Date: October 23, 2006
Vol. X, No. 20

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TABLE OF CONTENTS

COMMENTARY: CHANGING WITH THE TIMES 

One thing that was very apparent to me at the Memory Trends show: Independents who run away from computers and digital scrapbooking will probably be out of business in five years. My advice is to learn everything about technology, embrace it (this from a guy who still hasn't figured out all the uses of his cell phone), and learn how to make money from it.

There are two basic reasons: 1. To prosper, retailers need to continually attract new customers. That probably means younger consumers for whom technology is so ubiquitous that they will prefer, if not insist upon, digital/paper scrapbooks. 2. Our bureaucratic chain stores will not be able to adjust and adapt the way savvy independents can. An independent who combines the best of digital and hard-copy scrapbooking will be THE place in town for a new generation.

Memory, Paper & Stamps. Rob Bostick of JudiKins offers thought-provoking reasons why independent scrapbook retailers need "Hog Wild Crazy" customers, not "experts."

Scene & Heard. Design/marketing pro Debba Haupert reports on industry-relevant trends at the Maison & Objet, a bi-annual international "home style exhibition" held in Paris.

Store Layout/Design Tips. A first-person account of how chain and independent stores alike are turning off senior citizens – a huge, growing market as the Baby Boomers grow older.

Kate's Collage. What happened to Professional Crafters? A PC gives a first-hand view of what happened to this once-huge segment of the industry.

Industry Research. The annual report of the licensing industry is now available.

With more consumers than ever starting their Christmas shopping early (see "A Positive Christmas Prediction" below), it's time to make our final holiday predictions. How will the industry do this season? To vote, click on Industry Polls in the right-hand column or click HERE.

Our industry's 2007 trade shows may be a bit smaller and less well attended, according to CLN's unscientific poll. While an even 50% of the vendors say they will exhibit at the same number of shows next year, 39.5% said they would reduce their 2007 show schedule, and only 10.5% said they would increase it. Meanwhile, half of the voting retailers said they would attend just as many shows next year, but 38.5% said they were planning to cut back. Only 11.5% planned to attend more shows.

The general consensus seemed to be that it was a mediocre show, at best. Rumors of a 40% drop in attendance were exaggerated, but the question remained: was this a sign of a show and/or a category in decline or just a one-year blip in a series of strong shows?

A number of exhibitors said they would not return next year, but they may reconsider as time passes and may compromise by exhibiting again, but with a smaller booth. Attendance by independents will depend in part on business in the next 11 months, but the general tone was that three shows (CHA Winter and Summer and Memory Trends) were too many.

Numbers: 2,266 non-exhibiting attendees and 2,507 others; 300 exhibitors in 1,033 booths.

2007: Sept. 18-20, back at the Sands Expo. That makes it closer to the CHA Summer Show, but further away from Christmas.

Trends. Digital, digital, digital. The presentation by the dotScrap Alliance was one of many examples of combining digital and paper. The other major trend was retailers seeking to expand inventory beyond basic scrapbook supplies.

Shopping. MT buyers seemed to rush to their favorite companies first, rather than to the new exhibitor section, as is common in craft shows. A sign, perhaps, that scrapbooking has stronger brand names?

Stan Brown sold his business, Stan Brown Arts & Crafts, to Viking Wood of Waseca, MN. Stan has been a fixture (icon?) in decorative painting since 1962. The operation will move to Waseca on Dec. 15 and will be known as Viking/Stan Brown. Stan will attend the CHA Winter Show – his 45th consecutive CHA/HIA show. For more info on Viking, call 800-328-0116. Stan's wife, Sue Scheewe, will continue her publishing business, Sue Scheewe Publications, and shortly will be filming another season of her Scheewe Art Workshop series for PBS.

Martha Stewart will be the keynote speaker at the CHA Winter Show, Jan. 28-31 in Anaheim. She will speak Sun., Jan. 28 at 6:00 pm, following a reception at 5:00 pm. CHA members will be able to pre-register and order tickets for this and other events in early November.

Companies considering exhibiting at the Winter Show should decide soon. The show is already 88% sold out and is on track to be larger than the 2006 Winter Show. For exhibit info call Nadine Schwartz at 800-822-0494 or 201-794-1133, ext. 220, or email nschwartz@craftandhobby.org. Show info is available at www.chashow.org.

Sales for the third quarter grew 12% to $128.9 million and same-store sales increased 2%. The net loss was $2.6 million ($0.13/share) compared with a net loss of $1.9 million ($0.10) a year ago. Third quarter 2006 results include severance and recruiting costs of $888,000 related to the changes in management. The impact was $0.03/share. The results also include $643,000 ($0.02) in expense for stock-based compensation. The company started expensing stock-based compensation in January 2006.

Sales for the nine months have risen 11% to $391.7 million and same-store sales have increased 1%. The net loss is $4.2 million ($0.21), versus a net loss of $0.7 million ($0.04) a year ago. Results include costs of $2.9 million ($0.09) related to the changes in management and $2.2 million ($0.07) for stock-based compensation expense.

CEO Rick Lepley stated, "Each month during the third quarter showed progressive improvement in operating margins. We are continuing to work on reducing expenses and improving merchandising margins in an effort to move the company back to an acceptable level of profitability as quickly as possible."

The National Retail Federation’s 2006 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, found that the average consumer plans to spend $791.10 this holiday season, up from $738.11 last year. Plus, shoppers will spend an additional $99.22 on themselves.

The survey also found that most Americans plan to increase spending on flowers ($18.98 vs. $15.78 last year) and decorations ($46.49 vs. $40.86). Lower gas prices and a more positive consumer outlook were cited for the increases.

According to the survey, 40.4% will begin holiday shopping this year before Halloween. Gift cards continue to be popular; 52.8% said they would like to receive a gift card this year. The survey polled 7,623 consumers from Oct. 4-11 and has a margin of error of plus or minus 1.0%.

(Note: CLN has launched a section devoted to new products and any vendor is welcome to submit material. However, CLN will not publish photos and lengthy descriptions – that's the trade magazines' forte. CLN will publish a very brief description and a link to it IF the vendor's website has a description of the product or line. So vendors, email your product press releases to CLN at mike@clnonline.com WHEN the product is on your website.)

Diamond Tech is offering a new line of coaster mosaic kits with woodland themes. Visit the new product section of www.diamondtechcrafts.com.

Donna Kooler Design Studio announced Sandy Orton's Spring Sampler is now available. This completes her seasonal sampler series. There are new Christmas "Big Stitch" kis, too. Visit www.koolerdesign.com.

Gel-A-Tins. To see the latest product releases – stamps/accessories from this new Memory Trends exhibitor, visit http://www.gelatinstamps.com/products.html.

Interweave Press has a new special interest publication, Knits Holiday Gifts on sale now. Visit www.interweave.com/knit/special_issues/gifts_preview.asp.

Magical Imaginations has new lines, Expressions and Quoteables. Visit www.magicalimaginations.com/index2.php?page=products.

Lion Brand Yarn's Fall/Winter catalog is available at www.lionbrand.com.

Mrs. Grossman's new collection of paper dolls is available at www.mrsgrossmans.com/whatsnew. (Scroll down the page for the dolls).

DIFFERENT INDUSTRIES, SAME ISSUES

The Lexington (KY) Herald Leader published an article about the recent troubles of independent Christian retail stores who are facing stiffer competition from Wal-Mart and other general merchandise stores.

Retailer Chuck Wallington of Spartanburg, SC told the Herald Leader he thought Christian stores were a "three-tiered industry": a) small stores run by hobbyists; b) larger (8-15 employees) stores with $1 million to $1.5 million in sales; and c) even larger stores with 20-40 employees. Wallington thinks smaller stores don't have to make a profit and the larger stores "have the ability to strategically make decisions and try alternatives. The ones in the middle are the ones I worry about," he added. "I think they need to get bigger if they're going to survive."

As CLN reported in a newsbrief, stockholders approved the agreement providing for the merger of Michaels with Bain Capital and The Blackstone Group. The agreement calls for each outstanding share of Michaels common stock to be cancelled and converted into the right to receive $44.00 in cash at the effective time of the merger, expected to be by Nov. 4.

Then last week Michaels announced that it intends to raise approximately $1.075 billion in gross proceeds through an offering of Sr. Notes due 2014 and Sr. Subordinated Notes due 2016. The proceeds would be used to partially fund the merger.

The new owner of Craftrends, Enthusiast Media, will launch MemoryTrends, a trade magazine for scrapbook/paper craft retailers. It will debut in late January 2007 and will be published 10 times a year. Craftrends will become a quarterly.

Beth Hess will be the Editor of MemoryTrends while remaining as Managing Editor of Craftrends. Bill Gardner is Editorial Director of both magazines and their websites, while Devin Gentry is Assistant Editor for both publications.

(Comment: Recently CNA magazine cut its publishing schedule from 12 issues/year to 6. Now Craftrends drops from 12 to 4. So in 2007, vendors wanting to advertise in a craft trade publication will have 10 issues from which to choose, rather than 24. And it wasn't that long ago, when Creative Product News and Profitable Craft Merchandising were being published, that advertisers had 48 issues.)

The Society of Decorative Painters and Jo-Ann's have partnered to provide an extra perk for 2007 SDP members. With each new or renewed membership, members will receive a 10%-off discount card for purchases made at Jo-Ann's stores or at joann.com. A tear-out card will be included in issue #1 of the 2007 THE Decorative Painter magazine. In addition, 25+ other SDP business members have offered a discount on products and services.

SDP is also launching a membership drive with the assistance of SDP business members. Invitations will be emailed to those with an interest in arts and crafts. The invitation includes an offer that allows prospective members to view two issues of The Decorative Painter for free.

SDP's 35th annual Conference/Expo will be in Anaheim May 28 - June 2, 2007. To join SDP or renew a membership, visit www.decorativepainters.org or call 316-269-9300, ext. 105.

(Comment: I am surprised more national retailers don't form partnerships with consumer groups such as the Crochet Guild of America, The Knitting Guild of America, and Two Peas in a Bucket. And couldn't independents offer similar discounts to area members of such groups?)

Overall, same-store sales rose 3.8%, surpassing the research firm Retail Metrics' expectations of 3.5%, Reuters reported.

Although Jo-Ann's same-store sales fell 3.6%, that was better than the 5% decline analysts polled by Thomson First Call had expected, MarketWatch reported. Total sales for the month fell 1.1% to $174.1 million.

Hancock's same-store sales rose 3.3%. Overall sales declined 1.9% to $36.9 million because there are 44 fewer stores this year. A "cautiously optimistic" CEO Jane Aggers said, "All major merchandise departments improved in relation to recent sales trends." She said the company's debt, $61 million, was $3 million less than a year ago.

Wal-Mart and Target posted dissimilar results. Target's same-store sales rose a better-than-expected 6.7%, execs said October's increase should be 3-5%, and that its third-quarter earnings would likely be above the First Call consensus of 53 cents/share. Wal-Mart's U.S. stores reported a same-store sales increase of 1.3% and forecast a 2-4% increase for October.

I read with interest the person who took the scrapbook industry to task in the last issue, and the responses in this issue. I am particularly interested in the retailers' point of view because they are our end customer. Many of the points the original author and the responder made could be taken care of, in my opinion, with full-line distributors.

A retailer could place a $100 order of a little of this and a little of that to replenish stock, fill special orders, etc., and not be penalized for not making minimums and paying freight from 20 different vendors. It's a win-win for the vendors and the retailers. The vendors don't have to carry so many accounts, and the retailers can do one-stop shopping especially for basics and special orders. – Industry Publisher

1. Numerous scrapbook vendors and retailers have complained to me that three trade shows are too many. Here's a little perspective: Recently I attended a consumer bead show and a vendor told me he does 47 shows a year. (Surely there are easier ways to commit suicide.)

2. The Chicago Sun Times reported that CVS drugstore, an Aldi grocery store, and a Menards home-improvement store will open near the new Wal-Mart on the poverty-ravaged west side of Chicago. "Experts say retailers have covered every inch of ground in the suburbs ... and now are looking for new growth," the newspaper reported. "Several chains have found ways to work around the high cost of inner-city operations ... to turn a respectable profit."

Hmmm, wonder when we'll see our major chains opening in inner city areas?

3. The new fall television season is in full swing, and some of the programs were yanked off the air in less than a month. Yet many of the most successful series in tv history were not very popular at first, but had time to eventually find and build their audience. Not today.

I think there's a parallel with our industry's new products. Thanks to technology, most national chains know how a new product sold the day after it went on the shelves. I wonder how many great new products died because they did not produce sales quickly enough.

DEPARTMENTS. Home Textiles Today reported the company has launched a store remodeling program in 1,800 stores that includes a 20,000-sq.-ft. "home" section. It will be a multi-category department – which includes domestics. It is not known yet if this "home" section will include crafts and fabric. The article showed before-and-after floor plans, and the "after" plan does not have a fabric/craft department per se. Perhaps some/most craft categories will morph into the new "home" section? About 1,300 remodels are to be finished by year end, with the priority on stores in the Northeast, HTT reported. (Note: CLN became aware of the article too late to contact Wal-Mart for comment, but will pursue the matter and report in the next issue.)

MEETINGS. A recent meeting with scrapbook vendors indicates the company wants to reduce the number of SKU's and vendors ... A report from a craft vendor who attended last week's meeting with craft suppliers: "Wal-Mart went well. No question that they are under the gun to make the craft department more productive or face continuing space reductions. At the end of the meeting a Wal-Mart exec said he was tired of the department being the 'red-headed step-child at Wal-Mart.' Sounded to me like he has three-years to turn it around, but some changes would come quicker. Mentioned baking, wedding, and beading as strong. Said that stitchery had big challenges."

PRICING. Last year analysts said Wal-Mart's mediocre Christmas sales were due to the company getting a late start on the season. Not this year. With 68 days until Christmas, Wal-Mart significantly rolled back prices of popular toys, reported Retail Merchandiser.

CHINA. Wal-Mart plans to pay $1 billion to buy a share of Trust-Mart in China, the Wall Street Journal reported. Wal-Mart will buy 31 stores from Trust-Mart, which operates 100+ stores, and will gradually increase its holdings. Wal-Mart already operates 60+ stores in China.

ELECTION. Wal-Mart Vice Chair John Menzer, former CEO of the now-defunct old Ben Franklin operation, was elected to the board of directors of the Retail Industry Leaders Assn. Other board members include execs from Petco, Unilver, Walgreens, Circuit City, Lowe's, Dollar General, and others.

LAWSUIT. A Pennsylvania jury ordered Wal-Mart to pay $78.47 million in damages to current/former Pennsylvania employees for violating state labor laws by making employees work off the clock or during rest breaks, Retail Merchandiser reported. Wal-Mart said it would appeal.

QUOTATION. "Wal-Mart's putting in sushi bars in some of its new stores, and eliminating layaway – I think they may be forgetting about their core customer." – Industry Manufacturer and Wal-Mart Vendor

NEW NAME. The website, Inside Scrapbooking, has been renamed Scrapbook Update and can be seen at www.scrapbookupdate.com. The redesigned site includes easier-to-read articles and larger graphics; an expanded, re-organized link section; a poll; and a Google calendar of editorial deadlines. In addition, Owner Nancy Nally said, "I will be doing some broader article topics and sharing more content such as product and book reviews with Update's readers." (Comment: Nancy wrote a very thought-provoking article for CLN on scrapbooking and privacy. Click on Kate's Collage, then "You Think You Know Me?" in the right-hand column.)

E-COMMERCE. Joann.com (www.joann.com) announced it will soon take the order from its one-millionth unique customer. To celebrate, the online retailer offered all customers who placed orders between Oct. 15-21 a chance to win a $1,000 shopping spree or free shipping until 2008. Joann.com offers 50,000+ industry-related products. Its sales have grown 25+% each of the past two years and the site attracts 20,000+ new customers each month, officials reported.

URL'S. There are two sites with similar url's that are worth checking. Crafters Studio and Internet Café is an interesting retail store at www.craftersstudio.com in Port Orchard, WA. Crafterstudio is an outstanding site offering a wide variety of craft projects. The url is www.crafterstudio.com.

QUOTATION: "We are revamping our web site, adding ratings, reviews, forum, hired content writers, etc., whatever it might take to increase the traffic. Since there are fewer and fewer stores and each store carries less and less of our products, our consumers are finding us on the web and ordering direct. They still want the items; they just can't find them anywhere except on the Internet. Our online store increases monthly, so I guess some of what we are doing is working." – Name Withheld, Needlework Company

WEB SITE. Jacquard has a new Store Locator on its www.jacquardproducts.com website. Each retailer using a username and password can update its listing on the site as it adds company products.

YARN. To read a profile of an excellent Chicago yarn shop, Nina, visit http://curiousshopper.blogspot.com/2006/10/she-is-store.html.

PEOPLE. Ron Staffieri, former President of Michaels and CEO of Rag Shops, was named CEO of Harold's Stores, a 43-store chain of upscale ladies' and men's specialty apparel. He has resigned from the CHA board of directors ... Industry veteran Geoff Heskith is now Dir. of International Sales for American Traditional Designs.

PEOPLE. David McKee was named CEO of Dynamic Resource Group. He served as interim COO since the death of John Robinson in January. McKee has been the DRG publishing director since November 2002, and has worked in the direct marketing industry since 1980. DRG has two business divisions; one in magazine/book consumer catalog publishing in Berne, IN, and subscription/product fulfillment in Big Sandy, TX. McKee will oversee both divisions.

TECHNOLOGY. Hobby Lobby signed a $6.7 million, three-year contract with AT&T to integrate HL's headquarters with its nearly 380 HL stores and to enable the company to deliver educational video content to store customers. "Whether it's cake decorating, oil painting, or making jewelry, our customers want to learn, and so our e-learning initiative is designed to deliver the best instructors and a wider array of subjects than we've ever been able to offer," said Richard Rozwalka, HL's telecommunications manager and contract coordinator.

MEDIA. Future Inc. is closing Scrapbook Answers magazine ... An interesting new blog: Everyday Digital Scrapbooking Idea. Visit http://everydaydigitalscrapbooking.blogspot.com.

SHOWS. The Memories Scrapbooking Expo, Nov. 10-12 in Orlando, has fewer than 12 booth spaces available; A.C. Moore’s Crop Parties are sold out; Epson’s Digital Crop Party is almost sold out; and 85+% of the class tickets are sold. The 2007 Memories Scrapbooking Expos schedule: Mar. 30-31, Columbus, OH; Apr. 13-14, Somerset, NJ; and Nov. 16-18, Orlando, FL. 2007 will be the 10^th year of Expos. For info, visit www.memoriesexpo.com.

SHOWS. The summer Knit & Crochet show is July 12-15 in Manchester, NH and includes Crochet Guild of America and The Knitting Guild of America conferences and CGOA Chain Link special annual events ... The fall Knit & Crochet show, with TKGA and CGOA conferences, and special TKGA events, is Sept. 27-30 in Oakland, CA. Visit www.KnitandCrochetShow.com.

ACQUISITIONS. AAH Holdings, a holding company for Berkshire Partners and Weston Presidio, bought the Party America chain from a division of Gordon Brothers Group for $45.2 million. Party America has approximately 155 company-owned and franchise stores operated under the Party America brand, and operates more than 110 The Paper Factory stores.

CHANGES. The Conso Trimmings division of Wright consolidated its manufacturing and distribution facilities to a new facility in Tennessee and has consolidated the sales forces. Jerry Cohn is the new President/CEO of Wright. He had been President of Conso before its merger with Wright in 2005. Look for a new Vintage Luxe line from designer Raymond Waites to premier in January. For more info, call 800-628-9362.

WEARABLE ART. Duncan's Tulip and Scribbles products were used on a recent edition of NBC's Today Show. The final four contestants of Project Runway, a fashion-based reality tv show, were interviewed while designing denim pockets. The designers used craft products, including Tulip Soft Fabric Paint and Scribbles Dimensional Fabric Paint, to create unique fashion art.

QUOTATION. "We are seeing a big trend back to home sewing, especially at Halloween." – Debbie Noltin, education coordinator for the Jo-Ann's store in Vernon Hills, IL (Lake County, IL News-Sun)

SHOWS. The Craft, Hobby & Stitch Int. show is Feb. 18-20 in Birmingham, England. For info, email info@ichf.co.uk or visit www.ichf.co.uk/ichf-stichestrade.

CONDOLENCES. Jim Johnston, 75, who helped his wife Malinda operate Lake City Crafts, died of cancer. Jim and Malinda were/are two of the people who make this industry special. Lake City Crafts is the premier vendor in the paper craft category called quilling, a craft as lovely as the people who ran the company. Our very best to Malinda and the family.

To see the latest listings of jobs offered 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*: 21.42 ... Change**: -0.58
Hancock Fabrics (HKF). Last*: 2.91 ... Change**: -0.39
Jo-Ann Stores (JAS). Last*: 17.50 ... Change**: -0.53
Michaels (MIK). Last*: 43.65 ... Change**: +3.83
Wal-Mart (WMT). Last*: 49.37 ... Change**: -1.53
CLN Retail Index. Last*: 134.85 ... Change**: +2.6%
Dow Jones Index. Last*: 12,002.37 ... Change**: +2.8%

Emailed from a subscriber: These are real notes apparently written by parents in a Tennessee school district. Spellings have been left intact.

1. My son is under a doctor's care and should not take PE today. Please execute him.

2. Please exkuce lisa for being absent she was sick and i had her shot.

3. Dear school: please ecsc's john being absent on jan. 28, 29, 30, 31, 32 and also 33.

4. Please excuse gloria from jim today. She is administrating.

5. John has been absent because he had two teeth taken out of his face.

6. Chris will not be in school cus he has an acre in his side.

7. Please excuse ray friday from school. He has very loose vowels.

8 Please excuse jimmy for being. It was his father's fault.

9. Please excuse jennifer for missing school yesterday. We forgot to get the sunday paper off the porch, and when we found it Monday. We thought it was sunday.

10. Please excuse Jason for being absent yesterday. He had a cold and could not breed.

11. Please excuse mary for being absent yesterday. She was in bed with gramps.

12. Please excuse brenda. She has been sick and under the doctor.

(Now we know why parents are screaming for better education for our kids.)

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xxx

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