Date: December 4, 2006
Vol. X, No. 23

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TABLE OF CONTENTS

COMMENTARY: "THESE YOUNG KIDS TODAY!" 

This issue contains a three-part report on how young people are changing our industry. While they are not as large as the Baby Boomer demographic, they appear to be the driving force. It's almost as if our traditional customers are a constant, and the recent changes we've seen are due to younger people whose tastes and interests are not the same as their parents'.

You may scratch your head at some of their creations, or the way they use our products, but you better pay attention. The changes aren't over. 

New Trade Show Exhibitors. New exhibitors at the CHA Winter Show: names, descriptions, booth numbers, and links to their websites.

Category Reports. Pt. III in the "Eyewitness Report on the Jewelry Phenomenon" series: where this new enthusiast shops.

Tech Topics. Domain squatting can cost you thousands and ruin your plans for a website. 

Thanksgiving is over, but there's still three more weeks for Christmas shopping. Retailers: how has the season been so far? Vendors: What are you hearing from your retail customers? To vote, click on Industry Polls in the right-hand column or click HERE. 

The rumors continue about Wal-Mart dropping fabric and shrinking/dropping its craft department. But the industry appears to be ambivalent about the effect it would have. When asked if Wal-Mart leaving the industry will have an overall positive or negative effect, 20.5% said the industry would be much better off and 15.4% said the industry would be much worse off. CLN respondents were equaling divided over the effect being somewhat positive or negative, and 23.1% thought the positive and negative effects would more or less equal each other. 

THANKSGIVING WEEKEND WRAP-UP

According to the National Retail Federation, consumers spent 18.9% more this Thanksgiving weekend, but fewer shoppers visited brick-and-mortar stores – 140 million, down five million from the previous year. Consumers spent an average $360.15 each, up from $302.81 a year earlier, the NRF said. By the end of the weekend, the average consumer had completed 35.6% of his/her holiday shopping, unchanged from last year.

Sales were very strong on Black Friday but tapered off as the weekend progressed, perhaps because the unusually warm weather in many parts of the country motivated consumers to work on their outdoor decorations rather than shopping.

Despite enormous publicity for its price cutting, Wal-Mart's sales were disappointing, resulting in the first negative monthly sales-store figure (down 0.5%) in 10+ years. But traffic on its website was so heavy on Black Friday that the system crashed, the Associated Press reported.

ShopperTrak RCT Corp.'s National Retail Sales Estimate reported that retail sales on Black Friday rose 6.0% from a year ago; and online consumers didn't wait for Cyber Monday. Retail Decisions reported online volumes surged 109% on Black Friday. As for Cyber Monday, Akamai Technologies said as of 2 pm ET North American traffic had reached 2,145,558 visitors/minute, a 19% increase over last year, reported Retail Merchandiser. 

Jo-Ann's November net sales decreased 2.6% to $185.3 million and same-store sales declined 4.6%. Year-to-date, net sales are down 2.3% to $1.435 billion and same-store sales are off 5.6%.

Wal-Mart's monthly same-store sales were down 0.5%. Sam's Club's figure remained positive, up 2.0%. Overall sales at U.S. Wal-Mart Stores rose 7.9% to $18.8 billion. President/CEO of the U.S. Stores Division Eduardo Castro-Wright said, " ... the home and apparel business is challenging and this will continue throughout the fourth quarter. While we were disappointed in these areas, we did see strong results in our home and apparel basics." Increases in average ticket drove the comparable sales figure, while traffic declined, said the company, which only expects same-store sales to rise about 1.0% in December.

Hancock's November sales fell 8.7% to $34.8 million, due to having 41 fewer stores this year and a decline in same-store sales of 2.8%. For the first 10 months of the fiscal year, sales are down 3.6% to $311.4 million and same-store sales are off 1.0%, including a 3.3% benefit from 40 stores that had been liquidated and two other stores currently being liquidated.

Target's sales rose 11.7% to $5.119 billion and same-store sales increased 5.9%. The company expects same-store sales to rise 3.5%-5.5% in December.

(Note: Michaels and Rag Shop no longer report sales figures because they are no longer public companies. A.C. Moore only reports monthly figures.)

Others: Federated Dept. Stores, +8.5% ... Costco, +5.0% ... Duckwall-ALCO, +4.7% ... Family Dollar, +2.5% ... J.C. Penney, 1.4% ... Pier 1, -15.3%. 

From BB&T Capital Markets: "A.C. Moore, Hancock Fabrics, and Cost Plus were among the retailers we saw running more coupons and discounts before Black Friday this year than they did last year.... We had thought that promotions might decelerate after craft industry leader Michaels became a private company, but that hasn't actually been the case. A.C. Moore was more promotional than last year before Black Friday, as was Hancock. Both Jo-Ann's and Hancock were more promotional on Black Friday this year than last, while Michaels and A.C. Moore ran nearly identical Black Friday weekend promotions this year compared to last."

Hobby Lobby ran its traditional full-page, run-of-press ad on Thanksgiving with its 40%-off coupon on regular-priced items and said it was expanding its hours to 8 am to 9 pm on Friday and Saturday.

Joann.com offered Thanksgiving Day-only "doorbusters" with free shipping. 

The sales and marketing of Provo Craft s Cricut has been the subject of controversy among independents, but it was a major factor in the chains' holiday advertising and in-store promotions.

For Nov. 24-26, Joann.com offered an $89.99 rebate from Provo for consumers buying the the Cricut, two Cricut cartridges, and the Cuttlebug, and mailing in the appropriate sales and UPC information.

Michaels advertised the Cricut for $249.99, with the regular price being $299.99. When CLN visited the Peoria, IL store, a clerk the 40% coupon could not be used for the Cricut, but that the pre-Thanksgiving sale price would remain for the time being: $179.99. The 12/3 ad insert had the price back to $249.99.

A.C. Moore advertised the Cricut without a price, saying it was an "in-store special," and offered a "free Cricut Messenger Bag." After Thanksgiving the company emailed customers and invited them to download and print a 40%-off coupon that was good for any regular-price item except for the Xyron Personal Cutting System, Design Runner, or Cricut machine and cartridges.

Last Tuesday QVC was selling the Cricut and two cartridges for $259.86. 

Overall and same-store sales may have declined, but Jo-Ann's moved from the red to the black. For the quarter ended Oct. 28 net earnings were $0.1 million ($0.00/share), compared with a net loss of $4.1 million (-$0.18) in the prior year third quarter. Net sales were down 2.6% to $461.9 million and same-store sales decreased 5.4%. Officials said the decrease was impacted by lower fall/Halloween seasonal merchandise purchases, less clearance merchandise in the stores, and a reduction in advertising expenditures.

Net sales for the nine-month period were $1.25 billion vs. $1.28 billion a year ago, and same-store sales have decreased 5.8%.

Gross margins for the quarter increased 45.6% to 47.4% due to a less promotional pricing strategy, better sell-through on seasonal goods, and reduced sales of clearance inventory. Selling, general, and administrative expenses increased to 43.0% from 42.0%. SG&A expenses are lower than a year ago, but percentage is higher due to lower sales. Operating profit for the quarter was $5.0 million, versus a $1.7 million loss a year ago.

Chair/President/CEO Darrell Webb said, "During the quarter we made substantial progress on our merchandising strategy and inventory position. While our sales were softer than we would have hoped, by being more deliberate in our seasonal purchases we expanded gross margins by a solid 180 basis points. The merchandising disciplines we instituted earlier in the year will not only positively impact our results during the December holiday season, but will also allow us to realize strong and sustainable margin improvement over time."

"Having successfully completed our repair plan," Webb added, "we have now turned our focus toward developing and implementing Jo-Ann Stores' strategic growth plans. Over the short term we plan to slow new store openings in order to optimize our store prototypes and focus on the customer shopping experience to position Jo-Ann's for sustained profitable growth and expansion. As we navigate our transition, I am confident that our new accountable organization structure, merchandising and inventory disciplines, and customer-experience focus will result in long-term growth and increased shareholder value."

During the quarter Jo-Ann's opened five superstores and closed six traditional stores and one superstore. Year-to-date, the company has opened 20 superstores and five traditional stores and closed 46 traditional stores and two superstores. For the balance of the year, the company expects to open one superstore and close 14 traditional stores.

The outlook for the fourth quarter and full fiscal year: same-store sales will decline in the fourth quarter, although improve slightly from year-to-date results. Gross margins for the year will improve 70-90 basis points; SG&A expenses, excluding the former CEO separation expenses, will 95 to 110 basis points as a percentage of net sales; capital spending for the full year will be $43-$45 million primarily related to the opening of the 26 new stores; inventory will be reduced $50-$55 million by of the end of the fiscal year, resulting in debt reduction by fiscal year's end of $75-$85 million, which includes $25 million received from the company's sale-leaseback of its Visalia distribution center.

The stock rose 9% to $19.17, a 52-week high, the day following the announcement. 

"Crafts are cool again," the headline said in a recent article by the Gannett News Service and published in various Gannett newspapers. "... the word 'craft' has suddenly become cool, thanks to a revival of interest in knitting, beading, and sewing among younger people who have an unconventional take on the traditional arts." Unconventional, by traditional industry standards, is right. Some examples.

1. In the 10/2/06 edition, CLN listed a variety of sites that reveal the unconventional tastes of some younger crafters. Knitta (www.knittaplease.com/Tag.html) is for consumers who use yarn instead of spray paint and "tag" public places – even public monuments – with works of yarn art.

2. The 11/20/06 edition of CLN includes a reference to a new book, Domiknitrix, by Jennifer Stafford and published by North Light Books, that is filled with fun, funky projects.

3. Try the blog at Extreme Craft (www.extremecraft.com, or the blog/podcasts at Craft Sanity (www.craftsanity.com) to see very untraditional projects.

4. See the crafts for sale at the website of Jenny Harada at www.jennyharada.com.

5. There's the new magazine, Craft: at www.craftzine.com and even a "church," Church of Craft – visit www.churchofcraft.org.

6. One of the oldest sites catering to this generation is Craftster at www.craftster.org ("No Tea Cozies Without Irony").

7. A site for this generation to buy and sell their craft projects is Etsy – www.etsy.com.

8. There are the SWAP-O-RAMA-RAMAs springing up around the country. Attendees pay $10 and a bag of unwanted clothing. In return, they can take others' used clothing and take workshops on altering/embellishing the items. Visit http://gaiatreehouse.com/events.htm.

9. The Make Workshop in New York City offers a different kind of "store": visit www.makeworkshop.com.

10. The Nov. 10 edition of the Cleveland Plain Dealer published an article about kids becoming interested in scrapbooking and cited a local Archiver's; a Jo-Ann's which has a 17 year old teaching scrapbooking; and Crop-Paper-Scissors, an independent store which holds scrapbook birthday parties, Brownie troop meetings, and summer camps for kids.

11. Subversive Cross Stitch offers a sampler kit that says, "Bite Me." (And that's one of the milder sayings.) Visit www.subversivecrossstitch.com.

There is clearly an anti-establishment theme that's common in many of the websites. "Really, we were thrilled that crafting was de-grannified; we just got tired of it having to be so dang perky all the time," writes the unnamed sponsors of the Anti-Craft (www.theanticraft.com).

"We've discovered that we hate people en masse, we're sick of homogenized culture, and these realizations have left holes in our hearts. We create to fill those holes, to be able to sleep at night knowing we've done something, even a small something, to confront the manufactured culture that is currently being churned out." (Comment: They maybe want to confront our manufactured culture, but they're using our manufactured products to do it.) 

In a previous issue, CLN reported on a Wall Street Journal article, "It's Hip To Hem," which reported on a recent surge in sewing, fueled in part by younger consumers. The article was picked up and published by media in St. Paul, MN; Savannah, GA; and probably others. The key factors: A) Sewing machines that enable the consumer to do more. B) Fashion trends that emphasize personalizing. C) The "retro" trend. D) Patterns appealing to younger consumer. E) The TV series, Project Runway.

The Washington Post published a similar article in October. The article highlighted G Street Fabrics in Falls Church, VA whose class, Getting Started Teen I, is attracting kids as young as 10 and the store's summer sewing camps have grown from 400 to 600 students. The article also cited the American Sewing Guild starting new chapters for young sewers and Sew News launching a biannual publication, Sew Simple, for teenagers.

In addition to the reasons for the resurgence cited by the Journal, the Post included personal satisfaction, the sense of accomplishment ("I made it myself!"), and the ability to earn money by making projects for friends.

The Lancaster (PA) New Era chimed in with an article about the increased popularity of sewing classes in area high schools. The article quoted Dixie Heacock who has been teaching consumer science teacher at Warwick High School for 32 years: "I have not seen this passion for sewing since I was in ninth grade." (Note: it's called "consumer science" now, not "home ec.") The increased interest is translating into increased store sales, employees at the local Jo-Ann's, Hancock, and an independent, AAA Vacuum & Sewing Center, told the New Era. To read the article, visit http://local.lancasteronline.com/4/27770. 

The traditional craft consumer was content to replicate a finished model, but many younger consumers want to make their projects unique. Younger consumers are even personalizing their own bodies with tattoos and, gulp, piercings. That quest for uniqueness can account for the strength of some categories and the decline of others. Consider the innate qualities of our recent strong sellers:

Yarn. While consumers may follow some instructions to make a scarf, they choose the color and weight of the yarn and the length of the scarf. Ergo, they produce a one-of-a-kind item.

Scrapbooking. The photographs make every album unique.

Beads. Whether they're used to embellish clothing or making jewelry, the end result is an item no one else has. Because of the enormous variety of beads available in stores and especially at consumer bead shows, jewelry enthusiasts use the projects in bead magazines for ideas rather than to make exact replicas of the published projects.

(Note: To learn more about the younger consumer, consider attending two seminars at the upcoming CHA Winter Show: "Teen Business Building Opportunity" on Tues. Jan. 30, 9:30-10:45 am in the CHA Theater; and "Managing the Collision of Generations: Understanding the Different Generations That Shop and Work in Your Business" on Mon. Jan. 29, 3:00-4:15 pm. Register at www.chashow.org. The latest update of CHA's Attitude & Usage Study, which no doubt will include data on younger crafts, is Tues, Jan. 30, 10:00-11:15 am.) 

1. On Dec. 1, Forbes cited BB&T Capital Markets analyst Laura Richardson regarding Wal-Mart's dropping fabric in 80% of its stores: "Jo-Ann Stores and Hancock Fabrics are well-positioned for gains. There are 2,165 Wal-Mart stores within 30 miles of Jo-Ann’s 815 stores and 1,815 Wal-Marts within 30 miles of Hancock’s 401 outlets. That is a considerable weight off their shoulders and a potential $540 million in annual sales that non-Wal-Mart stores can divide amongst themselves, says Richardson. She expects Jo-Ann to pick up $69 million of those revenues (4% of its 2005 sales) and Hancock $56 million (13% of its 2005 sales)."

2. The gift/trend section of Time's recent "Style & Design Winter 2006" supplement included a needlepoint pillow: "Needlepoint is being proclaimed as the next wave in down-home crafts" The same section featured felt projects described as "sumptuous art for the home."

3. Newsweek’s Dec. 4 issue reports on the trend of using bamboo in fiber, from fabrics to yarns, just in time for No Sheep for You: Knit Happy with Silk, Cotton, Linen, Hemp, Bamboo, and Other Delights, by Amy Singer and published by Interweave Press. Advance copies will be available in Interweave's booth at the TNNA San Diego show. Visit www.interweave.com/knit/books/No_Sheep. Newsweek sent readers looking for bamboo yarn to www.shirtsofbamboo.com.

4. The November issue of the trade magazine for gift stores, Gifts & Decorative Accessories includes a major feature on our industry, "Crossover Crafting," which encourages gift stores to add craft inventory, usually kits. It also includes "10 Craft Directions To Watch." 

One of the major but often overlooked benefits of trade shows is the opportunity to learn from colleagues facing the same problems. At the CHA Winter Show, retailers should consider the Buyer Seminar & Reception: "Inside Tips for a Successful Show" with Mary Liz Curtin, Sat., Jan. 27, 5:30-7:00 pm, and the "$1.99 An Idea" luncheon with Rich Kizer and Georganne Bender, Sun., Jan. 28, 12:30-2:00 pm. (Note: CLN has attended previous seminars by the presenters and highly recommend them.)

Vendors should attend the "Exhibitor Seminar & Reception: "10 Steps to Making Your Leads Pay Off at CHA" with Susan Friedmann, Sat., Jan. 27, 5:30-7:00 pm.

Vendors and designers should attend the Designer Showcase & Presentation, "Your Best Sustainable Edge: Differentiating Yourself from Your Competition," with Erik Wahl. Mon. Jan. 29, 7:00-9:00 am. It includes a full breakfast and access to the License & Design section on the show floor.

Buyers and sellers alike should attend the Industry Roundtable: "Building Retail Traffic," Mon., Jan. 29, 5:00-6:30 pm. Ultimately, is there any topic more important than this?

Tickets for all events can be ordered online at www.chashow.org. 

With the TNNA/San Diego, Home & Holiday, and CHA Winter Show coming next month. Vendors are busy putting the finishing touches on new product lines. CLN won't publish photos or lengthy descriptions, if if vendors want to give CLN readers a brief preview, email mike@clnonline.com – and include which shows and booth numbers. Entice buyers to include you when they make up their "booths to visit" list. 

1. Various media interviewed a number of consumers who skipped Thanksgiving dinner with their families in order to stand in line at big-box stores to get good deals on ... stuff. A sad comment on the state of our culture.

2. Just before I put the last issue online, I received complaints from very irate independent retailers about the marketing and sales policy of a particular product and company. There's wasn't time to get the vendor's side of the story, so I wrote a column, not naming names, in Business-Wise. Many people guessed who the vendor was, and I was bombarded with even more angry emails. At least two retailers even posted their complaints on a Two Peas message board; one of them encouraged viewers to boycott the company. I'm not sure I've ever seen such anger by independents toward a company.

I contacted the company, which agreed to an interview. I emailed questions and asked the spokesperson to email back the answers which I would publish. (That way there's no danger of misquoting anything.) I'm still waiting for the answers. Because of Thanksgiving and holiday vacations I understand not replying immediately. But if I don't receive the answers in time for my next issue, I'll publish the questions and name names. 

SHOWS. CHA has secured additional space at the Anaheim Convention Center for the Winter Show Jan. 28-31 due to increased demand by potential exhibitors. Companies interested in exhibiting should call Nadine Schwartz at 800-822-0494, ext. 220 soon in order to secure booth space and be included in the official show directory and other on-site opportunities.

TNNA. The deadline for online registration for the TNNA show in San Diego is Dec. 13. Eight of the 89 classes have already sold out; a show highlight is expected to be the lecture by Kaffe Fassett, "Kaleidoscope of Colour." Visit www.tnna.org.

QUOTATION. "I hate spending 45 minutes to make a scrapbook page to preserve the memory of something that only lasted 20 minutes." – QVC on-air spokesperson.

NEW SHOW. Offinger Management will premier the Orlando Needlework Show next Nov. 16-18. It's a consumer show with classes/shopping for supplies for quilting, needlepoint, counted thread, yarn, crochet, knit, and more. Visit www.orlandoneedleworkshow.com.

WAL-MART/FABRIC. BB&T Capital Markets reported that "...Wal-Mart and Target featured name-brand sewing machines in their Black Friday ads priced below $70. A larger installed base of sewing machines in U.S. households bodes well for longer term growth in sales of fabric and notions, which are important to Hancock and Jo-Ann's" [and Hobby Lobby and independent stores] ... CLN has received reports that new Wal-Marts do not have by-the-yard fabric departments.

ACQUISITION. Boxer Scrapbook Productions has acquired the Flip Flop Fasteners product line from Destination Scrapbook Designs. The fasteners are clear, reportedly archivally-safe poly fasteners used to create moving elements on a scrapbook page without adding any bulk or weight. Boxer will offer Flip Flop Fasteners as part of its product offerings at the CHA Winter Show in booth #3376.

HUMOR. Need a laugh? Read Dave Barry's Holiday Gift Guide at http://deseretnews.com/dn/view/0,1249,650211395,00.html.

WEB SITES. Four seconds is the maximum length of time an average online shopper will wait for a web page to load before potentially abandoning a retail site, according to a new study by Akamai Technologies and commissioned through Jupiter Research. The report also reported that more than one-third of shoppers with a poor experience abandoned the site entirely, while 75% were likely not to shop on that site again.

SEEKING SALES REPS: Alvin & Co., a national distributor/manufacturer since 1950, is seeking sales reps for its Source Book, a collection of paper, craft, and art supplies. Contact Diane Gale at dianeg@alvinco.com or visit Alvin's CHA booth, # 4277.

PEOPLE. Dynamic Resource Group named Pam Marra as Editor of its new Town Square magazine, which will launch in early 2007. Town Square is devoted to the joys of living in smaller communities. For writer’s guidelines and subscription info, visit www.townsquaremagazine.com ... Hot Off The Press promoted Sara Nauman to VP/Sales & Marketing and Sandy Bundy to VP/Operations.

PEOPLE. Jo-Ann's promoted Riddianne "Riddi" Kline to VP of Marketing from Creative Director. Prior to Jo-Ann's, she worked for Kraft Foods, RadioShack and Michaels ... William Kaplan retired from A.C. Moore's board. Kaplan, 79, was A.C. Moore's co-founder with retired CEO Jack Parker and served as the Chair from 1984 through June 2006. During his tenure, the company grew from a single store in Moorestown, NJ to a chain of 123 stores along the East Coast.

PBS. The 10th Scrapbook Memories series premiers Jan. 14 for PBS stations. It's hosted by Julie McGuffee and Beth Madland, produced by KS Inc. Productions, and is sponsored in part by Fiskars, Epson, Die Cuts with a View, Provo Craft and Novelty, Paper Pizazz, C-Thru Ruler, Spellbinders, Cream City Ribbon, ScrapInsanity.com, and Coldwater Creek. Visit www.scrapbookmemoriestv.com.

FIRE. A fire in the basket aisle of the Michaels store in Tracy, CA set off the sprinkler system which caused more damage than the fire itself, according to the Tracy Press. The store was expected to be closed for a few days. 

To see 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*: 21.81 ... Change**: -0.58
Hancock Fabrics (HKF). Last*: 3.13 ... Change**: -0.39
Jo-Ann Stores (JAS). Last*: 19.54 ... Change**: -0.53
Wal-Mart (WMT). Last*: 45.87 ... Change**: -1.53
CLN Retail Index. Last*: 90.36 ... Change**: -0.4%
Dow Jones Index. Last*: 12,194.13 ... Change**: -1.2%

Quilters have an image of being, well, peaceful, in addition to being piece-full. On the other hand, there's Marie Kolasinski and her Piecemakers Country Store in Cosa Mesa, CA (www.piecemakers.com). The Piecemakers is actually a religious sect that grew out of a hippie commune in the 1960's founded by Kolasinski. The group opened a quilt/craft store and eventually started serving tea and sandwiches in the early 1990s.

Then the trouble began, according to the Associated Press. The food-serving portion of the store violated a laundry list of local health codes which the Piecemakers ignored, claiming the laws of God are greater than the laws of man.

Kolasinski and two other members of the group were recently convicted of multiple misdemeanor counts for refusing to allow health inspectors into their kitchen, the AP reported. They face up to a year in jail when they are sentenced Jan. 12.

Kolasinski is 85 years old. 

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xxx

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