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SO, WHO'S AFRAID OF MICHAELS?

It's way, way too early to panic.

by Mike Hartnett (June, 2003)

News that Michaels will open two scrapbooking stores has many independents nervous. After all, the regular Michaels stores have wiped out hundreds, or even thousands, of independent craft stores. Will history repeat itself?

Not so fast. Let's look at history and Michaels' operation.

First, why is Michaels trying scrapbook stores? Because it's a public company. Officials have said they think the country can hold about another 300 regular Michaels stores. At the rate the company is opening stores, that market will be saturated in five or six years.

Then what? Michaels can't go to stockholders and say, "Well, that's it. No more growth." So the company is looking at four options:

1. Aaron Brothers is a chain of framing stores in the west with lots of expansion possibilities.

2. Village Crafts is a group of smaller craft stores for population centers too small to support a traditional Michaels store. The handful currently in operation do not seem to be a serious threat to competing independents, but that may change. (To read more about how independents are competing against the Village Crafts stores, read the May 5th edition of CLN. Just click on the CLN Archives button.)

3. A wholesale floral outlet is operating in Dallas. A similar operation is expected to open in another yet-unannounced large city.

4. Two scrapbook stores, Recollections, are scheduled to open soon in the Dallas area. The first, in Frisco, will open probably within the month, and the second, in Dallas, this summer.

So Michaels has numerous options. Which ones the company chooses to expand will depend on which options seem to offer the best return. If it's not the Recollections stores ....

A little history here: In the 1980's many independents were terrified when Wal-Mart opened three all-craft stores, Helen's Creative Crafts. The stores did just fine by craft industry standards, but were not as profitable as regular Wal-Marts (which had not yet saturated the country) or Sam's Clubs, or the company's new idea, mega-stores with groceries.

So the company asked, "Why open more craft stores and receive xxx profit when we can open these other types of stores and earn XXX profit?" Wal-Mart sold the craft stores to Michaels. Michaels execs might be asking the same thing about scrapbook stores in a year or two.

What If? Suppose the Recollections stores do spread? Should the local independent close up shop?

Perhaps some of them should. Independents who opened a store simply for the fun of it, because they love scrapbooking, should close or sell their stores. But they won't stand the test of time whether a Recollections opens nearby or not.

However, savvy retailers who are as much interested in making a living as they are in scrapbooking should study the Michaels operation. They may see flaws that can make Recollections vulnerable to savvy independents.

1. Plans for the Recollections stores call for a substantial amount of space where scrappers can gather and work together on their albums. But for consumers to feel comfortable doing that, the store manager must have a special personality that is warm, comfortable, and inviting.

It's a good plan, but without the right kind of manager, it won't work. Will Michaels be able to find such managers? If not, company beancounters will soon pressure the company to put the work space to more productive uses.

2. CLN has learned Michaels plans to staff the Recollections stores with scrapbookers and teach them about retailing, rather than teach retail pros about scrapbooking. A very smart move, but hopefully independents have already hired the cream of the consumer crop in their areas.

3. There are countless scrapbook products Michaels does not carry because the vendors are too small to deal with a retailer that size, and Michaels needs room for florals, paints, needlework, etc.

Granted, Recollections stores will carry additional products not found in a Michaels store, some from smaller vendors. Still, Michaels can be very demanding in many ways. Many vendors will not be able to work with them. Carrying products not carried by the chains is a classic strategy carried out by independent crafter stores.

4. Michaels is also notoriously slow to add new products and re-set departments. Much of that is due to the company's size. The Recollections operation should be better, but as it grows, some bureaucracy is necessary to avoid chaos, and bureaucracy slows things down immediately.

And as every storeowner knows, the first thing the best customers ask is, "What's new?" If the independent has the new goodies and the local Recollections store doesn't, where will those customers shop?

A word of warning. Make no mistake, if a Recollections store opens nearby, it will probably sell basic supplies for less. (Michaels can sell for less because it buys for less, thanks to volume buying.) History says many consumers will shop the chain for basics, if the prices are substantially lower, and visit independent stores only for new items, items the chain doesn't carry, and advice. (Nothing is more irritating than the consumer who prances into an independent's store and says, "I bought this at Michaels. Could you help me with it?")

Furthermore, it isn't just Michaels getting into the act. As CLN reported recently, discounters (Wal-Mart, Target, even Kmart) and office supply stores (Office Max, etc.) are expanding or testing scrapbook lines.

Independents need to keep their prices on basics as competitive as possible. Be THE store in town for new products (which means dump slow-sellers to create more shelf space for the new items). Be THE place where scrappers feel comfortable to congregate. Buy smart. Manage smart.

Most of all, don't forget to continue to attract newcomers. Recollections may not come to town. If it does, it will take a slice of the pie. That's ok, as long as pie continues to grow. We'll talk about how to keep attracting newcomers in a future installment.

(Note: Any thoughts on this subject, on or off the record? Any topics you'd like to see in this space? Call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.)

COMMENTS FROM SUBSCRIBERS

(Note: The following is a response to the Michaels' column, below)

I have one idea to add to the article for the independent scrapbook retailer worried about big box competition: POS computer software.

My local scrapbook store (A Page in Time, Lincoln, NE) offers the customer the option to have the store keep a record of everything she buys. A customer can't remember what she bought previously -- but needs -- No problem; they have it all in the computer. Customers don't even need a receipt to return items -- the info is there. And at a certain amount, say $150, you get a freebie or discount of some type.

What a gold mine of information for the savvy retailer. If they have a special sale or event, they can e-mail or snail mail their customers. And they know what merchandise is moving and what's not.

Small retailers may not think they can afford it, but can they afford not to have it?-- Sharon Dugas, Papier Dreams