him if he didn't cooperate.

Hey claimed Coughlin said the money would be used to pay third parties to investigate union activities at Wal-Mart. Wal-Mart said there was no such program.

Hey had pled guilty in federal court to three counts of wire fraud and was sentenced to one day in prison and six months of supervised release. Prosecutors said Hey wrote fake vouchers to obtain money and Wal-Mart gift cards for Coughlin.

Coughlin had pled guilty to stealing money and merchandise from Wal-Mart and was sentenced to 27 months in home detention and ordered to make $306,822.40 in restitution to Wal-Mart and $104,395.60 to the Internal Revenue Service.

(Comment: Call me crazy, but I have the feeling if I had stolen $300,000+ from Wal-Mart or any business, I would have been sentenced to more than home detention.)

Columnist John Carlson of the Des Moines Register profiled artist Paco Rosic, who is replicating the ceiling of the Sistine Chapel on a ceiling in downtown Des Moines – using only cans of Krylon spray paint. The result is remarkable.

"You might not think it’s possible," Rosic told Carlson. "But the Krylon, it can feel like a brush stroke. It looks like a brush stroke."

Rosic told Carlson he'd used "Hundreds of cans. Thousands. I wiped out Wal-Mart and Hobby Lobby stocks of Krylon. I’ve used 40 different colors and probably spent $6,000 or $7,000 on paint."

To read the article and see a photo of the ceiling, visit http://search.dmregister.com/sp?aff=101&keywords=John+Carlson.

1. When CLN asks a political question in the Industry Poll, the results have always indicated that the industry is a tad more conservative or Republican than the country at large. At least at this point in the mid-term election campaign, that's not the case this time. It will be interesting to see if the campaign makes any difference. In 2004 CLN asked voters about their preference for Senator Kerry or President Bush. At the beginning of the campaign, Bush had a large lead; at the end, Senator Kerry had narrowed the gap somewhat, but not enough to win, and he did not attract as high a percentage of votes as he did in the actual election.

2. Interesting article in the Salt Lake Tribune about guerilla marketing techniques used by some scrapbook companies who pose as consumers and rave about the companies' products on message boards such as TwoPeas. To read the article, visit www.sltrib.com/search/ci_4284282. (Note: The Tribune archives articles for only two weeks and the article was published Sept. 4.). One of the guerilla marketers later apologized.

3. Once again I've been invited by a trade show exhibitor to see the new products in a hotel room, off the show floor, during show hours. This time it's the Memory Trends show. Once again, I have refused. It's against show rules and it's unfair to other exhibitors. If you're afraid your competition will see your new lines or fancy new gizmo, set up a little office in your booth. If you insist on violating show rules and taking folks off the floor during show hours, don't bother inviting me.

4. A few issues ago I applauded Wal-Mart for its plan to open a store in my old Chicago neighborhood that is now devastated by unemployment, poverty, drugs, and crime. Then when Chicago City Council passed an ordinance requiring big-box retailers to pay higher wages and benefits, Wal-Mart dropped its plans. Last week Mayor Richard Daley vetoed the legislation, the Council couldn't override it, and the plans are back on track.

MICHAELS. Although the report from the company's audit committee did not find any intentional wrongdoing, the investigation into its stock-options practices has been transferred to the fraud section of the Justice Department. Michaels had received a letter from the Division of Enforcement of the Securities and Exchange Commission in June requesting that it preserve all documents concerning its granting of stock options from 1990 through the present.

MICHAELS. Will hold a special stockholders meeting Oct. 5 to approve the sale of the company to Blackstone Group and Bain Capital for $44/share. Assuming the stockholders approve the deal, Michaels will be a private company.

CHARITY. Jo-Ann's donated $4.2+ million worth of product – 1.4 million skeins of yarn – to the SHOPA Kids In Need Foundation. The Foundation accepts donations of school supplies and arts and crafts materials to provide to the teachers who visit the 21 Resource Centers throughout the country. Teachers from designated low-income schools are invited to shop for free supplies needed by their students.

DUCKWALL-ALCO. Net earnings for the second quarter were $1.4 million ($0.37/diluted share), compared with a net loss of $294,000 ($0.07) a year ago. Net income year-to-date was $2.0 million ($0.51), compared with a net loss of $3.0 million ($0.71) last year. Net sales from continuing operations for the quarter increased 11.3% to $120.7 million, while same-store sales increased 7.4%. Gross margin for the second quarter remained flat at 30%.

DIVIDENDS. Michaels' board of directors has declared a quarterly cash dividend of $0.12 per share, payable Oct. 31 to shareholders of record at the close of business on Oct. 13.

HANCOCK. Reported to the Securities and Exchange Commission that it is still unable "without unreasonable effort and expense" to file its reports due to "store physical inventory counts conducted during fiscal 2005 by Hancock resulting in exceptions at a rate higher than were deemed acceptable by Hancock." As a result, Hancock has not yet been able to file its Annual Report for the period ended January 28, or its Quarterly Report on Form 10-Q for the period ended April 29, 2006.Hancock said it is working to file those reports as soon as practicable.

QUOTATION. "Crafters who shell out their coins at La Vista's Hobby Lobby may view the giant craft store as simply a convenient one-stop treasure palace for beads, fabric, paint, patterns, and yarn. Archaeologists might recognize it as a 21st century portrayal of the human need to create, to express oneself, and to add beauty and design to one's life." – Jennifer Meyer, Staff Writer (La Vista, NE Sun)

MICHAELS. Filed a preliminary proxy statement that rewards the founding Wyly brothers with more than $30 million in vested and unvested stock options as a result of the pending private-equity buyout, The Motley Fool reported.

PEOPLE. A.C. Moore named Marc Katz as CFO. Katz, 41, most recently served as the CIO for Foot Locker and prior to that was the Controller for the $5.5 billion specialty retailer.

TECHNOLOGY. Wal-Mart announced that roughly 25% of its stores and clubs would make use of radio frequency identification (RFID) technology by the end of this fiscal year. Wal-Mart is working with 300 suppliers to begin shipping test cases next month and go "live" in January. That will bring the total number of suppliers working with Wal-Mart on its RFID program to 600. (Comment: Vendors, this will affect all of you some day. Just like with UPC codes, when Wal-Mart perfects the system and the cost of the technology drops, every chain and large independent will insist you adopt it.)

LAYAWAYS. Wal-Mart is phasing out its layaway program due to declining use and increasing costs, MarketWatch reported. "Demand for layaway service has declined steadily as consumers turn to other options, such as online shopping, gift cards, and no-cost credit alternatives," said Pat Curran, Exec VP/Store Operations. Kmart/Sears will continue its layaway program.

CHRISTMAS. The consulting/market research firm Retail Forward predicts a 5.5% growth in fourth-quarter, holiday sales, down from last year’s 7.2% gain, and slightly below the average holiday growth rate since 1995. "The holiday won't feel the worst effects from the lagging impact of higher interest rates, a slowing housing market, and high fuel prices," says Frank Badillo, senior economist for Retail Forward. "The worst will probably be felt in the first half of 2007." (Comment: the research was conducted before the recent drop in gas prices.)

SHOWS. Toy Fair will have two new exhibit sections at the show Feb. 11-14 in New York – "Arts and Crafts" and "Seasonal Celebrations." Sponsors hope the arts and crafts section will feature kits and supplies, while the seasonal area will include holiday, party and seasonal products, costumes, accessories and dress-up, Christmas decorations, and more, Playthings reported. Visit www.toyfairny.com.

IMPORTS. The Retail Industry Leaders Assn. is urging California Governor Arnold Schwarzenegger to veto legislation that imposes a $30 fee on every 20-foot cargo container arriving and departing from the ports of Los Angeles and Long Beach, Retail Merchandiser reported. "Additional cargo fees will burden companies that already pay billions in maritime related costs, will make California less attractive for shippers, and may violate the U.S. commerce clause," said RILA President Sandy Kennedy ... The RILA is also lobbying the Senate to reject amendments to a homeland security bill by Chuck Schumer (D., NY) that calls for increased scanning and a tax on all containers entering the U.S.

PAPER CRAFTS. The October issue of Country Living includes an article on Scherenschnitte, a 16th century Swiss-German paper craft that was revived in our industry in the 1980's. The projects are beautiful. To learn more, type in Scherenschnitte at www.google.com.

TV. The fifth series of Beads Baubles and Jewels will be available to PBS stations Nov. 8. Katina Forte is the host. The show is produced by KS, Inc. Productions and sponsored by Kalmbach Publishing, BeadStyle and Bead & Button magazines, Fire Mountain Gems, Beadalon, and Pure Allure. Visit www.beadsbaublesandjewels.com.

MAGAZINES. The Sept./Oct. issue of CNA includes a great commentary, "Innovation – The Key To Industry Growth" by Mike McCooey, President of Plaid. "Retailers have the obligation to be a creativity center, not a dollar store," Mike wrote, "for the woman who has been introduced to crafts but is unsure whether there are projects available that fit her sense of design and skill level." ... See the projects from the premier issue of Crochet Today at www.crochettoday.com.

PUBLISHING. Another "turnkey" operation that produces books and leaflets from start to finish for publishers and vendors is Kievlan-McGuffee Designs. Clients have included EK Success, Lara's Crafts, Xyron, Hands On Crafts for Kids, Walnut Hollow, McGill, Craf-T, etc. The company also developed the "Slimline Booklet" program – full color, peg-able booklets that are 4 1/4" x 11" and designed to be part of a plan-o-gram. For more info, contact Julie McGuffee (817-.448-8122, mcguffee@flash.net) or Jean Kievlan (817-797-4707. jeankievlan@mac.com).

PEOPLE. Michael Fuss has left Wrights to pursue other interests. Jerry Cohn is now President/CEO of Wrights. For the past 18 months, Jerry has served as Senior Advisor to the company and played an integral role in the merger of Conso Products.

QUOTATION. "The interior decorators on TV are incorporating [tassels] into their shows, so I think more people are going to start looking into it more as a part of decorating." – Suzanne Butkus, a Jo-Ann's soft-line manager in Columbus, OH (Columbus Dispatch). (Note: tassels are part of Jo-Ann's new Christopher Lowell Collection.)

The CYCA was formed in 1981 to promote knitting and crochet in the U.S. Yarn sales were languishing and the knit/crochet consumer was growing older.

In 1998 CYCA hired a pr pro, Alice Fixx of Alice Kasman Fixx Inc., who concluded the way to inspire younger consumers was through celebrities. She called yarn retailers in Beverly Hills and learned the names of movie stars who shopped at their stores. Then Alice persuaded In Style magazine to publish an article about movie stars knitting on film sets between takes. Meanwhile a New York Knit-Out event attracted the attention of the New York Times. Because the Times and In Style are so influential with other media, soon magazines and newspapers around the country were reporting on how knitting had become "cool." Among the knitting celebrities who have since been profiled in the media: Julia Roberts, Vanna White, Cameron Diaz, Sarah Jessica Parker, Daryl Hannah, Hilary Swank, and Julianna Margulies.

And the yarn resurgence was born.

The knit/crochet trend benefited not only the acrylic yarn manufacturers but the natural-fiber yarns sold by independent stores as well. While yarn revenues have declined from their recent peak, sales remain far higher than they were just a few years ago.

A key CYCA accomplishment is Knit-Out and Crochet events that began 6+ years ago in Union Square Park in New York City. The annual event was held yesterday and included free lessons, fashion shows, interesting demos, and the latest yarns and designs. The crowd was expected to be as high as 35,000. Yes, 35,000! Another Knit-Out is planned for the Mall of America in Minneapolis Feb. 17-18.

Other accomplishments/projects: Unified the language/terminology for instructions ... Conducts consumer research and sharing the data with retailers ... Sponsors Warm Up America! and Caps to the Capital that have inspired thousands of consumers to knit/crochet projects for poor people and babies ... Started websites, www.Knit911.com and www.crochet911.com, to answer consumer questions and problems, and www.learntocrochet.com and www.learntoknit.com to help beginners ... Launched certified teacher programs ... Supports The Knitting Guild Assn. and the Crochet Guild of America.

Mary Colucci is the Exec Director and John Laurie, VP/General Manager of Craft Products for Coats & Clark, is the current Board Chair. Members include All American Crafts, Bernat, Better Homes and Gardens Creative Collection, Boye Needle/Wrights, Caron Int., Clover Needlecraft Coats & Clark, Craftrends, Creative Partners, Dynamic Resource Group, F+W Publications, Interweave Press, Leisure Arts, Lion Brand Yarn, Martingale, Sterling Publishing, Storey Publishing, The National NeedleArts Assn., TMA Yarns, SoHo Publishing, and XRX.

To see the latest listings from 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*: 18.96 ... Change**: -0.58
Hancock Fabrics (HKF). Last*: 2.96 ... Change**: -0.39
Jo-Ann Stores (JAS). Last*: 16.73 ... Change**: -0.53
Michaels (MIK). Last*: 43.22 ... Change**: +0.08
Wal-Mart (WMT). Last*: 48.24 ... Change**: -1.53
CLN Retail Index. Last*: 130.11 ... Change**: +4.3%
Dow Jones Index. Last*: 11,560.77 ... Change**: +0.8%

A LESSON IN CORPORATE POLITICS

A company sales rep, the marketing director, and the president are walking to lunch when they find an antique oil lamp. They rub it and a Genie comes out. The Genie says, "I'll give each of you just one wish."

"Me first! Me first!" says the marketing director. "I want to be in the Bahamas driving a speedboat without a care in the world." Poof! She's gone.

"Me next! Me next!" says the sales rep. "I want to be in Hawaii, relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas. and the love of my life." Poof! He's gone.

"OK, you're up," the Genie says to the president who replies, "I want those two back in the office after lunch."

Moral of the story: Always let your boss have the first say.

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xxx

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